Why I’m leaving Wyoming
Back in the day, I wrote about going to Wyoming for our single member LLC.
At the time I worried about our growing list of assets. And had already made some mistakes about how to protect them.
Going back further, my “partner in life and business” (aka my wife) and I had started a business with her father.
Actually it was our 4th or 5th one between the two of us. We’d been through the crash-and-burn startups. We’d each started our only solo law practice. We then joined forces to create our current law business.
That’s when we get to the new family business with my father-in-law.
Something worth protecting
This new business was heavy on the intellectual property (i.e. patents). The business filed and received its first patent.
While the champagne bottles were popping though, my anxiety was also starting to flow.
Maybe you’re like me, and with increased success, and increased assets, you start to also worry a little more (if you don’t…pat yourself on the back!).
The worry is that somebody, who didn’t earn it, will try to take the fruits of your success. It’s not hard to do with the help of the US court system.
Dirtbag attorneys file millions of lawsuits every year. Increased success makes you more likely to be on the receiving end of these lawsuits.
This worry provided me with plenty of heartburn and, for the first time in life, high blood pressure.
Take action to stay in the action
People have told me this worry stops them from building their business. Why bother if increased success will lead people to target you for lawsuits?
That is where asset protection planning comes in. Taking action to put an asset protection plan in place helps ease the worry. As we say it lets you live more carefree so you can focus on building (and living) that dream life of yours.
And that’s where I went wrong. I didn’t take action soon enough.
Lost in the weeds
With a growing patent portfolio I wanted the best asset protection I could get: an offshore asset protection trust.
The problem was a patent is a piece of paper. By itself, it didn’t produce enough money to justify the extra $30,000 it cost to set up a trust, let alone the $5,000-10,000 a year to maintain the trust and IRS compliance.
That didn’t stop me from learning, though. I read a lot about all of the different tools and strategies in Asset Protection. Reading about it didn’t help when a stupid attorney served us with a stupid lawsuit. (Fortunately, the frivolity meter was so high, the lawyer pulled the lawsuit before he had a chance to be shamed in court)
The experience was still scary. It was scary that I waited until it was too late to do anything.
So that’s when we decided to go to Wyoming.
The promised land might not be so promising
Many promoters talk about (and praise) the increased protection for single member LLCs in Wyoming, Nevada, Delaware, etc.
It’s a great idea. I was certainly one of them.
These states promote “charging order protection” as the exclusive remedy for creditors.
Lawmakers in those states attempt to offer a solution to the problem of our unpredictable and wild US court system.
But just because one state offers this increased protection through its laws, doesn’t mean that other states will honor those laws.
In fact we are seeing more and more court cases where the judges disregard the other state’s laws in favor of its own. For example a Washington court applies Washington laws instead of the Wyoming LLC laws.
“What’s to stop a judge from forcing me to turn over my LLC?”
Somebody asked me what was to stop a Washington judge from forcing him to turn over his interest in his Wyoming LLC.
The sad answer is: nothing.
Author Jay D. Adkisson addressed these questions in a new book about charging orders. One of many great nuggets, he writes: 1) most judges and attorneys don’t know how charging orders actually work when it comes to debt collection, and; 2) a judge can force a debtor to turn over his interest in an LLC.
This means that while a Washington resident can own a Wyoming LLC, a Washington court can force you to turn over your interest in that LLC to a creditor. Washington doesn’t protect single member LLCs from creditors.
Defense attorneys will argue that Wyoming LLC laws apply, but courts outside of Wyoming have asserted power (i.e. jurisdiction) over the owner of the LLC. With that power they can apply local laws.
Those local laws don’t protect single member LLCs. Thus, the judge can apply rules like Washington’s 7.60.070 which reads a “person shall turn over any property…that is within the control of that person.”
So Washington resident, your Wyoming (or Nevada, Delaware, Utah, [insert any other state]) LLC interest can be turned over to your creditors because it’s within your control. After that your creditor owns your LLC and all the assets within it.
The exclusive charging order is a good idea, but in reality we are seeing it bypassed or disregarded unless you are a resident of the state that offers the superior protection (and have assets within that state).
Something is better than nothing
Don’t get me wrong, having a Wyoming LLC is better than nothing.
I’ve seen snooping lawyers go away because they couldn’t easily figure out who owned a rental property that was held within a private Wyoming LLC.
A determined creditor, though, can eventually get through.
When you end up with a judgment against you, there’s no telling if your Wyoming LLC will be protected from a judge outside of the Cowboy State.
If that worries you, like it does me, then you should look into upgrading to an asset protection strategy that moves your assets out of your direct control.
When you want to learn more about how to accomplish that, schedule a free call with me at livemorecarefree.com.
Colin Ley is an asset protection attorney and the co-founder of LayRoots (along with with partner in life & business – Shreya Ley)
Let’s talk about your asset protection strategy: book a free initial consult