Protection of LLC Interests

Elizabeth M. Schurig (Partner, Giordani, Schurig, Beckett & Tackett, L.L.P., Austin, Texas) and Amy P. Jetel (Associate, Giordani, Schurig, Beckett & Tackett, L.L.P., Austin, Texas) have recently published their article entitled The Alarming Potential for Foreclosure and Dissolution by an LLC Member’s Personal Creditors, Prob. & Prop., May/June 2006, at 42.

Here is the conclusion of their article:

[J]ust like limited partnerships, LLCs can be very useful tools in an estate planning practitioner’s tool box.  But like any tool, they have their practical limitations.  If personal asset protection is the client’s primary goal in placing assets in an LLC, it is important for the practitioner to realize that the protection provided by most state LLC statutes is inadequate because of the availability of foreclosure as a remedy against a debtor’s membership interest.  More frightening, however, is the possibility in some states that a third-party creditor could halt the LLC’s business and disrupt the lives of nondebtor members by obtaining a judicial dissolution of the company.