How LLC Charging Order Protection Works

A charging order lets a personal creditor of an LLC member collect only the distributions that member would receive, without seizing the company or its assets. In Delaware it is the exclusive remedy even for a single-member LLC; in Florida, a court can force a sale of a single member's interest.

That one difference between two states explains most of what people misunderstand about US asset protection. The protection is real, but it is precise. It protects against one kind of claim, it varies by state, and it can be undone by the way assets were moved into the company.

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01What is a charging order?

It is a court order that attaches to a member's interest in an LLC, not to the LLC's property. Delaware's statute describes it plainly: the creditor has only the right to receive any distribution to which the member would otherwise have been entitled. If the company distributes nothing, the creditor receives nothing, and it cannot vote, manage or direct the company.

02Which kind of claim does it protect against?

Only claims against you personally. A charging order is the tool a creditor uses when the member owes money for something unrelated to the company, a personal guarantee or a judgment from another venture, for instance. It keeps that creditor out of the company's bank accounts and property.

It does not protect the company from its own creditors. A lender, supplier or claimant with a claim against the LLC itself can pursue the LLC's assets directly. Asset protection through an LLC is about separating the owner's risk from the company's, not about making the company untouchable.

03Does a single-member LLC get the same protection?

It depends on the state, and this is where the choice of state becomes a real decision. Delaware's law says the charging order is the exclusive remedy, and that attachment, garnishment and foreclosure are not available to the creditor, whether the company has one member or more than one.

Florida takes the opposite position for single-member companies. Its statute provides that if a creditor shows a court that distributions will not satisfy the judgment within a reasonable time, the court may order the member's interest sold, and the buyer becomes the member. For a company with one owner, that is a meaningful difference. Our comparison of Delaware and Wyoming looks at how another popular state treats it.

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04Can moving assets into an LLC protect them from an existing claim?

No. Nearly every US state has a law that allows a court to undo a transfer made to hinder, delay or defraud a creditor. Assets placed into a company after a claim arises, or in anticipation of one, can be pulled back out. Protection works when it is built calmly, in advance, for legitimate reasons.

05What makes the protection hold?

• Choosing the state deliberately, rather than defaulting to the one you live nearest
• Keeping the company genuinely separate: its own bank account, its own records, no personal expenses paid from company funds
• A written operating agreement that governs distributions and transfers of membership interests
• Current annual reports, a registered agent in good standing and filings kept up to date
• Structuring before any claim exists, never after

A charging order is not a shield you buy. It is the result of choices about state, structure and upkeep, made before they are needed. If you would like those choices reviewed for your own holdings, our advisors will walk through them with you. Begin a private consultation.