Coordinated Counsel®
Commingling Business and Personal Accounts
Transcript
BARRY: All right. Commingling. What does that mean? And why is it on the list? It’s number seven. It’s bolded. Tell us about that.
CHAD: Well, you know, it kind of also probably– I guess everything is tying back to entity selection a lot too. Commingling, really what I’m referring to is keeping your business accounts and your personal accounts separate.
It’s really important, because if you don’t– Well, one, when you’re doing your taxes, first of all, how are you going to know what was spent, how much profit there was? Inadequate bookkeeping, I guess you could say, is another one. Incorrect bookkeeping. There could be tax exposure. The business could run out of funds quickly if you’re using it for personal expenses. Especially if you have a spouse who likes to spend a lot of money. If the funds are commingled, maybe they’re going to be bleeding the business dry and you don’t even know it.
I’m sure you can elaborate on a lot of legal reasons why, but it just complicates the overall planning picture. In terms of projections – we talked about valuations earlier – I don’t know how in the world you’d be able to do a valuation if your business and personal accounts are commingled. I think that’s another issue in itself.
BARRY: I think that’s a great point. And I have other points to add from a legal side. But business valuation side, you’re crushing yourself for getting the benefits of a favorable treatment. You’re handcuffing yourself with respect – and you can confirm this – when you’re talking about getting a loan and they’re doing the evaluation of how much money you make. Are you W-2ing yourself? Where are you in your salary?
CHAD: There could be all sorts of income tax issues. Is it distributions? Is it salary? What is it? I guess we can’t understate the importance of keeping good records. That kind of ties into this too.
BARRY: I would add that all of those are really, really good reasons, but they supplement the main reason in my opinion you don’t want to commingle. And that is– Just to kind of back up a little bit, we’re talking about having a business. Doesn’t matter what it is. Partnership, limited partnership, LLC, C corp, S corp, it doesn’t matter.
If you start commingling and start going out for dinner with your friends and going to the bar and running it through the business and doing inappropriate business deductions, paying your electric bill, paying things that are clearly not business. If you are ever sued personally – or even through the business – you’re substantially increasing the likelihood that that business will be disregarded as a legal entity.
CHAD: You’re bringing me back to law school here. This is the piercing of the corporate veil.
BARRY: Piercing of the corporate veil. They have a good name for it. Piercing of the corporate veil. It means in plain English that they can get through the business to the shareholder and go after the shareholder’s assets because there’s really no separation of business and shareholders’ interests. And that kind of defeats one of the very purposes for why people actually form them in the first place. One was limited liability, and two is tax and shareholders and structure.
The flagship case that this kind of developed on was related to Dania Jai Alai. Do you remember Dania Jai Alai?
CHAD: Yeah. I actually do remember this case.
BARRY: Do you? There was a valet parking company that was doing a valet for Dania Jai Alai and they had an accident and they kind of crushed somebody between two cars. And they sued and there was all sorts of problems with the structure. And they ended up piercing it and getting at Dania Jai Alai as a result. And that was kind of like the flagship case.
CHAD: Ironically enough, back in high school I used to go to Dania Jai Alai. I think it was Tuesday nights for dollar popcorn, dollar hot dogs, and sit there and watch some jai alai.
BARRY: I’ve been, I’ve been. And every time I go there, of course, I think of that issue. And I want to tell somebody about it there, but they don’t want to hear me. They don’t want to talk about that while we’re playing jai alai. So I would say that this ties into–
CHAD: Every time I’m at– Obviously it’s been a while, but either the Fontainebleau or the hotel next to it, Eden Roc, when they– One of the first cases in law school was that the property rights of the building block the pool because–
BARRY: Air rights?
CHAD: Yeah.
BARRY: That’s an interesting one. Air rights.
I would say that commingling ties into observing the corporate formalities. You want to make sure your company stays separate, distinct, and protected. And that’s just one of many.
Dangers of Commingling: What Business Owners Need to Know
By: Barry E. Haimo, Esq.
November 20, 2025
When you own a business, your finances are more than just numbers — they’re the foundation of your protection, growth, and long-term success. Yet one of the most common (and costly) mistakes small business owners make is commingling personal and business funds.
How does this work? And why is it so bad to do?
What Is Commingling?
Quite simply, commingling happens when you mix business and personal finances. It might be as simple as using a business credit card to pay for groceries or depositing a client check into your personal account “just this once.” These small actions can blur the legal and financial boundaries between you and your business, creating major problems down the line.
Why Commingling Is a Legal Risk
Essentially, commingling undermines one of your most important protections: the corporate veil. This “veil” is what separates your personal assets from your business liabilities. If you’re ever sued, creditors or plaintiffs can argue that you didn’t treat your business as a separate entity, and therefore should be personally responsible for its debts or judgments. Courts often look at whether you’ve maintained proper corporate formalities — such as separate bank accounts, documented transfers, and consistent record-keeping — to determine whether that veil should hold.
In other words, your home, savings, and even your family’s inheritance could be at risk simply due to commingling.
Commingling can also have ripple effects when it comes to structuring trusts or planning for succession. If ownership interests or distributions are unclear, the business may lose value, face tax complications, or even become tied up in probate disputes.
Financial Complications for Business Owners
From a financial perspective, commingling creates confusion that makes it nearly impossible to understand your company’s true financial health. When personal and business expenses overlap, bookkeeping becomes unreliable, tax deductions may be disallowed, and valuations can be skewed.
This lack of clarity affects everything from day-to-day budgeting to long-term planning. Bottom line: you can’t forecast accurately if you don’t know how much your business actually earns — or how much you’re spending. It also complicates tax time, because the IRS can view disorganized records as potential red flags, leading to audits or penalties.
How to Avoid Commingling
The good news is that preventing commingling doesn’t require an accounting degree.
Here are several simple but powerful steps you should follow:
Open separate accounts. Maintain distinct bank accounts and credit cards for your business and personal expenses.
Pay yourself a salary or draw. Don’t dip into business funds for personal expenses. Transfer money as an official owner’s draw or payroll payment.
Keep clear records. Use accounting software to track income and expenses accurately.
Document loans or transfers. If you lend money to or borrow from your business, record it properly with a promissory note.
Work with professionals. Regular check-ins with your estate planning attorney and financial advisor ensure your structure and strategy remain aligned.
Commingling might seem harmless in the moment, but it can unravel years of hard work. Keeping your finances clean protects not only your business, but your legacy. With proper planning, you can safeguard your assets, reduce tax headaches, and ensure your company continues to serve your family for generations to come.
And if you’re interested in getting all of your advisors on the same page, reach out to Kinnect Financial.
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