Separating business from personal assets

Serf Life

Serf Life

Been here much more than a while
Location
Maine Island
How secure is an LLC as far as the worst case scenario and lawsuit?

We are almost done building our house after years of toiling and I know others have had the same questions. My wife and I each own an LLC and hold the deed outright to the property. Lawyers are like doctors, best to do research and have questions ready before seeing them…
 
Serf Life said:
How secure is an LLC as far as the worst case scenario and lawsuit?

We are almost done building our house after years of toiling and I know others have had the same questions. My wife and I each own an LLC and hold the deed outright to the property. Lawyers are like doctors, best to do research and have questions ready before seeing them…
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My understanding is it depends on the prosecuting lawyer… I’ve read where making a few layers of LLC’s can work but it seems needlessly slimy.
However I’ve bee in curious on the logic and logistics of personally owning the big equipment for the business and leasing it to the biz…. The tax burden changes….
 
My understanding is that the LLC protects your personal assets as long as your personal assets and business assets are actually separate. Confirm that with your lawyer to be certain though.
 
Quilfier - I am not qualified to give legal advice ;)

Worse case scenario as in being found guilty of gross negligence - do not not find yourself here....can knock you out. Know what gross negligence is and never go anywhere near. We all should, but greed always creeps in.

I am sole owner of an LLC.
 
The term is "piercing the corporate veil". To avoid that, keep things separate. I find one of the simple things to do: the company has a checking and savings account (opened with the EIN, not my SSN) at a different bank than our personal accounts. Each month the business sends me a paycheck from the business account. I don't use anything from the business account for personal expenses and nothing from the personal accounts for business. If we wanted to, say do a home improvement project, and take money out of the business, I would never pay for those projects from the business account. I would transfer money from the business to personal (pay the employee of the month a performance bonus) then use it out of personal. That is "Separation of Assets 101".

Real estate becomes more difficult...especially if you live and work at the same property. You said "My wife and I each own an LLC and hold the deed outright to the property". So the property is in your personal names?

Are there separate buildings that the business(es?) "own"? If so, it may make sense to lease those to the business??? If not, do you have dedicated space for the business? Before I had the shop, I didn't write off anything for a home office because there wasn't a space that was exclusive use for business. Ideally, there would be such a space. Then you'd have IRS records showing that your business operates separately from your personal space. (of course, if they can disprove that, you may next get a call from the IRS...).

When I bought property for the business, I asked an attorney should the business own it, should I own it, should the wife own it, etc... He said ask an accountant. The accountant said ask and attorney. In the end, we decided the business owns it.

So back to the question: worst case scenario? Worst case is that you have "pierced the corporate veil" before the lawsuit and made it very easy for the attorney to point out that you are behaving as if the personal assets and business assets are one in the same and therefore, there should be no separation in funding a finding against one or the other. They'll make that argument either way...but you want to make it a losing argument by not co-mingling assets.

(PS: don't take legal advice from random guys on the innerwebs)
 
ATH said:
When I bought property for the business, I asked an attorney should the business own it, should I own it, should the wife own it, etc... He said ask an accountant. The accountant said ask and attorney. In the end, we decided the business owns it.
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That’s a big part of it: the passing of the buck when it comes to legalese.

I’m planning/hoping to own a separate more industrial property down the road and accountant talked about owners having it in their personal name and renting to their business, but how well would that hold up in event of a lawsuit? Before having a kid and owning land there were fewer considerations, like “well I just won’t fuck up and won’t get sued”…
 
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BooRad said:
Quilfier - I am not qualified to give legal advice ;)

Worse case scenario as in being found guilty of gross negligence - do not not find yourself here....can knock you out. Know what gross negligence is and never go anywhere near. We all should, but greed always creeps in.

I am sole owner of an LLC.
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Yup that is the big one which makes you personally liable. Say a employee gets severely maimed or killed. They or the loved ones could come after you personally for gross negligence regardless if it was their personal judgement call that got them dead..

My take is the same if they maim or kill. Say felling a tree landing on a car with a family in it. There are no road cones, no traffic control, and no safety policy in place detailing the aforementioned. Three liabilities there, one the gross negligence of the employee personally, the business it’s self, and the personally owner as well.
 
Serf Life said:
That’s a big part of it: the passing of the buck when it comes to legalese.

I’m planning/hoping to own a separate more industrial property down the road and accountant talked about owners having it in their personal name and renting to their business, but how well would that hold up in event of a lawsuit? Before having a kid and owning land there were fewer considerations, like “well I just won’t fuck up and won’t get sued”…
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If you file as a sole proprietor with federal taxes, I don't the accounting piece matters as to who owns the property. If you have a different ownership structure, it may make sense from a tax perspective to own it and rent it to the business. That is why I decided to have the business own it. Maybe an extra layer of protection.
 
