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What happens if business assets and personal assets mingle?

On Behalf of | Jun 24, 2022 | Business Litigation |

Starting and running a business is typically an intense and all-encompassing experience. Sometimes it also involves calculated risks, including putting personal money into the endeavor. Ideally, it is best to keep personal and business assets separate, but sometimes it seems the best option to use personal assets to support a business. This decision may not be a problem for owners, mainly if no partners are involved, but it can make matters more complex if there is a dispute.

Personal assets may be unprotected

Certain business entities entitle the owners to protect personal assets if the business gets embroiled in a dispute with others. It covers key assets such as an individual’s home, personal bank accounts and other assets. Intermixing those personal assets with business assets removes the protective wall of LLC entities or corporations, making the owner’s assets susceptible to legal action involving the business.

Mixing assets

Once there is a legal issue, the owner must explain their rationale for involving personal assets with the business and describe how it worked. It can involve using business records for documentation. The assumption is that intermixing business and personal assets means that the owner’s assets don’t need protection, or it paints the owner as someone engaged in suspicious activity. This can lead to litigation where the courts pierce the corporate veil.

Piercing the corporate veil

Courts are typically resistant to doing this unless it views it as absolutely necessary. But if the findings are consistent with the complaint, the owner can be personally liable for damages. These situations can become very complex and tangled with serious ramifications for the business owner. Even if the owner has the best intentions, it is best to speak with a skilled business law attorney to find a viable solution.