By Jacob Stein, Aliant USA. Courts traditionally respect corporate structures, recognizing them as separate legal persons from their owners. This separation is what allows business owners to avoid personal liability for their entity’s debts. But when courts suspect that an entity is nothing more than an extension of its owner—a mere alter ego—judges can use the legal doctrine of piercing the corporate veil to hold the owners personally accountable. This is no longer a rare occurrence. Recent cases show a growing trend of courts scrutinizing and dismantling poorly maintained asset protection structures.
Take Citibank, N.A. v. Aralpa Holdings, a case that sent shockwaves through the asset protection world. In this New York federal case, multiple single-member LLCs were stripped of their limited liability protections after the court determined that they existed solely to protect the owner’s luxury real estate from creditors. The LLCs had no distinct business function, were entirely controlled by one person, and had their expenses paid directly from the owner’s personal accounts. The ruling was clear: if an entity is nothing more than a legal fiction, it cannot serve as a shield against creditors.
A similar ruling came in In re Ashley Albright, where a Colorado bankruptcy court decided that a single-member LLC offered no meaningful protection when the owner exercised total control without following corporate formalities. Since Albright was the sole member and failed to establish any independent decision-making for the LLC, the court ruled that the company’s assets were indistinguishable from her personal assets. As a result, creditors were granted direct access to the LLC’s property.
These cases illustrate a legal shift—judges are no longer hesitating to look beyond paperwork and determine whether an entity operates as a genuine business or a personal piggy bank. Courts tend to scrutinize businesses that fail to maintain separate accounts, engage in self-dealing, or use LLCs and trusts as little more than asset-holding shells.
Another critical factor is financial health. Courts are highly skeptical of undercapitalized businesses—companies that have no real assets or income beyond the personal wealth of their owners. If an entity appears to exist solely as a legal shield rather than a functioning business, judges are more likely to pierce the corporate veil.
Transparency is another key consideration. Transactions between related entities should be properly documented and conducted at arm’s length. Courts often look for signs that an owner is moving money or assets between entities in an attempt to create legal distance while still maintaining personal control.