Can a Single Member LLC Bank Account Be Frozen Due to the Owner Owing Child Support?

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If you owe child support, you may be wondering if the courts can levy your LLC bank account. Indeed, this may be a serious concern, if revenue from your LLC has slowed or stopped, and you need more time to pay your debt. The short answer is that no, your LLC bank account cannot be accessed by bank child support services directly. The long answer is: it’s complicated, and is ultimately up the court. To kick things off, let’s take a moment to review what child support is and how it works.

How Child Support Works

Both biological parents have a responsibility to support their child financially, and this obligation is not a condition of marriage. Child support is a series of court-ordered payments paid by a non-custodial parent. Most states require the person making these payments to do so until one of the following conditions is met:

  • The child is no longer a minor. 
  • The child enlists in the military and is considered active duty.
  • You lose parental rights because the child was adopted or through some other legal proceeding.
  • Your child is emancipated by the court.

In the case of joint custody, the amount each parent pays, is based on the percentage each parent contributes to the total income. It is also based on the percentage of time each parent will have physical custody of the children. Each state has its own formula for determining exact payments.

What Is an LLC?

A limited liability company is a relatively simple business entity that provides pass-through taxes and limited liability for business debts. In other words, it is legally separate from its owners. What this means is that unlike other structures, such as S Corp or C Corp, when you own a limited liability company, you report profit and loss on your individual tax return. Additionally, forming an LLC allows you to protect your personal assets, should your business run into financial woes. Under the LLC structure, your personal assets generally can’t be pursued by business creditors.

Naturally, the creditors could still sue for collection and attempt to gain access to the LLC’s bank account and other assets. But in general, an LLC keeps your personal assets safe by ensuring that you’re only risking the money you’ve invested in the business. There are, of course, exceptions. For instance, if you have personally guaranteed any debt associated with the business, you would still be on the hook for it. Additionally, if your LLC has unpaid payroll taxes, you may have to pay those out of your own pocket.

Operating an LLC

When you create an LLC, you must obtain an employee identification number from the IRS. When you have your EIN, it is essential that you conduct all LLC business with that EIN. Furthermore, all contracts and invoices must be in the LLC’s name.

Arizona is one of the few states that allows individuals to establish single-member LLCs. As a single-member LLC, it is essential that you sign all documentation as the president or managing member. Failure to do so can render your LLC protection void and can impact whether or not child support services can access your LLC’s bank account.

Additionally, you must properly operate your LLC at all times. Failure to do so could spur a judge to nullify your LLC protection. For instance, business owners who mix business assets with personal assets are in danger of losing LLC protection. Failure to maintain LLC insurance can also result in being liable for business debts if someone files suit against you for wrongdoing or negligence.

The LLC and Child Support

Because an LLC is an independent business entity, it would appear on the surface that any bank account associated with it cannot be garnished. Not so fast. Because an LLC is, by definition, an employer, if you’re paying yourself a salary, that salary could be subject to garnishment. In other words, even though the bank account that the salary is drawn from is protected, the salary is not.

In the case of a single-member LLC, a child support agency—or a parent acting alone, could sue and attempt to levy against the LLC. This is because the LLC is presumably an asset owned by the defendant. Whether or not this would work is another matter altogether. However, it is worth noting that according to the Arizona Child Support Guidelines, gross income includes income from any source, including, but not limited to:

  •  Salaries
  •  Wages
  •  Commissions
  •  Bonuses
  •  Dividends
  •  Severance pay
  •  Pensions
  •  Interest
  •  Trust income
  •  Annuities
  •  Capital gains
  •  Social security benefits
  •  Workers' compensation benefits
  •  Unemployment insurance
  •  Disability insurance benefits
  •  Recurring gifts
  •  Prizes

It is reasonable to assume, therefore, that any money paid from an LLC to a personal account would be subject to seizure. Furthermore, it is conceivable that bonuses, salaries, wages, dividends and pensions earmarked for an employee, but held in the LLC’s account, may be seized. Ultimately, this would be determined by the court. Case-by-case consideration is required, so therefore, a definitive answer cannot be given.

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