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6 Strategies to Protect Your Business From Child Support Garnishments
As a business owner, you’ve put a great deal of time, energy, and effort into building a successful business. But what happens when you’re ordered to pay child support? Can your business earnings be counted toward your income? Can your business accounts be garnished? These are important questions. Each situation is different, so it’s always best to talk with an attorney about how your child support order will impact your business and vice versa. But there are some general steps you can take to protect your business from child support garnishments.
1. Don’t Hide Income
It’s important to always be honest when you’re dealing with business and money issues, and this includes the financial disclosures that are a part of every child support case.
Both parties will need to fill out paperwork that includes how much money they make. Attempting to hide income from your business or undervaluing the business to try to get child support lowered is considered fraud. If you are found out, you could face additional penalties, such as criminal charges or retroactive child support garnishments.
If you’re not sure what counts as business income or personal income or how to value your business accurately, talk to a family law attorney. They can provide some guidelines and refer you to other resources if you need additional help.
2. Make Sure You’re Legally Operating as a Business
If you want to protect your business from child support garnishments, you actually have to be operating a business. A side gig job, such as working as a 1099 contractor for a grocery delivery service, may not count as an actual business. In general, you need to be able to show the courts that you have set up your business as a professional entity.
This can include obtaining and operating under an Employer Identification Number (EIN), keeping business and personal accounts separate, and having any required insurance or licenses for your industry.
3. Keep Your Personal and Business Finances Separate
One of the biggest mistakes business owners make is to combine business and personal finances. Without a separation between your business and personal finances, it can be very difficult for the courts to determine what is business income and what is personal income.
It can also negate any financial protections operating as a business would have given you. Even if you’re operating as an LLC or other specific business entity, if you are commingling your business and personal finances, all of the money could count as personal income for legal purposes. Best practices include having separate business banking accounts and ensuring that a business credit card is only used for business expenses.
4. Keep Accurate Records
Maintaining accurate records is one of the most important things you can do for your business — and your child support case. Accurate bookkeeping makes it easier to show what’s business income and what’s personal income. It also ensures you have the paperwork necessary to verify your income or business assets, which can be crucial for parents who don’t get traditional W-2s to prove their income for child support.
Keeping accurate records also ensures that you’re able to show the difference between your business’ revenue and its profits. You should be able to produce reports on business expenses like payroll, insurance, and supplies so that these aren’t counted in the profits of your business. Make sure to give your attorney and anyone working in your legal interests — such as a forensic accountant — a copy of your profit and loss statement so they can verify your income and help you understand what to expect when it comes to child support.
5. Ensure You Understand Your Obligations
It’s normal to be focused on how much you have to pay per month as you’re finalizing a child support case, but it’s critical to ensure that you understand what can happen if you don’t follow through with your obligations. The courts take child support very seriously, and it’s possible for you to be subject to enforcement measures such as garnishments, tax refund interceptions, and even jail time if you don’t keep up with your support payments.
Depending on how your business is set up, this could potentially extend to your business income. A garnishment on your business profits could significantly impact your company, continued business growth, and valuation if you ever consider a sale or merger.
6. Speak With a Family Law Attorney
When you work with clients, you’re the knowledgeable professional they come to to find out what they need to do and the best way to do it. But when you’re involved in a child support case, your attorney is the one with all the experience. Just like you would tell your clients that they need to rely on your experience and expertise, it’s important for you to consult an attorney about your business interests and how to protect them from child support. An attorney can let you know what parts of your business income may be considered for child support payments and what legal options and strategies you can use to keep your business from being affected by your case.
Being a business owner isn’t easy, and it can complicate already challenging family law issues such as child support. Find out what you need to know and discuss the particulars of your situations with an experienced family law attorney when you contact Barnds Law LLC. Call 913-514-0909 to speak with a team member in our Overland Park, Kansas, office to schedule your appointment.
