Secrecy, Asset Protection, and Entity Formation

Some states make limited liability companies disclose the names of owners and managers.  Other states don’t require such disclosure.  Charlatans running asset protection scams will do their best to convince you that secrecy is the key to protecting your wealth.  The truth is that secrecy (e.g. lying under oath) could be a one way ticket to jail.  Full disclosure of a proper asset protection plan, on the other hand, gives you credibility and full protection.  Besides, if you are ever sued and need to trigger an offshore trust, the mere existence of your asset protection is many times sufficient to end litigation on very favorable settlement terms.  Why would you want to keep that chip off the table?

Asset Protection Entities

Used together, limited liability companies, offshore trusts, and family limited partnerships create an ironclad asset protection vault that is virtually impenetrable to creditor claims.  Some people mistakenly believe (or are led to believe) that the first of these tools–the limited liability company or “LLC”–is alone sufficient to protect assets.  It’s not, and the only way it ever could be sufficient is if you lie under oath.  If you’re caught lying under oath, it will look as though you have something to hide besides your assets, which can really discredit you in the eyes of the U.S. legal system.

Nonetheless, many jurisdictions do have limited liability statutes on their books that allow individuals (and parent or holding companies) to own membership interests without disclosure.  Delaware, Nevada, and Wyoming are such states, to name a few.  These states do not make the names of owners or managers of limited liability companies publicly available.  The nondisclosure of such information does provide some privacy benefits over other states, but it does not provide any form of asset protection.

Charging Order Protection

Very shortly after a judgment is entered against a debtor, creditors have the legal right to demand information about the assets owned by the debtor.  Courts enforce this right broadly.  At that point in the litigation process, the only way to keep any assets that you own a secret is to lie about them and commit perjury.  Perjury is a crime, it will not work to protect your assets, and it will not win you any favors with any judges.  Besides all that, it’s unnecessary.

The benefit of using an LLC comes from charging order statutes which allow creditors of an LLC member to receive only distributions from the LLC.  In other words, charging order statutes serve to protect core LLC assets . . . in theory at least.  It’s not worth risking criminal penalties in an effort to protect assets when other lawful means of achieving that goal are available.  In Florida, for example, the LLC statute requires disclosure of an LLC’s manager.  The statute also makes charging orders the sole remedy for creditors in the case of multi-member limited liability companies, which means you get a high level or domestic protection without secrecy.