Recent Developments

Judgment debtors, whose assets include Nevada Limited Liability Company memberships, received significantly expanded protections as a result of a recent Nevada Supreme Court decision and recently enacted Nevada legislature amendments. Generally, a judgment creditor, who desires to execute on its judgment with respect to a membership interest its judgment debtor may hold in a Nevada LLC has, as its sole remedy under Nevada law, the right to obtain a “charging order” against the debtor’s membership interest. If granted by a Nevada court, the charging order permits the judgment creditor to receive only current and liquidating distributions made by the LLC to the member. Recent developments in Nevada law have clarified that the charging order remedy may not be granted to a judgment creditor with respect to a member’s managerial interest in an LLC and is the exclusive remedy available against debtors holding membership interests in both single-member and multi-member LLCs.

The Nevada Supreme Court expanded the scope of debtor protections available to members and managers of LLCs in a recent decision limiting the application of the charging order remedy.[1] In Weddell v. H2O, Inc., 128 Nev. Adv. Op. No. 9 (March 1, 2012), the court overturned a district court’s charging order granted to a creditor of a person who was both a member and manager of a Nevada LLC. The district court’s charging order allowed the member/manager’s creditor to become not only the assignee of the debtor’s rights as a member of the LLC to receive disbursements and distributions from the LLC, but also allowed the creditor to become the assignee of the debtor’s managerial rights as a manager of the LLC.