If your Limited Liability Company (LLC) owns substantial real estate – or if your LLC includes non-family members – you'll want stronger protection. To directly own your LLC membership interest subjects your LLC distributions to your creditor's charging order.
If your LLC has multiple members, or if the LLC is managed by a manager who controls distributions, you may want your LLC interest owned by a limited partnership that you do control.
An even safer arrangement? Set up an international trust to be the limited partner of the limited partnership. This completely insulates any profit distributions from the LLC.
A limited liability company's membership interests owned by spouses may be titled as tenants-by-the-entirety in states that protect this type of marital ownership. We particularly recommend a limited partnership as the member of a limited liability company in those states that provide greater creditor protection to limited partnerships than to limited liability companies.
A limited partnership owning your limited liability company also reduces your estate taxes. To improve protection, add members to the LLC who are not co-defendants in your lawsuit. Courts are less likely to expand upon a creditor's remedy when other members would be affected.
Conversely, courts will more likely liquidate an LLC when the debtor is the sole member since no other members would be hurt.