What Is Intermingling?

 

One of the most common mistakes business owners make — and one of the most costly — is mixing personal and business finances. In the legal world, we call this intermingling. It happens when there is no real separation between the money, assets, or expenses of a business and the personal finances of its owner.

This might look like paying for a family vacation out of the business account, using business funds to cover personal credit card bills, or moving money back and forth between two related LLCs without proper documentation. On the surface, it can seem harmless. But when a creditor is trying to collect a debt, intermingling becomes one of the most powerful tools they have against you.

 

What Is Piercing the Corporate Veil?

 

When you form an LLC, the law treats your business as a separate legal entity — distinct from you as an individual. That separation is what protects your personal assets when the business faces a lawsuit or debt. Your house, your savings, your personal bank accounts are generally off-limits to business creditors.

But that protection is not automatic or permanent. Courts can disregard the LLC structure entirely — a concept known as piercing the corporate veil — when they find that the owner was not genuinely treating the business as a separate entity. When that happens, you become personally responsible for business debts that you assumed the LLC was shielding you from.

 

The Scenario That Catches Business Owners Off Guard

 

Here is a situation we see more often than you might expect.

A business — let’s call it ABC LLC — runs into financial trouble. There is a lender owed a significant amount of money, or a creditor pursuing collection. The business owner decides the solution is to close ABC LLC and open a new company — New Co. LLC — and transfer the assets there. Fresh start, clean slate.

 

It doesn’t work that way. The lender can follow the assets to New Co. LLC. And if the owner personally guaranteed the original debt — which is common on business loans, SBA EIDL loans, and many commercial agreements — the lender can come after the owner personally as well. The new LLC does not insulate anyone from the obligations of the old one, particularly when assets were transferred specifically to avoid collection.

 

Why Your LLC May Not Protect You

 

Forming an LLC is easier than ever. But ease of formation does not equal automatic protection. There are three clear situations where an LLC will not shield you from personal liability:

 

1. You Signed a Personal Guarantee

If you signed a personal guarantee — which is standard on most business loans, commercial leases, and SBA loans over $200,000 — you agreed to be personally responsible for that debt. The LLC does not change that. The lender can come after you individually regardless of what happens to the business.

 

2. Certain Tax Liabilities

Payroll taxes and sales taxes are treated differently from ordinary business debt. Officers and owners of a company can be held personally liable for unpaid payroll and sales taxes even when the business is structured as an LLC. The IRS and state taxing authorities have collection tools that bypass the corporate structure entirely.

 

3. You Were Not Treating the Business as a Separate Entity

This is the intermingling issue. If you were paying personal expenses from the business account, commingling funds across multiple LLCs, or operating without a clear distinction between your personal and business finances, a court can find that the LLC was never truly a separate entity. At that point, the protection disappears — and you may be held personally responsible for business debts, and your other companies may be pulled in as well.

 

What Counts as Intermingling?

 

Some expenses fall in a gray area. A vehicle used for both business and personal purposes is a common example — with proper documentation and a reasonable business purpose, it may qualify as a business expense. There are legitimate overlaps, and a good accountant can help you navigate them properly. But some expenses are clearly personal. A family cruise is not a business expense. A home renovation is not a business expense. Groceries, personal clothing, and personal entertainment are not business expenses. Paying for these things from your business account — even occasionally — creates a record that a creditor or a court can use to argue that you were treating the business as a personal piggy bank.

 

The same logic applies across multiple LLCs. If you are moving money freely between two related companies without proper documentation, treating one company’s assets as available to the other, or failing to maintain separate books and accounts, you have effectively merged those entities in practice — even if they are legally distinct on paper. A creditor who can show that relationship may be able to hold both companies responsible for a single debt.

 

How to Protect Yourself

 

The solution is not complicated, but it requires consistency. Keep a separate business bank account and use it exclusively for business expenses. Pay personal expenses from your personal account. If an expense is genuinely shared — like a vehicle — document the business purpose and work with your accountant to allocate it properly. If you operate multiple LLCs, treat them as the distinct entities they are supposed to be: separate accounts, separate records, separate transactions, and proper documentation for any transfers between them.

You need a good accountant. Someone who understands business bookkeeping and can help you maintain clean, defensible records. And when creditors are involved, or when you are facing financial pressure and considering your options, you need a good lawyer — one who understands how these issues play out in court and can help you structure your affairs before a problem becomes a crisis.

 

The Bottom Line

 

An LLC is a powerful tool. But it only works if you use it correctly. The moment you start treating your business account like a personal account — or moving assets between companies to stay ahead of a creditor — you begin to dismantle the protection you thought you had.

If you are a business owner dealing with debt, creditor pressure, or uncertainty about your personal liability exposure, contact Keck Legal. We work with business owners at every stage of financial distress and can help you understand exactly where you stand.

 

 

DISCLAIMER: ALL INFORMATION CONTAINED HEREIN IS FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED AS LEGAL ADVICE. EVERY SITUATION IS DIFFERENT, SO YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE YOUR RIGHTS AND OBLIGATIONS REGARDING YOUR PARTICULAR SITUATION.