Forming a Wyoming LLC? Key legal considerations

Full transcript

0:13 There is a widespread misconception —promoted online — that forming a Wyoming LLC automatically provides strong asset protection, especially because of its so-called “charging order protection.” You’ve probably seen the advertisements: “Wyoming is the best state for asset protection.” “Creditors cannot touch your LLC.” “Form a Wyoming company and your assets are safe.” These claims are often marketed not only to U.S. residents, but also to investors around the world. I’m Max Dilendorf. I’m an attorney based in New York, and today I want to explain how courts treat out-of-state LLC interests when a creditor is trying to enforce a judgment. The issue affects both U.S. residents and non-U.S. residents. And for foreign owners in particular, a Wyoming LLC can sometimes become a tax trap rather than a protection strategy, especially if the structure is created without proper tax and estate planning.

1:31 Let’s start with a simple question. If you own a Wyoming LLC but live in another state — or another country — and a creditor gets a judgment against you, why would that creditor go to Wyoming to enforce it? In most cases, they won’t.

1:53 Under Federal Rule of Civil Procedure, enforcement of a money judgment generally follows the procedure of the state where the court is located.

2:05 This principle is illustrated in a recent and important case: 245 Park Member LLC v Hna Group Intl. Co. Ltd., 2024 U.S. App. LEXIS 8383 (2nd Cir Apr. 8, 2024) decided by the United States Court of Appeals for the Second Circuit in April 2024. The Second Circuit is one of the most influential federal appellate courts in the United States, covering New York, Connecticut, and Vermont.

2:37 Because New York is a global financial center, its decisions on judgment enforcement are closely followed across the U.S. and around the world. In that case, the debtor was HNA Group International, a Hong Kong company that owed roughly $185 million.

2:59 The debtor owned 100% of a Delaware entity called HNA North America, LLC. Like Wyoming, Delaware is well known for strong LLC protections and charging-order limitations.

3:17 Through this Delaware LLC, the debtor indirectly owned valuable U.S. assets, including interests connected to a large office building in Chicago and a conference center in New York.

3:31 After getting the judgment, the creditor asked a federal court in New York to order the debtor to turn over its membership interest in the Delaware LLC.

3:42 The debtor argued that Delaware law should control and that the creditor should be limited to a charging order protection in Delaware. But the Second Circuit rejected that argument.

3:54 The court explained that under New York law, LLC membership interests are considered property that can be used to satisfy a judgment. The court noted that: “ownership or membership interests in limited liability companies are clearly assignable and transferable.” Because of that, the court affirmed an order requiring the debtor to turn over its entire membership interest in the Delaware LLC to the creditor. In other words, even though the entity was formed in Delaware, the enforcement court applied New York law, not Delaware law. The same thing can happen to a Wyoming LLC when it ends up in an out of state court.

4:41 This illustrates an important principle: when creditors enforce judgments, courts often apply the law of the forum where enforcement occurs, not the law of the state where the LLC was formed.

4:56 We see the same principle in Wells Fargo Bank, N.A. v Barber, 85 F Supp 3d 1308 (MD Fla 2015).

5:02 In that case, the debtor owned an interest in a Nevis LLC, an offshore jurisdiction known for strong asset-protection statutes. Yet a Florida federal court treated that LLC interest as the debtor’s personal property in Florida and allowed enforcement there rather than deferring to Nevis law. Now let’s briefly discuss privacy.

5:30 Wyoming does provide certain privacy protections, but privacy is not asset protection.

5:36 During litigation, creditors could obtain information about your assets through discovery, including depositions under oath. In addition, states like California may require residents who operate through an out-of-state LLC to register that entity as a foreign LLC, which can make company information publicly accessible. So forming an LLC in Wyoming does not necessarily keep ownership invisible. For non-U.S. residents, there is another major issue that is often overlooked: U.S. tax exposure.

6:14 Unlike U.S. citizens, foreign individuals generally receive only a $60,000 exemption for U.S. estate and gift tax purposes on U.S.-situated assets.

6:27 This means that if a foreign owner holds U.S. assets through an improperly structured Wyoming LLC, those assets may still be subject to U.S. estate tax with very limited exemption.

6:43 That is why, for foreign investors, a Wyoming LLC created without proper planning can sometimes become a tax trap rather than a protection strategy.

6:54 The broader lesson from cases like 245 Park and Wells Fargo v. Barber is simple.

7:03 Entity formation alone is not asset protection. Real planning requires a broader strategy that includes Estate planning, Trust structures, Proper asset titling, Tax analysis and in some cases specialized tools such as Private Placement Life Insurance Asset protection is not about chasing the “best state.” It is about coordinated planning that considers where you live, where litigation could occur, and how courts actually enforce judgments. Before you move assets to Wyoming—or anywhere else—take time to review if a Wyoming LLC actually works for your situation.

7:46 If you’d like to go over your options, feel free to reach out to us for a consultation.

7:53 Thank you for watching.

A transcript of the recording, so it reads as speech rather than as prose. It explains the law in general terms and is not advice on your own situation, which turns on facts this video cannot know.