Call Us: 801-802-9020

LLC Asset Protection

LLC asset protection is one of the most powerful asset protection tools an attorney has. The LLC asset protection capabilities are based on the concept of a “charging order.” A LLC Asset Protectioncharging order limits the creditor of a debtor-partner or a debtor-member to the debtor’s share of distributions. This protects the assets of the other partners against creditors of the LLC.

A creditor can come in many forms. It could be the winner of the lawsuit against the LLC or someone to whom you owe money, including a bank that is foreclosing on one a piece of property. The object in this article is to show you how to use the LLC asset protection tools to save your form the creditor.

LLC Asset Protection Advantages

One of the advantages of using an LLC over a corporation is the fact that when a member in an LLC is in trouble personally through an illness, divorce, lawsuit or other bad financial situation, the assets in the LLC are protected to a greater degree. Traditionally, corporations have been used for “family” planning or “closely held” business structuring, but the corporation has no ability to protect the business from the personal legal trouble of a member. The ability of the LLC to protect against personal legal trouble of the members is one of the advantages of the LLC asset protection.

I am getting a lot of calls from folks who have invested in property, and due to the rotten real estate markets, they are losing one or more of their properties. They are ending up as debtors with large foreclosure judgments against them. When a creditor gets the judgment, they will try to collect from your assets. This means they will go after any property you “own.” If the properties are held in different land trusts, the foreclosure judgment creditors will simply go from land trust to land trust until they can satisfy their judgment. If the properties are held in corporations, they will simply get the stock that the debtor owns in each corporation to satisfy the judgment and then have full access to the properties. If however, the properties are held in a limited partnership or LLC, the creditors can only obtain a charging order against your membership interest in the LLC. If you have another member in the LLC, then they take control and the creditors can only obtain a charging order against the debtor’s limited partnership interest in the FLP or their membership interest in the LLC.

LLC Ease of Management

Another LLC asset protection tool is that it offers the liability protection of a corporation, with the ease of management of a partnership. Traditionally in the past, every business was formed as a corporation because of the liability protection it afforded its officers and directors. This same protection is afforded the members of an LLC. An LLC has additional flexibilities and shielding that you can’t get in any other entity.

It is not uncommon it today litigious society to have someone sue your business. If the business is being run as a sole proprietorship you will be personally liable. If you have taken the time to put the proper business entities in place and maintained them, you will be protected.

The bottom line is you can protect your assets using an LLC. The LLC asset protection will help even if you start it after you know the lawsuit is coming. You should start putting assets into an LLC to protect them and usually it will work. Even in the case of a bankruptcy, if the transfer takes place more than two years prior and the LLC documents are written properly, the assets can be protected. Get Your LLC in order today. Check out my LLC Wizard packages for help in getting started.

By Lee Phillips


  1. Hey Mr. Phillips, can I set up asset protection for my personal bank account with my llc wizard course .

    • You could put a personal bank account into an LLC but it won’t really provide any asset protection. You would run into issues with co-mingling of money if you are trying to use an LLC account for personal use.

      • I here a lot of guru talking about personal property trust.for asset protection

        • Derek,
          Personal property trusts are created in only a handful of states. They do provide asset protection but have some drawbacks as well. First, typically you have to have a bank act as a co-trustee with you on the trust. The bank is going to charge you a fee. Second, you cannot control the distributions from the trust. Third, there is a set period after the trust is created that you have to wait before the trust assets are protected. This can be as long as 5 years.

Leave a Reply