The answer is NO. A Virginia LLC or Virginia corporation can NEVER be used as an instrument to avoid an existing liability or one that relates to a period prior to the existence of the Virginia limited liability company or corporation. A common example is when one owns real estate in his own name. That person is personally liable for taxes and HOA fees related to the real estate when it is owned by him. He cannot transfer the property to a Virginia limited liability company or Virginia corporation to get rid of this obligation as it relates to the period in which he personally owned the property. Similarly, if you run a sole proprietorship business and a dispute or issues comes up related to your business, you cannot just form a Virginia LLC or corporation and transfer the business to that legal entity to avoid your personal obligations related to the dispute or issue. HOWEVER, you cut off this personal liability with respect to future business matters if you form a legal entity, transfer the business to the entity and then operate the business with the legal entity as the business. SO, it is never too late to do liability protection planning. Please note that a Virginia LLC or Virginia corporation limits liability of a member for business obligations but there are limitations. Please read our Primer on LLC Protection Article to learn more.

The Virginia LLC statute has a special provision called a "charging order" provision which addresses this question. It basically states that a creditor can seize your ownership interest as part of collecting on your personal obligation BUT the creditor only gets the economic rights associated with the Virginia LLC ownership interest. You still will retain the voting and control of your LLC ownership interest. And, if you are operating the business, you will be able to continue to operate. The charging order protection is a great benefit to a Virginia LLC because of how it works. You see, as the owner or manager of the LLC, you can choose not to distribute any profits out to the LLC owners. This means that the creditor may get nothing for seizing on the LLC ownership interest. In fact, the creditor could end up owing money because if the LLC is taxed as a pass through, it is the creditor (who owns the economic component of the interest) that will be liable for the taxes on the profits allocated to the seized ownership interest. Because of charging owner protection, many creditors do not look to take LLC ownership interests from their debtors. IMPORTANT: CHARGING ORDER PROTECTION IS LIKELY NOT APPLICABLE TO A SINGLE MEMBER LLC. This is because charging order protection is there to protect the LLC business and other members. If there are no other members, then the Bankruptcy court has stated that it will not extend to protect the single member in bankruptcy. Because of this court case, it is likely that if you are a single owner of an LLC, the creditor may be able to take the entire ownership interest and take control over the LLC business.