Garnishment: Another Good Reason for Incorporation
I have written a great deal about the advantages of incorporation over the years. A corporation creates a separate legal entity whose assets and liabilities are separate from any individual - it can be an effective asset protection tool to separate the risks of business from our personal assets. However, I recently discovered a fascinating new corporate benefit.
The corporation provides a useful strategy that can also limit the consequences of of personal judgments. Satisfaction of personal judgements frequently occurs through payroll garnishment. It is interesting to note that the rules governing garnishments provide favorable treatment to employees of corporations, compared to sole proprietors.
As an employee of a corporation, a creditor may garnish only 25% of an individuals wages, compared to 100% of the wages of a sole proprietor. This can mean the difference between successfully managing and surviving the impact of a judgment and not surviving such a disaster.
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