On Feb. 13 of this year, a case occurred that should matter to you if you care about protecting your wealth from creditors. The law firm of Barry S. Franklin & Associates represented Daniel Pansky in a divorce proceeding in Florida. At some point, the law firm withdrew because Pansky wasn’t paying fees. The law firm then obtained a money judgment against Pansky and eventually got the court to award a charging order against Pansky’s interest in his company, Daniel PROTECTING YOUR WEALTH FROM CREDITORS
WHY YOU NEED LAYERS OF PROTECTION
afford (or decides not) to spend another $10,000–$20,000 on an appeal. Additionally, even if the case is appealed, the underlying case is usually settled before the appeal is heard. To phrase it more bluntly, in the real world, you’re often stuck trying to negotiate a settlement because the trial court doesn’t have a clue about Arizona’s charging order limitation or the difference between a legal issue (e.g., is a
Pansky, LLC. The law firm also asked the court to award the firm Pansky’s interest in Daniel Pansky, LLC.
creditor entitled to an award of a debtor’s interest in an LLC?) and a fact issue (e.g., do you wholly own your LLC?). And by the way, I’m not trying to disrespect
Pansky did not challenge the law firm’s charging order on his LLC interest. However, he did fight the law firm’s attempt to force him to turn over his interest in Daniel Pansky, LLC to the firm.
the overworked judges out there who cannot possibly have the entire body of statutes and case law memorized.
HERE’S THE SECOND POINT:
Let me pause here and explain how LLCs are supposed to work when it
The moral of the story is that you need to use layers. Don’t assume everything will work the way it’s supposed to. I’m reminded of a fishing trip I took with my mom, dad, and sister when I was 5. We took my dad’s Boston Whaler fishing boat out on Silver Lake in Washington. We were having a great time until black storm clouds started looming over the surrounding mountains.
comes to creditor protection. In Arizona, a charging order is the exclusive remedy by which a judgment creditor of a partner in a partnership — or a member in an LLC — may satisfy a judgment out of the judgment debtor’s transferable interest in the partnership or LLC (A.R.S. 29-1044). Florida, where the Pansky case arose, has altered their LLC statute to include what is known as an “Olmstead patch,” named after a case by that name. An Olmstead patch allows a court to transfer to the creditor a debtor’s interest in an LLC that he/she wholly owns. At trial, the law firm claimed that Pansky wholly owned Daniel Pansky, LLC, but Pansky claimed it was a two-member LLC. The court did not conduct a trial on that issue. Instead, it simply granted the law firm the relief that it requested — namely, an order transferring Pansky’s interest in the LLC to the law firm. The Florida Court of Appeals reversed the judgment on the basis that the trial court did not have the power to enter such an order without conducting an evidentiary hearing and making a factual finding that Pansky actually held the only interest in Daniel Pansky, LLC.
Before we were halfway back, the temperature had dropped 30 degrees and we were being pelted by cold rain and heavy winds. All the protection I had was a nylon windbreaker. Now, my dad had been a meteorologist in the Navy, and I have no idea why he didn’t check the weather forecast before taking the whole family out on the water that day. My mom was overly protective and always nagged me about dressing in layers. Despite all this background, a whole lot of assumptions led up to our predicament. We assumed the weather would stay the same, and we assumed that little windbreakers were all we needed. How does that relate to the Pansky story? It’s easy for all of us to “assume” that our LLC will protect us because the statute says we “should be” protected. But what if it turns out that’s not the case? What’s your Plan B, your Plan C? How financially hurt will you be if all of your assets in any of your business entities fail? What if your limited partnership fails? What if your liability insurance fails? At Magellan Law, we believe in using layered asset protection. We don’t just rely on one or two tricks that “should” work. Give us a call today to see how we can help!
HERE’S THE FIRST POINT:
I’m not raising this case to point out the obvious facts that a trial court got something wrong or that the case was corrected at the appellate court level. I’m mentioning this case because in the real world, the LLC often has little or no assets, and it either cannot
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