Prior to 2010, corporate attorneys in Florida generally believed that judgment creditors were limited to obtaining a charging order against the LLC interests of members of Florida LLCs. A charging order is similar to a garnishment of wages and gives a judgment creditor the right to receive any distributions that would otherwise be made to the judgment debtor by the LLC. However, in 2010, the Florida Supreme Court held, in Olmstead v. FTC, that a court can order the member of a single-member LLC to surrender his entire interest in the LLC to satisfy a creditor’s judgment. The Olmstead holding was limited to single-member Florida LLCs. However, many were concerned that the Court’s reasoning in Olmstead could be used by a judgment creditor to obtain ownership of a judgment debtor’s interest in a Florida multiple-member LLC. In order to clarify the law in Florida, the legislature last year amended Florida’s LLC Act to address the holding in Olmstead. As a result, it is now clear that a judgment creditor of a member of a multiple-member Florida LLC is limited to obtaining a charging order and may not foreclose on the interest of the judgment debtor in the LLC. However, as a result of the lobbying efforts of lenders, the amendments also provide that a judgment creditor can foreclose upon a member’s ownership interest in a single-member Florida LLC. In order to obtain a court order allowing foreclosure, the judgment creditor must establish to the satisfaction of the court that distributions under a charging order will not satisfy the judgment within a reasonable time. The judgment creditor may seek to establish that a charging order will not satisfy the judgment within a reasonable time at any time after the entry of the judgment and may do so at the same time that the judgment creditor applies for the entry of a charging order.

In amending Florida’s LLC Act, the legislature took an important step by making clear that the sole remedy of a judgment creditor of a member of a multiple-member LLC is a charging order. However, it also remains clear that a single-member Florida LLC is not an appropriate entity if a goal of the LLC’s owner is to protect assets owned by the LLC from potential judgment creditors of the owner. If you are the owner of a single-member Florida LLC that owns valuable assets and protection of those assets from potential judgment creditors is important to you, then we encourage you to contact an attorney.