The charging order protection allows you to make a hostile creditor responsible for taxes although he didn’t yet receive a distribution from your LLC. The hostile creditor thinks he won but quickly recognizes that he must now pay taxes on income not yet received. This process is explained below.
For this charging order protection to be most effective, the LLC must
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Have at least two (2) members [Important!] Managers can be people or another business.
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Be taxed as a partnership
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Management by a manager, not the members. [Important!]
Green arrows show flow of distributions when there’s no threat.
LAWSUIT TARGETS MEMBER #1 (YOU). The creditor seeks a charging order against your interest in the LLC. He seeks to obtain the earnings that are due you. It’s similar to a wage attachment. But the manager refuses to release the earnings to the creditor. And the creditor cannot foreclose against your interest in the Alaska LLC.
