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Why The LLC Charging Order Protection?

When is the charging order protection better than private control?

The charging order protection offers the following advantages when one or more conditions exist:

1.  You’re building corporate credit and this makes real privacy impossible.

2.   Financing is necessary and this prevents private control of company assets. Remember that reporting unto credit files associates you and the enterprise.  Regardless of what some “consultants” may tell you, it’s not possible to maintain complete privacy when you’re applying for corporate credit, or when obtaining financing.

3.  There are partners involved in the enterprise.

4.  The charging order protection is effective against for-profit entities, litigators and others who pay taxes.

The U.S. Government alphabet agencies are targeting privacy services and their providers.   Our program is not effective against the IRS and doesn’t involve privacy.

How Does This Strategy Work?

Asset Protection Presentation: Learning The Basics
  • You have a business formed as an Alaska LLC.
  • The Alaska LLC is filed as a foreign entity in your state.
  • Creditors cannot foreclose against your interest in the LLC.  This means the for-profit creditor cannot force distributions to pay a legal claim.
  • There are no tax advantages other than what the IRS code allows.  Please see your tax advisor.
  • A business already exists.
  • The Alaska LLC files liens against the business to strip away equity and net worth.
  • The Alaska LLC files liens against real estate and personal property.
  • The creditor cannot foreclose against your interest in the LLC.  This means the for-profit creditor cannot force distributions to pay a legal claim.
  • There are no tax advantages.
    • This plan is easy to implement if you already have a business.
  • Use the weight of the IRS against the creditor.
    • Make the IRS your best friend.  The hostile creditor will face taxation of “phantom income” after getting the charging order against your interest in the Wyoming LLC.  Ask your tax advisor about Revenue Ruling 77-137.  In an nutshell, your creditor will be liable for taxes from your share of the LLC earnings, even if they didn’t collect a penny.  Creditors don’t like to pay taxes on money they didn’t get.
  • Alaska disallows foreclosure against your member interest in the Alaska LLC.
    • Alaska Sec. 10.50.380 (c) (Rights of Creditors) reads as follows,  “Other remedies, including foreclosure on the member’s limited liability company interest and a court order for directions, accounts, and inquiries that the debtor member might have made, are not available to the judgment creditor attempting to satisfy a judgment out of the judgment debtor’s interest in the limited liability company and may not be ordered by a court.”

A Promise To Pay = Protection

A Promise To Pay = Protection

A promise of a member to contribute property to the LLC is enforceable. It’s an enforceable promise if in writing and signed by the member. This can provide an advantage when facing a lack of planning and assets that are immediately exposed. The Alaska LLC can serve as a friendly creditor. Furthermore, you have an option to pay the creditor of your choice, as long as one of the creditors is NOT the IRS. Once the Alaska LLC files liens against your assets, it is the creditor of first priority.   You shifted the value of the assets to the LLC in exchange for an interest in the LLC.

Sleeper/Lazy Asset Protection: Form the Alaska LLC and sign the promissory note indenting yourself to the company. Make certain that the promissory note is notarized. If sued, simply allow the Alaska LLC to file the lien against your assets to perfect the debt. The LLC then shows up on public record as a creditor. A hostile creditor, seeking to collect on a judgment, will have difficulty contesting the lien for the following reasons:

  • The promissory note preceded the conflict with the hostile creditor.
  • The Alaska LLC is a co-creditor.
  • You choose which creditor to pay first.

Example: You commit, in writing, to contribute assets to the LLC. The LLC has a right to enforce the contribution, even if you’re facing litigation in an unrelated matter. A promissory note indenting yourself to the LLC is a contribution to the LLC in exchange for the member interest. And the LLC has a right to enforce that contribution to make certain that you follow through. This means the Alaska LLC serves as a “friendly creditor.”

Sec. 10.50.280. Liability for contributions.

(a) Notwithstanding AS 09.25.010 – 09.25.020, a promise by a member of a limited liability company to contribute property or services to the company is not enforceable unless the promise is stated in a writing signed by the member.

