Personal liability for your husband's business debts in Pennsylvania depends largely on the legal structure of the company. Some business forms allow limited liability protection for personal assets, while others leave your personal assets completely vulnerable. Wage garnishment in Pennsylvania is only available for child support, student loans, criminal activity, alimony and back taxes, which means creditors cannot go after your income to pay off business debts, regardless of business type.
Sole Proprietorships
A sole proprietorship is the easiest business to create in Pennsylvania and other states because it involves almost no paperwork. The disadvantage with a sole proprietorship is unlimited personal liability for business debts. Creditors of the business can come after any assets bearing your husband's name while in pursuit of payment. Creditors may sue in civil court to place liens on your personal property, including your home and vehicles. Business debt also could push your husband into bankruptcy, which may require the liquidation of your personal assets to satisfy the debts of his business.
Business Partnerships
A business partnership in Pennsylvania may carry unlimited or limited liability for each partner, depending on how the business defines itself. A partnership agreement clearly defines the roles and percentage of liability of each partner in the business. It doesn't make sense for your husband to carry unlimited liability when he's only a 10 percent investor in the business. This agreement, while not required by law, can be a great help when a business fails and creditors begin making phone calls about late payments and possible legal action. A limited partnership limits liability for business debts for owners who do not make management decisions for the company.
Limited Liability Companies
A limited liability company formed in Pennsylvania and other states protects your personal assets from creditors of business debts. This means most creditors may only pursue business assets to recoup business debts. How your husband chooses to file taxes with his limited liability company determines the business' tax liability. The business may file federal taxes as either a sole proprietorship, partnership or corporation. Filing federal taxes as a corporation grants the greatest liability protection for your personal assets.
Corporate Business Liability
A corporation exists as an entirely separate entity from its creator. This provides limited liability protection for the controller of the corporation from creditors of the business. Creditors generally cannot attempt to seize your personal assets to repay debts associated with the corporation. The corporation may sell assets or enter bankruptcy on its own to repay or avoid paying debts, but these actions should not affect your personal assets or your personal credit rating.
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