LLCs and the Asset Management Limited Partnership

Two kinds of liability

Inside liability is a claim arising from a specific asset: a tenant injury, a habitability claim, an environmental problem at a property.

Outside liability is a personal judgment against you that reaches whatever you own, including your ownership interests in your entities.

An LLC handles the first. It does nothing about the second. That is why entity planning usually has two layers.

Layer one: state-matched LLCs

What it does: a claim belongs to whoever owns the asset. If each asset sits in its own properly maintained entity, a claim against one property stays with that property and does not automatically reach your other holdings.

The rule: form each entity in the state where the asset sits. Real property is governed by the law of the place it occupies. You cannot move dirt.

What it does not do: protect you from a personal judgment. A judgment creditor can reach your membership interests in every entity you own.

The weak point: a single-member LLC is the weakest position on the charging-order question. There are no innocent co-owners for the rule to protect.

• Florida: after Olmstead v. FTC, 44 So. 3d 76 (Fla. 2010), Fla. Stat. §605.0503(4) authorizes foreclosure against a single-member LLC interest.
• California: Corp. Code §17705.03 makes the charging order the exclusive remedy, but that remedy itself includes a receiver (§17705.03(b)(1)) and foreclosure and sale of the interest (§17705.03(b)(3)). California courts have also recognized reverse veil piercing against LLCs: Curci Investments, LLC v. Baldwin, 14 Cal. App. 5th 214 (2017).

“Just use a Wyoming LLC”

Formation-state statutes don’t travel with the entity. The internal affairs doctrine gives the formation state’s law control over how an LLC is run. It does not control how a court in another state enforces a judgment. A California court applying California law to California assets is not bound by Wyoming’s charging-order statute. Anonymity also disappears in a debtor’s examination, where you must disclose under oath every entity you own.

Privacy is not protection.

Layer two: the asset management limited partnership

What it does: the limited partnership owns the LLC interests, and you own an interest in the partnership. A creditor’s remedy against a limited partner’s interest is a charging order: the right to receive distributions if and when the partnership makes them. It is not control, management authority, or access to the underlying assets.

Why Arizona: under A.R.S. §29-341, the charging order is the exclusive remedy against a limited partner’s interest in an Arizona limited partnership, and that section contains no foreclosure provision.

It also holds safe assets directly: cash, brokerage accounts, securities, notes, and business interests, anything that cannot generate a claim just by existing. It consolidates tax filing, because an LLC wholly owned by the partnership is disregarded.

What it does not do:

• It does not survive bankruptcy, where 11 U.S.C. §541 pulls the interest into the estate.
• Courts have recognized exceptions: reverse veil piercing, receivership, alter ego, and fraudulent transfer.

The domestic entity layers raise the cost of collecting. They are not where the protection ultimately lives. That is why some clients add a trust above them. See the trust options compared.

Who needs which layer

• One or two properties, W-2 income, adequate insurance: an LLC per property, formed where the property sits.
• A growing portfolio, entity interests still held personally: add the partnership layer.
• A high-liability profession, significant liquid assets, or a personal guarantee: consider the full stack. A personal guarantee is a direct claim against you that no entity addresses.

Insurance comes first

Insurance pays the claim. Structure protects what is left when the claim exceeds the policy. No entity is a substitute for adequate coverage.

Frequently asked questions