Your child support obligations can indirectly affect your LLC license if failing to meet those obligations leads to the suspension or revocation of any professional license required to operate your LLC.
This guide breaks down the potential impact of failing to keep up with child support on your business licensure and outlines strategies to protect your professional standing. By the end of this article, you should better understand how child support works, how an LLC works, how an LLC is operated, and if child support puts your LLC at risk.
Navigating Child Support Obligations as an LLC Owner
Like any other business owner, LLC owners must diligently handle their child support responsibilities. Understanding these obligations is key as they can significantly impact financial planning and the management of personal and business finances.
The initial step in calculating child support payments for an LLC owner involves:
- Analyzing the tax documents to identify consistent patterns over the years.
- In cases where consistent patterns are absent, the court may need to forecast the company’s future income.
- It is worth noting that LLC owners often pay themselves a modest salary, supplementing it with disbursements, which can complicate the process of calculating their income.
A child support lawyer can guide an LLC owner through child support-related cases and other family law matters, helping to avoid errors. Such guidance is crucial when addressing the complexities of income determination and ensuring fair treatment in child support negotiations.
How Does Child Support Work?
The law requires biological parents to support their children regardless of the marriage status of the parents. Child support costs include health care, schooling, extra-curricular activities, and daycare expenses. As the child ages, the court can order child support to be paid for college, transportation expenses, and room and board. The parent making child support payments must do so until one of the following conditions is met:
- The child ages to an adult (parents may still have to pay non-minor child support)
- The child enlists in the military and goes on active duty
- The court emancipates the child
- The child is adopted, or you lose parental rights
The amount of child support owed is based mainly on each parent's income and how much time the child spends with each parent. When calculating child support, it's essential to include relevant costs and factors to determine an equitable number for both parties.
What Is An LLC?
A limited liability company, or LLC, acts like a "hybrid" business structure. It takes the best of corporations, such as pass-through taxes and limited liability for business debts, and marries them with the simplicity and accessibility of a sole-proprietorship. LLCs protect business owners and their families by placing a limited liability wall between their personal assets and business assets, meaning business creditors can't reach what is not part of the business. LLCs also offer a lot of flexibility for your company's organizational structure and are not subject to the restrictions and regulations adherent in S and C Corporations. For the owners of an LLC, profit and loss are reported on their individual tax returns.
Some states, including Illinois, allow business owners to form single-member LLCs, an excellent option for those who want more protection than what exists under a sole-proprietorship. However, LLCs don't protect any debts personally guaranteed by the owner. Any funds pulled from the business and placed into a personal account are fair game to creditors and collection actions.
How Is An LLC Operated?
Forming an LLC requires a decent amount of work on the front end, but completing your due diligence decreases the risk of legal headaches later on.
Creating an LLC requires obtaining an employee identification number from the IRS. All business should be conducted using the EIN, and all contracts and invoices must be in the LLC's name. If you form a single-member LLC, you must sign all documentation as the president or managing member. Failing to follow the rules of an LLC, whether single-member or otherwise, can render the protection of the LLC void and access to child support services.
Mixing business assets with personal assets or failing to maintain LLC insurance can also jeopardize the LLC's protection and enable child support services to access your business's bank account.
Does Child Support Put My LLC At Risk?
Generally, no. Having a court order to pay child support as part of a divorce or for any other reason doesn't pose an immediate risk to your LLC. Furthermore, because an LLC separates your personal assets from your business assets, child support services can't legally garnish funds from the business bank account. However, plenty of scenarios could void the company's liability protection and put the LLC and its funds at risk. Some examples include:
- Failure to operate under the correct EIN
- Failure to correctly sign all documentation
- Failure to operate within the LLC guidelines established in your state
- Mixing business funds with personal assets
- Failure to maintain proper insurance and licensure
All of the above examples can jeopardize the LLC's liability protection and put the company's assets at risk.
It would seem that, as long as the business is run correctly, an LLC insulates any associated bank account or asset from child support actions; this assumption is false. While it's probably safe to assume that money in an LLC bank account is secure, as soon as that money is drawn, it is no longer protected, even if you're the owner. Part of the reason for this discrepancy is that the LLC is considered an employer. The money you pay yourself and the employees will be classified as a salary, bonus, commission, dividend, etc. According to most states' child support guidelines, gross income can be garnished. Examples of gross income include, but are not limited to:
- Wages
- Salaries
- Commissions
- Bonuses
- Pensions
- Interest
- Annuities
- Dividends
- Capital gains
- Unemployment insurance
- Prizes
Furthermore, a parent or child support agency could sue the owner of an LLC, alleging that the assets are owned by the defendant and should be available to pay for child support. While a claim such as this will probably fail due to the protections afforded by an LLC, specifics of the case may determine otherwise.
Another complication that could arise from failing to pay child support is the suspension or revoking of your professional license. If you run a business that requires an active license to secure and correctly operate the LLC, failing to meet your child support obligations could lead to termination of the LLC's liability protection.
Our team is ready to address your legal needs remotely OR at one of our many physical locations, including our Downers Grove Attorneys located at O'Flaherty Law of Downers Grove
5002 Main St., Ste 201,
Downers Grove, IL 60515
downersgrove.il@oflaherty-law.com
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