Why Charging Order Protection is SO Important…

We want to make sure that this LLC is created in a state where the charging order protection is the exclusive remedy. That’s the word we’re looking for in the statute. Is the charging order the exclusive remedy by which this creditor can get the financial rights to this LLC? That way, John doesn’t lose control of the LLC and doesn’t lose ownership of the LLC. And one of the very popular strategies that ends up happening here is that John, in conjunction with Sally, stops making distributions to himself because, you know, why would he make a distribution to himself if that money’s just going to go to the creditor? So typically distributions cease and that puts you in a much better and stronger negotiating position with the creditor because even though they have a million dollar judgment, the creditor isn’t actually getting any distributions because those distributions have been cut off.

Related Articles