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LLC sole proprietor MFJ

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  • LLC sole proprietor MFJ

    I'm a W2 employee. Wife is a solo practitioner under an LLC.
    She has a business bank account and keeps all of her earnings there except the money she pays herself after business expenses, which goes either into her personal bank account or into our joint savings account. We each have liability insurance and I bought us an umbrella policy.
    Since we file our taxes jointly, if SHE happens to get sued above her policy limits, does this expose both of our assets/bank accounts and vice-versa?
    Thankfully we live in a state with good Homestead laws and our brokerage account is tenancy by the entirety. But in terms of unprotected assets, are we exposing each other by filing jointly?
    Thanks

  • #2
    Filing taxes jointly does not expose you to each other's liability. If your wife is sued and has a judgement above policy limits, then the plaintiff will look to see what assets are "open." If your state protects tenancy by the entirety titled assets from a creditor of only one of you, then that account is safe. Only assets solely owned by your wife would be at risk (possibly accounts receivable, and any significant assets the LLC owns).

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    • #3
      the issue would be if functionally the LLC isn’t being operated completely independently

      if you have real concerns it’s always best to consult a competent attorney with knowledge of the laws of your particular location

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      • #4
        Anyone with a high net worth should talk with an attorney who understands asset protection laws of your state. Many estate planners do, but not all (going to one who does is the best one-stop shop for this area). People generally shouldn't just rely on their homestead exemption to protect them, it's normally pretty low. Also, tenancy by the entirety laws often don't protect a person, it could actually make more assets exposed to creditors. This is also a state by state issue. Planning with trusts and LLCs is normally what we investigate for clients. Good umbrella insurance is also important.

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