If you are the owner of a company, corporation, limited liability company, or any other entity and you have a pending case in family court, keep reading, because in today's blog we are going to be talking about the corporate veil and family proceedings.
The corporate veil is a legal fiction, which allows you to divide personal assets and debts from those of the company you own. To make it simpler, I am going to illustrate it with an example: Juan owns a trucking company, Juan Trucks, LLC. Juan Trucks, LLC owns 5 trucks, and to obtain them Juan had to request a loan of $100,000.00 from the bank. On the other hand, Juan, owns a house, and has $20,000.00 saved in his bank account. If Juan Trucks, LLC cannot continue to pay the bank the debt of $100,000.00 that it has requested, the bank will not be able to force Juan to use the $20,000.00 that he has saved in his personal account to satisfy that debt. The corporate veil distinguishes Juan from Juan Trucks, LLC as two different legal entities. The previous example is very simple, and its explanation is more complex, because there may be cases in which the person uses their name as personal guarantee of the company loan, but that is not the topic of this blog.
Now, and continuing with the previous example, Juan has his own savings and checking account, and Juan Trucks, LLC also has a checking account at the bank. However, when pays the mortgage on his house, he does so using Juan Trucks, LLC's checking account; Juan also uses Juan Trucks, LLC’s account when he needs to pay the electricity for the house, when he goes to buy the market for the week, and sometimes when he goes to the movies with his children. Unfortunately for Juan, his mismanagement of the company's finances has led him to no longer having a distinction between Juan, the person, and Juan Trucks, LLC, the company. Therefore, the bank can pierce that corporate veil, and force Juan to pay the debt of the trucks of Juan Trucks, LLC, with the money he has saved.
The corporate veil is a protection offered to business owners from keeping their personal assets separate from those of their company. For a company to file for bankruptcy, it does not necessarily indicate that the owner should also do so. But when the company and its assets are used, in a personal way, this protection can be lost.
In family proceedings, this option of piercing the corporate veil can also be used to access the company's assets, which should be protected because it is a separate entity, as long as it can be shown that there is no difference between the legal entity. and the natural person. Following the previous example, suppose that Juan's wife files for divorce in the appropriate court. Juan had created Juan Trucks, LLC five years before marrying his wife, so the company does not belong to the matrimonial property community, and therefore is not subject to division (there are exceptions). Because Juan has used his company personally to pay the mortgage, the electricity for the house, and go out to the movies with the children, Juan's wife can ask the court to pierce the corporate veil, and can ask to divide in the divorce process, the 5 trucks that Juan Trucks, LLC owns.
It is very important that the owners of companies, associations, corporations, limited partnerships, and any other corporate form, maintain the corporate veil of their companies, because otherwise the protection it offers could be questioned, even in family courts. Do not be like Juan!
If you need help with your family process, do not hesitate to call us today. In Y. Morejon Attorney, P.A. we work family cases, and we can help you with yours. Call us now and schedule your first free consultation. Here, your problem is our problem.
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Any information made available by the lawyer or law firm is for educational purposes only, as well as to give you general information and general understanding of the law, NOT to provide specific advice. This does NOT create a relationship attorney-client between you and Y. Morejon Attorney, P.A. This information should NOT be use as a substitute for competent legal advice from a licensed professional attorney in your state.
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