The LLC in Idaho - Powerful Asset Protection When Used Wisely

Images[1]Business owners often focus onthe tax consequences of business structure. But asset protection is a growingconcern in these litigious times, leading to the rising popularity of “limited”forms of business such as the Limited Liability Company (LLC).

LLCs have a unique assetprotection feature against chargingorders. Maybe you have heard of these? A recent Forbes article titled “The Misunderstood Charging Order,” offers a basic explanation:

The charging orderitself is not the lien; rather, the lien is what is placed by the chargingorder. Think of the charging order as a can of spray paint, and the paint isthe lien. The charging order basically sprays the lien on the debtor/member’sinterest. Stated differently, the charging order is the vehicle by which thelien is placed on the debtor/member’s interest — it is not the lien itself.

While this is a complex subject,basically a charging order is acreditor’s first and last tool to extract your interests and capital from yourbusiness (assuming they don’t try to pierce the veil). In a corporation, acharging order can allow a creditor to actually gain a debtor’s stock interestsin the business. This can be disastrous. “Limited” company structures arespecifically designed with charging orderprotection, something that could be important to you as a businessowner. 

The original article goes intogreater detail, but essentially the chargingorder protection means that while a creditor can place a lien on your LLCmembership interests and claim any distributions, a creditor cannot claim the membership interest itself and sabotagethe business.

While a “limited” company structure does provide alevel of asset protection, keep in mind it is not a panacea. Do not justpresume that a creditor will see an LLC and run away or settle for pennies onthe dollar (as LLCs are often marketed), as that is rarely the case.

At IdahoEstate Planning we are the expertsyou need to know and trust. Work with us and we'll put together a plan thatworks for you and your loved ones. Remember, goodplanning is no accident.


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