Couples don’t have to share everything, including business debt. Fortunately, if you are a sole proprietor residing in Florida, your business debts are legally considered personal debts and may not affect your spouse. However, there are several factors in play here and the answer entirely depends on your specific case. Here is what you need to know to assess your situation better.
Florida is a common-law property state
In Florida, a spouse is not automatically liable for debts incurred solely by the other spouse. If a husband incurs $10,000 in business or personal debt under his name alone, that liability belongs to them individually. Because the debt is not joint, creditors cannot go after the non-debtor spouse’s separate property or personal bank accounts and that spouse’s credit score will remain unaffected by an individual bankruptcy filing.
Tenancy by the entirety (TBE) shield
Tenancy by the Entireties (TBE) is a powerful legal protection offered by the state of Florida to married couples. It protects their jointly owned properties, such as real estate and bank accounts. Under TBE, the property is a single marital entity that both members of the couple own. Consequently, a creditor of only one spouse cannot seize, liquidate or force the sale of TBE property to satisfy an individual debt.
There is always a “but”
Your spouse is largely safe. However, the creditor can still pursue them if they had co-signed a business loan or offered a personal guarantee on your behalf. Further, you may pull your spouse into the fray if you panic-transfer all your property to them, fearing confiscation. A bankruptcy trustee can audit your past transactions and undo them if they find them fraudulent. Lastly, the TBE shield can prove ineffective against joint debt.
Proactive protection
If you are not careful enough and don’t have a safe exit strategy, you may put your spouse at risk. That is why you need to consult a legal counsel experienced in bankruptcy cases who can lead you through the right course of action.