ATH said:
If you file as a sole proprietor with federal taxes, I don't the accounting piece matters as to who owns the property. If you have a different ownership structure, it may make sense from a tax perspective to own it and rent it to the business. That is why I decided to have the business own it. Maybe an extra layer of protection.
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No self employment tax on rental income.
 
southsoundtree said:
Would you expand on this comment?
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Income from rental property is taxed at a lower rate than income... I dont know all the details but its not subject to SSI and other taxes... The business just pays the lump sum with no withholdings etc...
So in my case I have half a room partitioned off for a home office, a portable out building for lockable storage, small shed, and "equipment yard". The equipment yard is a stretch and admittedly there is some 'rule' bending, such as the landline and internet bill is paid for by the business. It's pretty simple to take the square footage of your home, put all the office stuff in a room and charge a fair amount in a lease. So what if you use the business stamps for personal, or a envelope, or the business computer for family movie time... BUT do not toss a file cabinet in your kids room and call it a home office... I do have a couch in my home office, but its a spot employee's can chill when I cut them a check.. Same with the outbuildings, I keep my welding and blacksmithing tools in the business shop easy enough to justify, but the kids bikes?,nope...
For all the above my lease agreement with myself is for $950 per month. Got about 150 sq ft of home office and outbuilding space, plus about 4500 sq ft of equipment yard space but making it compact and clear for parking, logs, and the like..
 
evo said:
Income from rental property is taxed at a lower rate than income... I dont know all the details but its not subject to SSI and other taxes... The business just pays the lump sum with no withholdings etc...
So in my case I have half a room partitioned off for a home office, a portable out building for lockable storage, small shed, and "equipment yard". The equipment yard is a stretch and admittedly there is some 'rule' bending, such as the landline and internet bill is paid for by the business. It's pretty simple to take the square footage of your home, put all the office stuff in a room and charge a fair amount in a lease. So what if you use the business stamps for personal, or a envelope, or the business computer for family movie time... BUT do not toss a file cabinet in your kids room and call it a home office... I do have a couch in my home office, but its a spot employee's can chill when I cut them a check.. Same with the outbuildings, I keep my welding and blacksmithing tools in the business shop easy enough to justify, but the kids bikes?,nope...
For all the above my lease agreement with myself is for $950 per month. Got about 150 sq ft of home office and outbuilding space, plus about 4500 sq ft of equipment yard space but making it compact and clear for parking, logs, and the like..
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Have you dealt with an audit or town assessment with that setup as a rental?
 
Serf Life said:
Have you dealt with an audit or town assessment with that setup as a rental?
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No I haven’t, our area is zoned as rural residential with the county land use. This allows home based business, and within that partitioning off a section of land and buildings for the business at a slightly higher tax rate for property taxes. Once I get a shop built I will do so.
But no audit, and well outside city limits
 
For the most protection of your home you may consider placing it into a private family trust. At that point you no longer own the home; you have rights to use it but no control or liability, and when properly applied it is outside the reach of any lawsuit regarding your business.
LLCs don't provide much armor against debt or liability. Ultimately it's just a different costume you are wearing, which the IRS often classifies as a "disregarded entity" where the liabilities flow to the U.S. Person whose SSN is behind it.
 
dspacio said:
For the most protection of your home you may consider placing it into a private family trust. At that point you no longer own the home; you have rights to use it but no control or liability, and when properly applied it is outside the reach of any lawsuit regarding your business.
LLCs don't provide much armor against debt or liability. Ultimately it's just a different costume you are wearing, which the IRS often classifies as a "disregarded entity" where the liabilities flow to the U.S. Person whose SSN is behind it.
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Awesome bud, thanks! That sounds like a very safe setup. Appreciate the responses and looking forward to meeting with the accountant to start.
 
dspacio said:
For the most protection of your home you may consider placing it into a private family trust. At that point you no longer own the home; you have rights to use it but no control or liability, and when properly applied it is outside the reach of any lawsuit regarding your business.
LLCs don't provide much armor against debt or liability. Ultimately it's just a different costume you are wearing, which the IRS often classifies as a "disregarded entity" where the liabilities flow to the U.S. Person whose SSN is behind it.
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I'm no lawyer...
I've been saying this protection is worth looking into with a lawyer, to someone with potentially big medical bills.

It's advice I've gotten.
 
Trusts are a longstanding and reliable legal entity in American Jurisprudence. They don't rely on more modern "Limited Liability Acts" etc, they have much deeper roots.

The average Law student graduates with one semester course in "Trusts, Wills, and Estates". For reasons we can only wonder... they are not typically well trained in retaining family wealth.
For trusts particularly it's worth making sure any lawyer has a specified study in this. Otherwise, they will likely form a basic Revocable Trust (statutory). These will provide some protection, but what I find intriguing are the original Express Trusts that were designed to hold land for generations. Property held in an irrevocable trust will experience no interruptions if any member are to pass away, go bankrupt, etc. The ownership is fully in the Trust which may expect regular protection as long as a good Trustee is in place.
I am trained in this if anyone would like more resources.
 
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