Asset Protection Part II

WHAT IF I’M SUED PERSONALLY?

What if you get sue personally for something you personally did? Can your creditors come after your ownership interests in your LLCs and Corporations? The short answer is yes. However, a creditor of a partner in a partnership or a member of an LLC is entitled only to a charging order rather than being entitled to execute directly against partnership assets (a charging order is simply a court document that directs the managers of the LLC to divert distributions that would otherwise go to the debtor member to the creditor until the judgment is paid).

This is called reverse veil piercing. As indicated above, the best solution is to have a charging-orders provision in the company’s operating agreement. Then if your personal creditors do go after your ownership interest, they will have no voting or transfer rights and are not entitled to profits or salary, only distributions. Then the company simply does not make distributions but pays out any profits to its officers. Since you can still be an officer and not on the board of directors you will receive income earned by your company and your creditors will not

Jesse Conway, Business Attorney
www.conwaylaw.net