Fun and Games and Charging Orders

Fun and Games and Charging Orders

Husband (Anthony Buffa) is the 99% member of LLC with Wife (Nancy Haar) the remaining 1% member.  Hubby, as an individual, is indebted to Lender as reflected in a judgment.  Lender applies for and is awarded a charging order against Husband’s distributions from the LLC.  Nothing or at most nearly nothing came to the Lender and it went to investigate why.  Buckeye Retirement Co. v. Buffa, 2011 WL 3439022 (D. Conn. 2011).

Having reviewed the LLC’s and the personal tax returns, it was discovered that in return for working more than fifty hours a week, Husband was receiving a “salary” of $20,000 per year.  Wife, working maybe thirty hours a week while being focused primarily on raising the children, received a “salary” of $120,000.  Of course, Wife is not indebted to Lender and there was no charging order against her interest in the LLC.

In a deposition, Husband admitted (although he later tried to disclaim his testimony) that the allocation between him and his wife was driven by the desire to reduce his assets subject to creditor claims.

While the Court did not rule on the merits, it did order further investigation “concerning the allocation of salary and/or distributions from Endeavor, LLC by and between Anthony Buffa and Nancy Haar.”

Those planning to use disproportionate distributions, at least between related parties when the constraints of arms-length negotiations are absent, should (rightfully) expect scrutiny.