Limited Liability Entities and the Power of Charging Order Protection.
A significant level of asset protection can be obtained by transferring assets to one of these entities. The asset protection comes from the “charging order” feature which is a concept that was developed by English common law but which has found its way into almost every state statute. This law provides that a creditor cannot levy on a partner’s interest or a member’s interest. The creditor rights are limited to a legal device called a “Charging Order” which limits the creditor to taking only the distributions that are made to the partner or member.
While these entities do not provide perfect protection, the charging order is a significant impediment to the collection of a judgment–significant enough that it results in a reasonable settlement of the claim even before the lawsuit is filed.
We sometimes use these entities as a stand-alone solution. In other situations, we combine them with one of the trust structures we discuss on this page. This allows our client to transfer the economic interest while retaining the ability to manage the assets.