Q: Is my spouses half of our assests at risk if I file bankruptcy to discharge a personal guarantee on business debt?
I started a business in 2011 (LLC). I am the solemember owner. Hired my now husband in 2013 as a w2 employee to do accounting work. We got married in 2015. I took out a business loan I personally guaranteed in 2020.
My question is, if I have to close the business and cannot pay the loan off and file personal bankruptcy (alone without my spouse) to discharge the personal guarantee, is my spouse also half responsible for the personal guarantee on the business debt?
We did not ever put any of our joint money into the business while married.
We did however take distributions over the years though NOT after the loan was taken out.
Hope this all makes sense.
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A:
Filing for bankruptcy on your own does not automatically make your spouse responsible for your personal guarantee on the business debt. In Arizona, which is a community property state, assets acquired during the marriage are generally considered joint property, so the bankruptcy could impact jointly owned assets. However, since the debt is tied to a personal guarantee you made before marriage, your spouse may not be directly liable for the debt itself.
The key concern here is how your jointly held assets could be affected by the bankruptcy. Even if your spouse isn’t responsible for the debt, the trustee might look at shared assets when determining what can be used to pay off creditors. It’s essential to distinguish between separate and community property to protect your spouse's portion of the assets.
You should also consider the timing of distributions and how the bankruptcy court might view those transactions. Since no joint funds were invested in the business after the loan, that fact could work in your favor. However, consulting a legal expert familiar with Arizona’s community property laws would be helpful to ensure that both your and your spouse’s interests are protected in this situation.
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