Michigan LLC’s — Now the Best of the Bunch

With the signature of Governor Granholm on December 16, 2010, Michigan moved to the front of the line when choosing states with the most debtor friendly limited liability company provisions in the country. State of the art asset protection planning with the use of LLC’s has arrived in Michigan.

Under the Amendment, it is now absolutely clear that the exclusive remedy of a judgment creditor of a member of a Michigan LLC is to obtain a charging order. If served with a charging order, the judgment creditor described in the order is only entitled to receive any distribution or distributions to which the member is entitled with respect to his membership interest.

The judgment creditor does not become member; indeed the debtor member remains a member with all rights of membership except the right to receive distributions to the extent charged. While a charging order is a lien on the membership interest of the debtor member, the legislation is specific that neither the lien nor the membership interest may be foreclosed. The judgment creditor is not an assignee of the debtor member.

To make it even more debtor friendly, the Amendment states that certain court orders to which a member may have been entitled, such as requiring the LLC to take some action, provide an accounting or answer an inquiry, is not available to judgment creditors.

What all of this means is that Michigan asset protection lawyers can confidently employ Michigan LLC’s for asset protection purposes without risk of foreclosure of a debtor’s member’s interest. We might also expect savvy out of state asset protection lawyers to descend on Michigan to take advantage of this very favorable development in Michigan law.

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