Can Child Support Take Money From My Business Account?

For business owners, personal obligations like child support can impact their company. The ability of child support enforcement to access business funds depends on a complex interplay of income calculation, business structure, and specific legal actions. This guide explores how courts determine a business owner’s income, how the business’s legal entity influences collection, and the tools agencies use to secure payments.

Determining Income from a Business for Child Support

When a parent owns a business, courts look beyond a simple salary to calculate the income available for child support. This involves a financial review to determine the total amount of money the owner can access. The principle is that a child is entitled to benefit from the parent’s full financial resources.

An owner’s W-2 salary is the starting point for this calculation. Courts also review additional payments the owner receives, such as owner’s draws or profit distributions. These are considered income for child support, regardless of their classification for tax or accounting purposes.

A part of the analysis involves scrutinizing business expenses to identify personal benefits paid for by the company, known as “add-backs.” For example, if the business pays for the owner’s personal vehicle, non-business-related meals, or travel, the value of these perks can be added to the owner’s income. This prevents personal living expenses from being improperly shielded as business deductions.

Courts may also examine the company’s retained earnings, which are profits kept within the business. If profits are intentionally held in the company to reduce a parent’s apparent income, a judge may attribute these retained earnings as income. This often requires a review of the business’s financial statements and tax returns.

How Business Structure Impacts Collection

The legal structure of a business is a primary factor in how child support can be collected from its finances. Different entity types offer varying degrees of separation between an owner’s personal assets and the company’s assets.

Sole Proprietorships and Partnerships

In a sole proprietorship, there is no legal distinction between the owner and the business. The business’s bank account is therefore treated as the owner’s personal property for debt collection, including child support arrears. If a sole proprietor falls behind on payments, agencies can directly access the business bank account through actions like a bank levy. This principle also applies to general partnerships, where a partner’s personal assets are vulnerable.

LLCs and Corporations (S-Corp, C-Corp)

Limited Liability Companies (LLCs) and corporations create a legal separation between the business and its owners. This “corporate veil” makes the business a distinct legal entity. This structure protects the business’s bank account and assets from being seized to satisfy an owner’s personal debts, including child support.

This protection is not absolute. Child support is most often collected by targeting the compensation the business pays to the owner. Enforcement agencies can issue an income withholding order to the LLC or corporation, requiring it to garnish the owner’s salary, wages, or distributions.

A court can also take action to “pierce the corporate veil,” which sets aside the liability protection of an LLC or corporation. This may happen if the owner is not treating the company as a truly separate entity. A frequent cause is the commingling of funds, where the owner uses the business bank account for personal expenses. When this occurs, a court may rule the corporate entity is an “alter ego” of the owner, making its assets directly available for the child support debt.

Enforcement Tools Targeting Business Accounts and Assets

Once a child support order is established, enforcement agencies use several tools to collect payments from business-related funds. The applicability of each tool can depend on the business structure and the owner’s relationship with the business.

An Income Withholding Order (IWO) is a common enforcement tool sent directly to the business. The IWO legally compels the business, acting as the employer, to deduct child support from the owner’s compensation. These funds are then remitted to the state’s child support processing center.

In cases of significant arrears, agencies may use a bank levy. This action directs the financial institution where business accounts are held to freeze and seize funds to satisfy the child support debt. While straightforward for a sole proprietorship, levying an LLC or corporate account may require a court to have first pierced the corporate veil. A levy can also target funds known to be a declared dividend or distribution that has been deposited.

For substantial unpaid child support, agencies can place a lien on business assets. A lien is a legal claim against property, such as real estate or equipment, that serves as security for the debt. This prevents the owner from selling or refinancing these assets until the debt is settled, and can lead to the seizure and sale of the assets to satisfy the obligation.