(b) Unless otherwise provided in an operating agreement of the company, a member of a limited liability company is liable for performing an enforceable promise made to the company to contribute property or services, even if the member is unable to perform because of death, disability, or another reason.

Sec. 10.50.285. Compromise of contribution obligation.

Unless otherwise provided in an operating agreement of the company, the obligation of a member to make a contribution to a limited liability company may not be compromised, unless all of the other members consent to the compromise.

Receiving Distributions When The A Charging Order Is Placed Against Your Interest In The LLC

It’s possible to receive distributions from the LLC even when a creditor has a charging order against your interest.  Although these “prohibited distributions” are possible, you end up owing the LLC for the funds released.

Let’s say creditor Joe has a charging order against my LLC interest (I am the debtor), and I obtain a “prohibited” distribution from the LLC…I am now a debtor to the LLC.  Now the LLC is a creditor friendly creditor and I am on record, with the company, of having to pay back the LLC.  The LLC is a friendly creditor but a creditor nonetheless.  Hostile creditor Joe may need to wait.

These “prohibited” distributions are only “prohibited” as far as the LLC is concerned.  And the LLC can file suit against you, and file liens against assets in the attempt to take back the “prohibited” distribution.

Therefore, the LLC may need to sue you to recover the distribution that you shouldn’t have received.  If the prohibited distribution was for an understandable purpose, such as to meet important familial or business obligations, there is an understanding that may be made.  Perhaps you may sign a promissory note, or confession of judgment, so a lawsuit is not required.


Please ask your tax advisor on how the Alaska LLC should hold these attributes to maximize the protection under IRS Revenue Ruling 77-137:

  • LLC taxed as a partnership
  • At least two (2) members
  • Manager-managed LLC.  Members are not managers.


Ask your tax advisor/attorney on how to protect the following assets:

  • File liens against your assets.
  • Real estate
  • Intellectual property
  • High risk operations such as construction, trucking, technology, and other industries fraught with liability issues
  • Persons who previously signed non-compete agreements with unethical employers.
  • Whistle-blowers who seek to protect their assets and income from retaliation.
  • Last minute protection when the risks are immediately identified as threatening to the asset portfolio.  There’s no fraudulent conveyance if you’re simply trading your assets for a member interest in the LLC.  There must be a legitimate business purpose for this to work.  Check with a licensed attorney.

Disadvantages To The Alaska LLC

Alaska LLC’s must file a report every two years whereas the manager and the members are reported to the State of Alaska.  The managers and the members are disclosed on public record.  Keep in mind that corporations, and other entities, can be members. 

Overcome The Disadvantages

Since the members are published on public record, there are two ways to deal with this problem:

1.  Make members another LLC or Corporation.  Place a nominee as the manager of the member entities, OR

2.  Members (companies) assign the member interest to you.

Always structure your plan to work in the absence of privacy.


  • Aggressive promissory note that indents you to the LLC
  • The promissory note empowers the creditor to enforce collection against the debtor (you)
  • Special operating agreement
  • Alaska LLC
  • Manager-managed
  • Taxed as a partnership
  • At least two members

Compare Alternatives

Wyoming offers the best balance between doing business and asset protection.

Alaska is best for holding and protecting assets

Alaska is the only state where your interest in the LLC may not be foreclosed.

Delaware is best for an initial public offering. It’s for big business.

Alaska is the best pro-debtor state.

In order to obtain the charging order protection, the LLC must be taxed as a partnership, there must be at least two members and the LLC must be manager-managed. This means the LLC is a disregarded entity, tax-wise, and the taxable earnings (and deductions) flow through to you and other members. The income and deductions show up on your own tax return as a K1. There should be no tax payable to Alaska when the entity is a disregarded entity for tax purposes. Please ask your tax advisor. There’s no tax advantage to obtaining an Alaska LLC for asset protection.

This Is Not Legal Advice. Please See A Qualified Tax Advisor Before Engaging In Any Asset Protection, Business Planning Or Estate Planning.

Limiting Liability = Asset Protection.