When you go into business with someone, you’re making a big commitment. Chances are at some point you’ll purchase property in the name of the business that you’ll co-own. All of that is fine unless an issue arises, such as a dispute or a judgment lien on jointly-owned property. If you end up with real estate liens on jointly-owned property like your office space, it’s more straightforward, but things can get more complicated if your client has personal financial woes that start to affect your business assets. It’s important to know how far creditors can reach to take measures to protect yourself.
General Business Debts
If there is a judgment lien on jointly-owned property, all partners are responsible for ensuring the connected debt is resolved. If one partner has gotten the entire business in trouble, it may be up to other partners to pay it off in order to keep operations going. How far the debt reaches depends on the location of the business. In some states, all of the assets belonging to a business partnership are considered legally owned by that business. In others, the partners are co-owners in the property. It’s important to know the laws as they relate to your state.
Personal Debts and Business Liens
Depending on the law and the type of debt, one business partner could end up in a lawsuit that creates real estate liens on jointly-owned property. This isn’t common, but it’s important to be aware that it could happen. A lien on your business property may have no impact at all until you try to sell your office space or take out a loan. Then you’ll find you’ll need to satisfy the lien before you can proceed.
Divorce and Business Liens
When considering real estate liens on jointly-owned property, you probably immediately think about purely professional business partnerships. If you and your spouse operate a business, a divorce will inevitably cause issues for that venture. Your departing spouse could place a lien on the business to ensure you can’t sell any of it off until it can be distributed as ordered by the court.
Although there’s no way to completely protect against a judgment lien on jointly-owned property, you can safeguard your business by structuring it in a way that separates personal from business finances. If you can upgrade your business to a corporation, all profits and expenses pass through the business, with each partner taking a salary. This may not be the best option for your business tax-wise, but if it offers peace of mind, it might be worth it. If you have any questions regarding liens on your jointly-owned property and how to protect yourself, contact us today.