Let’s say some­one sues you per­son­ally. If you lose that law­suit, the plain­tiff will want to get their money. They’ll go after your home, cars, sav­ings accounts, and other per­sonal assets; they’ll gar­nish your wages; but all they can get against your LLC own­er­ship inter­est is a charg­ing order. This means Mr. LLC’s busi­ness assets are pro­tected, unless they also name your LLC in the law­suit and win a judg­ment against your LLC.

Here’s how it works. The per­son with a judg­ment against you gets a charg­ing order from the court. The charg­ing order says that all the plain­tiff can get against your own­er­ship inter­est in the LLC are the prof­its that are dis­trib­uted to you. That means the plain­tiff can’t take over your LLC and liq­ui­date its assets to pay off the judgment.

This is pretty pow­er­ful pro­tec­tion. In fact Alaska’s charg­ing order pro­tec­tion is one of the best in the nation. Not only does it pre­vent judg­ment cred­i­tors from fore­clos­ing on your mem­ber­ship inter­est, it also pre­vents the judg­ment cred­i­tor from get­ting a court order for direc­tions, accounts, and inquiries. This means that if the man­ager of the LLC decides not to make profit dis­tri­b­u­tions, the cred­i­tor can’t get any money or infor­ma­tion from the Alaska LLC. Another thing to remem­ber is that you don’t get this pro­tec­tion with a cor­po­ra­tion. That’s one of the main rea­sons to go with an LLC.

Now there is some case law in other states that do not give charg­ing order pro­tec­tion to sin­gle mem­ber LLCs. There are some states that explic­itly pro­vide charg­ing order pro­tec­tion to sin­gle mem­ber LLCs. Alaska’s statute is silent on the mat­ter and the courts haven’t decided one way or the other.