LLCs Part 4: Don’t get married to your LLC
This is the fourth in a series of six videos that will help you protect your personal assets.
Don’t get married, get a separation!!
A phrase used in many weddings - and the two shall become one. That’s great for weddings, but horrible for LLCs and small business corporations. If you want liability and asset protection you absolutely must be viewed separately from your company. If someone sues the company you don’t want your assets getting dragged into the lawsuit and used to pay for a company liability, do you?
I’m not married to my LLC … am I?
I formed my LLC or small business corporation and that ought to be enough, right? Nothing said I was married to it. It even has its own name and tax ID number. What more can you ask for??
Sadly, that’s far from enough. The issue here is the commingling of assets. Married people often share joint checking accounts and bring all their assets into the marriage with the idea of sharing them. You aren’t getting married though, so let’s look a little more closely.
Here’s how NOT to get married to your LLC:
Start with the checking account. I’m often asked if the company needs a separate checking account – of course it does. You don’t want to commingle personal and business money or else your personal account will be subject to creditor claims!
How about credit cards? Do you have a credit card that is issued to you, in your name that you use for business charges? Or even worse, you have one credit card and it’s used for both personal and business charges? Sounds like commingling to me. Always get a separate business credit card and don’t ever put personal charges on it. This one gets violated all the time and a great place for an attacking attorney or the IRS to start looking.
Then there are vehicles. So many times, an owner buys a vehicle and wants to show it in the business as a business asset. Unfortunately, the title to the vehicle AND the insurance are in the owner’s name not the business. Commingling once again! And if the vehicle is in an accident on company business, will the insurance cover that? Maybe, maybe not – it’s not a commercial policy. Get the vehicle title and insurance into the company.
Let’s stick with vehicles for a minute. Maybe the vehicle is titled in the company name and insurance. Do you use it personally from time to time? Running personal errands or commuting. Have you documented that in minutes or in a written company policy? How are you treating it for tax purposes? Commingling is such a messy little place to be.
What’s true of vehicles is just as true for other company assets, equipment, computers, cells phones and such. If I’m the attacking attorney I’m sure going to look at all of this in order to show that we can ignore your LLC or small business corporation and sue you personally.
LLCs are often preferred vehicles for the ownership of real estate. The problem is that many owners never deed the property over to the LLC, insure it in the LLC, and have lease between their operating business or a third party and the LLC for the use of the property. Commingling again. This one’s easy to fix but gets missed all the time and then good intentions aside liability protection goes out the door.
So, what do I do?
None of these are complicated to fix and most you can clean up yourself. If you need help, you might have an advisor or attorney you work with that can get it done for you. For Colorado residents, we can get it advise for you for a reasonable single fixed fee. You can contact us here.
It’s your financial future, it’s your call. Take a few minutes to learn the basics in the next few videos. There are a few more things that you’ll need. See you there!
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