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.

“Baseball” Arbitration for Commercial Leases

As a means to set a player’s salary when he became a free agent, the arbitration process became a mainstay in baseball. Similarly, a commercial lease should include a baseball arbitration clause to prevent a protracted dispute between the owner and tenant. Often a commercial lease uses fair market value as the method to determine the amount of the renewal rent. Nevertheless, a dilemma arises when each party asserts different dollar amounts. For example, the tenant might believe the fair market value to be $60 per square foot; while the owner places the value at $100. This is where a baseball arbitration clause will shed some light into the dark corners of the commercial lease. The presence of an arbitration clause will allow an arbitrator to determine the square foot fair value of the property. If the arbitrator sets the value at $75, then the new rent amount will be the number closest to the arbitrator’s number. In this case, it would be $60. This encourages the parties to present a realistic amount as the fair market value of the renewal rent when it’s time to renegotiate the lease for an additional term.