Is the LLC Shield Vulnerable against Child Support?

Starting a new business is an exciting venture: there’s the promise of opportunity, the benefits of being self-employed in many cases, and other advantages. For those who choose to start an LLC, there’s the promise of no corporate taxes, the benefit of having no residency requirement, and enhanced credibility with others[1]. On the flip side, LLCs present a variety of risks to which the new business owner may not be privy.

LLC Image 1According to Donald J. Scotto and Sharon Matthews, LLCs are appealing because they “are hybrid business entities which possess a unique combination of favorable legal, business, and tax attributes that do not exist in any other single entity”[2]. There is, however, a tradeoff for the limited liability. One case in which this has presented problems for an LLC owner is a 2010 Court of Appeals Case in Dallas, Texas.

A self-employed individual, referred to in the appeal as “Father,” owns his own carpentry business. After divorcing his wife, he is required to make regular payments for child support. The court institutes a lien on the payments, which allowed the Office of the Attorney General to garnish, or collect from, Father’s one bank account (this account was used for Father’s personal and business matters). The debate centered around whether Father, as the owner of his LLC, was susceptible to garnishment of his account, or whether the LLC structure protected him.

Find out how the court ruled at click link

[1] https://www.incorporate.com/limited_liability_company.html. “What is an LLC (Limited Liability Company)?” by Incorporate.com.

[2] https://view2.fdu.edu/academics/silberman-college/centers-and-institutes/rothman-institute-of-entrepreneurship/outreach-programs/family-business-forum/family-ink-articles/11-limited-liability-company/

“Limited Liability Company: The Growing Entity of Choice.” By Donald J. Scotto and Sharon Matthews, Coopers and Lybrand LLP and C&L.

One comment on “Is the LLC Shield Vulnerable against Child Support?

  1. Faye Thompson
    July 24, 2018 at 11:52 pm #

    Important information. Thank you.

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