FORMING A FLORIDA LLC – WITH YOUR SPOUSE

Creditors of a Florida single member LLC (“SMLLC”) are able to reach the assets of SMLLC by obtaining a charging order and then foreclosing on the member’s interest.  However, if an LLC has multi-members, creditors are limited to distributions that a debtor member would ordinarily receive from the LLC.

To prevent a foreclosure of a SMLLC interest, an option is to initially form the LLC with a spouse having a member interest.  The spouse would be entitled to distributions proportionate to his/her respective interest and the creditor would be limited to those distributions.

Since Florida is a non-community property state, a LLC owned by a husband and wife would then be deemed a partnership for IRS purposed and should file its returns accordingly.

However, each spouse would now be potentially personally liable for various federal and state taxes; along with judgments from creditors.  Whereas a SMLLC would limit any personal risk exposure to one spouse, the liability exposure of the other spouse in a multi-member LLC would negate the advantage of forming a LLC to minimize personal liability.

It might be wise to stick with a SMLLC and acquire an umbrella insurance policy to address any unforeseen contingencies.

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