Safety and Security

Through the help of corporate counsel, many individuals have determined that the most significant asset protection device exists through state statutes that permit the formation of limited partnerships, limited liability companies and restricted professional companies. The transfer of assets to one of these types of entities provides significant asset protection, since most states prohibit creditors and claimants from gaining access to the assets of these types of entities. The law of each state is different, however, and the individual must be careful to consult the law of the state in which he or she practices medicine, as well as the law of any other state in which the assets (such as real estate) may be located.

Assets can be protected by an LLC from claims of outside creditors. But, how well the assets are protected depends on the law of the state in which the LLC was organized. Recently, practitioners have debated about LLC statutes of various states. A west coast attorney agrees that a creditor may be worse off as the assignee or owner of a LLC interest than as the mere holder of a charging order, while an attorney in the southwest feels that availability of the foreclosure remedy should not be the only factor considered in selecting LLC jurisdiction.

This should be compared to the states of Nevada and Alaska , which provide that a creditor's only remedy is a charging order against the LLC interest. However, it should be noted that, according to an attorney from a southern state, benefits from state laws making a charging order the exclusive remedy may be overstated. Even if a creditor can foreclose on a debtor's LLC interest, the creditor is unlikely to do so because a purchaser at a foreclosure sale obtains no management or voting rights. Also, a purchaser at a foreclosure sale is more likely than the hold of the charging order to suffer adverse income tax consequences.