Margolis PLLC

Here is a simple reality of the law: the courts aren't going to let you rack up a huge judgment in the name of your LLC and then just say "but it's in an LLC that's owned by an irrevocable trust that I don't even control," and not pay the judgment. Here's why: (1) judges hate seeing people use the law to escape accountability; (2) the law is complex and nuanced enough that judges can usually find a way to hold a party responsible, despite their best efforts to use legal entities to avoid accountability. An excellent example of this from an actual case (this is a summary of a 2010 decision from the California Court of Appeal, Second Division, Greenspan v. LADT, LLC, 191 Cal. App. 4th 486 (2010)): A real estate developer created several limited liability companies to supervise his various construction projects and hold property. The developer transferred ownership of the companies to an irrevocable trust, chose his brother as the trustee, and acted as the “manager” of each of the LLCs. Plaintiff filed suit against two of the LLCs (one of which owned the building at issue), alleging a claim for breach of contract, among others. The case was arbitrated. At the time of the arbitration, the property-owning LLC had recently received more than $47 million in property sales. Plaintiff prevailed against the two LLCs for breach of contract. The arbitrator awarded plaintiff $8.45 million against the companies. The trial court confirmed the arbitration award and entered judgment accordingly. Meanwhile, the $47 million had dwindled to less than $13,000. The two LLCs appeared to be judgment proof. Plaintiff commenced proceedings to satisfy the judgment. After conducting judgment debtor examinations, plaintiff filed a motion to amend the judgment to add the manager of the two LLCs (the developer), the trustee of the irrevocable trust that owned the LLCs (the developer's brother, who was otherwise blameless in all this), and two other affiliated companies as judgment debtors, relying on the alter ego doctrine. The trial court denied the motion, but the appellate reversed. First, the appellate court determined that addition of the manager of the LLCs as a judgment debtor would remedy his alleged disregard of the two LLCs' separate existence. Second, it determined that although a trust is not subject to the alter ego doctrine because it is not a legal entity, a trustee may be added as a judgment debtor. Hence, the plaintiff was able to pursue the personal assets of the manager of the two defendant LLCs (the developer) and the trustee of the trust that owned the LLCs (the developer's brother). Bottom line: You can put everything in separate LLCs and then have the LLCs owned by an irrevocable trust that has your children as the beneficiaries and your brother as the trustee, and it won't protect you from a judgment. Both you and your brother are going to have to pay the judgment against your LLCs from your personal assets if you try to skip out on paying it by pointing at the LLCs' empty bank accounts.