Asset protection in the event of bankruptcy against an LLC. Are my homes protected if the business goes bankrupt?

If you create an LLC and transfer all of the assets of the business into the LLC, you are insulated from personal liability so long as you run the LLC property. The concept of an LLC is to insulate business persons from personal liability.

You should investigate the recording costs and transfer tax, if any, for transferring the building from your and your husband's names into the name of the LLC. The LLC should have its own tax identification number (EIN), even though the profits or losses will be passed through to you and your husband personally.

So long as you do not mix your personal assets and activities with those of the business, and so long as you adequately capitalize the business (which it sounds like you have done since it is a going business), you should be able to protect yourselves.

One caveat. If you take out the loan to upgrade, the bank may require a personal guaranty. That is quite common. If it does, you are then personally liable if the LLC cannot pay the debt.

Asset protection is a very tricky area. You should not take another step without consulting a qualified asset protection attorney in your state. It is very easy to make a misstep. Furthermore, most lenders, particularly these days, will not make the loan based only on the credit of your business. And, if you sign personally, then of course your personal assets are subject to the claims of the lender and bankruptcy would probably cease to be a viable option.

i am not licensed to practice in the state of Ohio, accordingly, you should review my response with a licensed Ohio attorney.

Forming an LLC for you existing business has some pros and cons. On the positive side, utilizing an LLC can effectively shield your personal assets from liability for claims for personal injury and certain business debts.

With regard to your precise inquiry, I think you would have difficulty obtaining a loan with the LLC as the borrower, without giving the lender your personal guaranty for the debt. This means that if the business failed, your personal assets would potentially be at risk, although there are some asset protection planning tools that you should evaluate with a licensed Ohio attorney.

Bankruptcy could potentially protect your personal assets from creditors if the business failed. Generally, most states law allow a debtor to protect their equity in only one residence, so you would want to explore assigning your mother's home to her or perhaps a trust (in which she is the grantor), should you decide to move ahead with your expansion.

I wish you the best of luck and encourage you to contact an Ohio attorney with experience in bankruptcy and business planning.