A good asset protection plan often involves owning assets associated with risk in one or more limited liability companies (“LLC”). It may be advisable to form a separate LLC for each such asset to shield other assets from liability. By insulating the asset with its own LLC, only this asset would be at risk if a plaintiff were to obtain a judgment against the LLC. A judgment against any of the LLC’s members would result in a charging order only against any distributions to be made to that member. In other words, a judgment against an individual member would not affect the asset in the LLC.
One of the greatest advantages of the LLC is that it is an extremely effective liability shield, yet for tax purposes it is able to operate as a sole proprietorship or partnership with income passing through to its members in lieu of corporate taxation.
Each state has unique laws that pertain to LLCs. In California, many restrictions apply to who can and cannot operate as an LLC and how many members are required.
Contact Collins Law to discuss your entity formation options and begin protecting your personal assets today.