US Legal Forms
Legal Resources
Questions & Answers
Debts and Credit
How can I protect my home from business liabilities?

How can I protect my home from business liabilities?

Full question:

My family business is failing. I only own 15% of the stock. My parents do not want to give me an equal or controlling amount of stock. I am the President of our corporation. I know the IRS and collection efforts will come to me first. How do I protect my home and my family from these collection efforts? They have not started as of this writing and I am thinking of putting my home in my wife's or child's name. Is this logical or am I grasping for straws?

Category: Debts and Credit
Date: 04/07/2025
State: Indiana

Answer:

Generally, a person's personal assets are protected from a corporation's liabilities, unless the individual acted outside their authority, violated fiduciary duties, or if the corporation is not truly separate from personal dealings. If a corporation engages in wrongdoing, such as fraud or failing to pay taxes, the individuals behind it may be held personally liable. This is known as piercing the corporate veil, which can happen if there is evidence of fraud or if corporate formalities are not followed.

Homestead laws can protect a portion of your property from creditors. You might consider establishing a trust to safeguard assets, as trusts can help avoid probate, reduce tax liabilities, and protect family wealth. A trust can be revocable or irrevocable. Revocable trusts can be changed or revoked during the trustmaker's lifetime, while irrevocable trusts cannot be altered once established.

Asset protection trusts are specifically designed to shield assets from creditors and are often set up in jurisdictions outside the U.S. These trusts may be irrevocable for a certain period and typically prevent the trustmaker from benefiting from the trust during that time. However, if a trust is created with the intent to defraud creditors, it may be challenged as a fraudulent conveyance.

In Indiana, certain exemptions apply to personal property and family residences, protecting them from creditors (see IC 34-55-10-2). For instance, a debtor's personal or family residence is exempt up to fifteen thousand dollars. It's essential to consult with a legal professional before making any decisions regarding asset protection.

This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.

FAQs

Do attribution rules apply to siblings?

Yes, attribution rules can apply to siblings under certain circumstances, particularly in the context of stock ownership. If one sibling owns stock, the IRS may attribute that ownership to other siblings for tax purposes. This means that the stock ownership of one sibling can affect the tax liabilities of the others, especially when determining control or ownership percentages in a family-owned business.

What is the family attribution rule for stock ownership?

The family attribution rule allows the IRS to attribute stock ownership among family members, including siblings, spouses, and children. This rule is important for determining control of a corporation and can impact tax liabilities. For example, if one family member owns stock, other family members may be considered to own that stock for tax purposes, affecting eligibility for certain tax deductions or credits.

What is considered constructive ownership?

Constructive ownership refers to a situation where an individual is treated as owning stock even if they do not hold the stock directly. This can occur through family attribution rules or other legal mechanisms. For example, if a family member owns stock, the IRS may consider other family members as having constructive ownership of that stock, which can influence tax obligations and corporate control.

What is constructive ownership of stock?

Constructive ownership of stock occurs when an individual is deemed to own shares based on specific legal rules, even if they do not hold the shares directly. This can include situations where stock is attributed to family members under IRS rules. Constructive ownership can affect tax calculations and ownership control within a corporation, especially in family-owned businesses.

What is the family owned business deduction?

The family-owned business deduction allows qualifying family businesses to deduct a portion of their income from taxation. This deduction is designed to support family-run enterprises and can provide significant tax relief. To qualify, the business must meet specific criteria, including ownership and operational requirements, which may vary by state.

What is a constructive sale of a stock?

A constructive sale of stock occurs when an individual is treated as having sold stock for tax purposes, even if they have not physically sold it. This can happen if the individual enters into certain transactions that effectively eliminate their risk of loss or opportunity for gain in the stock. Such transactions may trigger tax liabilities as if a sale had occurred.