Avoiding Wage Garnishment In A Closely Held Small Business

Unmarried debtors who do not support minor children or a spouse are not exempt from wage garnishment. Where such debtor is involved in a closely held small business there may be planning opportunities to protect from garnishment periodic receipts from the business.Small business can pay some of its key personnel either as salaried employees or as independent contractors. The payment method and employment characterization of the key employee may have income tax consequences, and it may also affect the protection of compensation from judgment creditors.

Salary paid to an employee and periodic payments to an independent contractor are both subject to garnishment by the judgment creditor. The difference is that Florida law permits a continuing writ of garnishment of salary. By serving the initial writ of garnishment on a small business employer, the creditor gets a perpetual garnishment of all future salary payments. Florida law does not permit continuing writs of garnishment of payment to independent contractors. So, if a small business pays its key employee as an independent contractor a judgment creditor of same key employee would have to obtain separate writs of garnishment each time the employer was to make payment. It would be very difficult for the creditor to anticipate payments to the independent contractor and to serve a writ prior to each payment.

Therefore, a debtor who is not head of household is better off being compensated as an independent contractor rather than as a salaried employee.

 

Last updated on May 22, 2020