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RGMacEsq
RGMacEsq, Attorney
Category: Business Law
Satisfied Customers: 11206
Experience:  Licensed Texas General Practice Attorney
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My wife owns her own business (its an LLC, she is the sole

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My wife own's her own business (its an LLC, she is the sole member). In the event the business entity is audited, are my own personal bank records also subject to being audited even though her name is XXXXX XXXXX on any of the accounts?
Submitted: 9 months ago.
Category: Business Law
Expert:  RGMacEsq replied 9 months ago.

RGMacEsq :

Thank you for using JustAnswer. I am researching your issue and will respond shortly.

Customer:

Thank you

RGMacEsq :

Not initially. That is, if her business is audited, the records will be examined, cash flow, expenses, etc... and if there's nothing that would indicate that there's something being hidden, or some assets going to you, etc... then your personal finances would probably be just fine. Only if there was some indication of financial impropriety could that lead to an inference that there was some unreported income, or some assets, etc... being transferred to you.

RGMacEsq :

Again, this would typically only occur if the records of the LLC did not "add up" or indicated something "fishy".

RGMacEsq :

The IRS could then look at her personal records and your records, as that would be the first line of inquiry in clearing up any imbalance or sense of impropriety in the LLC records.

Customer:

Hmm ok, by the advice of our accountant, we set up the business as an LLC recently and are trying to determine if we need to have seperate bank accounts for us on the personal side of things or if it doesnt matter

RGMacEsq :

I would say that it really depends more on the nature of her work.

RGMacEsq :

If she's in a line of business where she could be sued, and for a lot, then it would probably be better to maintain separate accounts.

Customer:

so in reality, if anything were ever to get to that point with her business, my personal records would be fair game

RGMacEsq :

could be... Not necessarily would be. They could look at her personal records first, then go after yours if they couldn't connect the dots with hers, etc...

RGMacEsq :

Or they could just go after both of yours.

Customer:

i see

RGMacEsq :

That's really up to the auditor in that case.

Customer:

we're recently married and just trying to sort out our personal finances and make a decision as to how we want to handle them

RGMacEsq :

Understood. Like I said, I think the better consideration (rather than auditing) would be her likelihood to be sued. A sole member LLC is essentially the same as a sole proprietorship, unless there are significant assets in that LLC (such as real estate, etc...)

RGMacEsq :

Anyone harmed by her business could sue her personally, and that's where having separate accounts, etc... could come in handy.

RGMacEsq :

And that would be based on a likelihood of such a lawsuit.

Customer:

she runs a gymnastics school, so there is a threat of being sued (for injury) but we have a fairly robust medical waiver all of our customers sign

RGMacEsq :

That helps, and assuming that you have an insurance policy that would cover any injuries and a lawsuit that arises from that, that should shield you even further. If you don't have a policy, I would highly recommend getting one.

Customer:

and please forgive me, i know this isnt within the scope of my question, but I thought the point of establishing the LLC would be to protect her "personally"?

RGMacEsq :

To a certain extent, yes.

RGMacEsq :

But certain professionals can be sued personally.

RGMacEsq :

For instance, suppose I have an LLC and operate a legal practice out of it.

Customer:

ok

RGMacEsq :

If someone sues me for malpractice, they can sue me as well as the business.

RGMacEsq :

Now if I have partners, the partners can't be sued.

RGMacEsq :

(personally, that is)

Customer:

ok...

RGMacEsq :

But if I am a sole member LLC, and my business is the only "asset" (rather than real estate, etc...) then I essentially am the LLC

RGMacEsq :

An LLC is great for multiple members (partners) or to hold capital in (real estate, etc..)

RGMacEsq :

It's less protection when it's a single member LLC that encapsulates a professional services company.

Customer:

i understand

Customer:

thank you for clearing this up, sounds like we need to think about this a little more

RGMacEsq :

There's still protection, but a good insurance policy would be advisable.

RGMacEsq :

My pleasure.If you have any other questions, please let me know. If not, and you have not yet, please rate my answer AND press the "submit" button, if applicable. Please note that I don't get any credit for my answer unless and until you rate it a 3, 4, 5 (good or better). Thank you, XXXXX XXXXX good luck to you!

Customer:

yes, we have the insurance in place

Customer:

thank you

RGMacEsq :

You're welcome, and again, good luck to you!

RGMacEsq, Attorney
Category: Business Law
Satisfied Customers: 11206
Experience: Licensed Texas General Practice Attorney
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