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LLC Ownership & Divorce
When couples that own a Limited Liability Company or a portion of it want a divorce, in addition to finding a lawyer, they will first have to figure out the value of that LLC. They can hire professional appraisers for the task or just make their own calculations and come up with an estimate. They need to do this because depending on how the business was started, that LLC could be considered as community property, and community property has to be divided during a divorce. However, if there were any restrictions placed on transferring interest in the LLC, not even the court can override them.
See Also…Benefits of Chapter 13 Bankruptcy | Low Income Divorce Options
Limited Partnerships and Family Businesses
There are two types of LLCs and they include:
- Limited Partnerships: Consists of multiple members where at least one member is a general partner. A general partner is protected from liability, when they put their general partnership under the confines of a limited liability company. What this does is put all the liability on the LLC. The General partner has a say in the running of the limited partnership. Limited partners only have liability equal to what they contributed to the formation of that LLC, but have no say in running it. Spouses that own portions of an LLC need to first calculate the value each of them hold as individuals or as a couple before a final mediation or trial.
- Operating Business: These are often made up of only one or a few members. A spouse that is a member of such an LLC must put the interests of community estate before their own interests in conducting business related to the LLC. Since it has only one or a few members, it is easier to divide the ownership interest of that LLC in a divorce. Parties can divide the LLC between themselves, or one party can retain ownership and give the other party assets or property equal to the ownership interest in the LLC. A fitting example of an operating business is a family business.
Forming An LLC
To form an LLC members have to create an origination document called an operating agreement. The following terms are laid out in the agreement:
- Terms for the operation of the LLC
- How debts will be paid
- How members will be paid
- The requirements for becoming a member of the LLC
- How interests can be transferred
The reason why an LLC’s operating agreement outlines how interests can be transferred is to control LLC membership. It generally outlines the rules, regulations and provisions related to the LLC’s finances. Most LLCs, especially if they are family businesses tend to use this agreement to restrict membership.
It becomes an official contract after all the members sign it, which means all members are bound to its terms. During divorce it is not unusual for couples to be a little confused about how their LLC memberships will impact their divorce. However, experienced divorce lawyers can answer all the questions you have, and will review your case to come up with a solid strategy for the situation.
