If you or your spouse own a
business or own a portion of a business it is possible that that business is classified
as a Limited Liability Company (LLC). As opposed to operating a business as a sole proprietorship or partnership,
an LLC protects the owners of a business from liability and allows the
members to be in control of the business itself. There are also tax benefits
associated with this classification.
Suppose then that you and your spouse are moving towards a
divorce. There would be a need to determine how the LLC is going to be handled
as a consequence of the divorce. The relevant questions to ask yourself
will be discussed in today’s blog post as well as an overview of
the types of LLCs that exist.
What to ask yourself if you or your spouse own an interest in an LLC
As with any financial asset in your life you will want to figure out the
value of the LLC. There are people who appraise businesses for a living
that can be hired to do this or you can always submit your own estimate
to your spouse and their attorney and see if it is accepted.
Depending upon how the LLC was started (with what sort of money) and when
it was started the LLC may be considered community property and would
be subject to division in the divorce.
Another less thought of consideration that I think is crucial to take at
the outset of a divorce is whether or not you or your spouse’s interest
in the LLC, whether it is 1% or 100%, can be transferred to another person.
Sometimes in the formation of the LLC there are restrictions placed on
transferring your interest. A divorce decree cannot override any prior
What are the different types of LLCs?
If you or your spouse are the
general partner in a limited partnership then you may have also placed your general partnership within the confines
of an LLC in order to protect yourself from liability. The reason for
this is that not only would you be the person who manages the operation
of the limited partnership, but you would also be the party who is personally
liable for whatever obligations that the partnership takes on.
In doing so, the LLC can take on a limited percentage of ownership in the
company but will take on all of the liability. The benefit of being the
general partner within an LLC is being able to have a say and direct the
day to day dealings of the limited partnership.
The limited partner has no liability beyond what he or she contributed
to the formation of the partnership, but that party has no control over
the day to day operation of the company. Depending on whether or not you
and your spouse share in the partnership the value of each portion will
need to be analyzed prior to final mediation or trial.
operating business is another type of LLC that is commonly seen. These businesses are more
often than not made up of only one or a few members.
If you are the spouse that is a member of this type of LLC you owe a fiduciary
duty to the
community estate which means that you must put the interests of your community estate (the
estate of which you and your spouse both share in) before your own interests
in conducting business related to the LLC.
The benefit of having only one owner is that it is easier to divide the
ownership interest in a divorce case between you and your spouse. There
is merit to the discussion of what is more advantageous for both parties:
dividing the LLC up between each of you or allowing one spouse to retain
their ownership in the LLC and then providing the other with assets or
property that are equal to the ownership interest in the LLC.
Maybe the most well-known sort of business that can operate as an LLC,
and one that is especially appropriate to discuss in the context of a
family law case, is a
When created, family businesses often place restrictions on who can become
a member. This is done in order to make sure that only family members
can actually join in the family business. Divorce is an easy way for an
interest in the business to be divided up all sorts of different ways
where the “purity” of ownership can get muddied. LLCs can
restrict membership and keep the “bloodlines” pure in the LLC.
How is an LLC formed?
Now that we know a few of the different types of LLCs let’s discuss
how one is actually formed. The origination document is known as an operating
agreement. The terms by which the LLC is operated, the manner in which
debts are paid or members get paid are laid out, as well as who can actually
become a member of the LLC.
As we touched on earlier in these blog post restrictions on how an interest
in the LLC can be transferred are gone over in the operating agreement.
Usually, a transfer of an ownership interest is made to be fairly difficult
in order so that membership in the LLC is controllable.
Now that we’ve discussed the basics of an LLC we can get into what
can happen to an LLC in your divorce. Stay tuned for tomorrow’s
blog post from the
Law Office of Bryan Fagan that will discuss exactly that.
Questions about LLC division in a Texas divorce? Contact the Law Office
of Bryan Fagan to learn more
If you are a member in an LLC or your spouse is it’s likely that
you have questions regarding how this circumstance will impact your divorce.
The attorneys with the
Law Office of Bryan Fagan offer free of charge
consultations to answer these questions and any others that you may have. A consultation
is free of charge and can be the difference between your having anxiety
surrounding your divorce or having peace of mind that your divorce will
be handled correctly.
If you want to know more about what you can do,
CLICK the button below to get your
“16 Steps to Help You Plan & Prepare for Your Texas Divorce”
If you want to know more about how to prepare,
CLICK the button below to get your
“13 Dirty Tricks to Watch Out For in Your Texas Divorce, and How to Counter
Other Articles you may be interested on regarding Houston Court Local Rules:
- The effect of a divorce on an LLC, Part Two
- Business owners should be aware of the following tips to prepare for a
divorce in Texas
- High asset divorces and their affect on Golden Years Divorces
- What happens to your business in a Texas Divorce?
- How to handle a high net-worth divorce in Texas
- High Net Worth Divorce / High Asset Divorce
- Business Owners and Business Assets in a Texas Divorce
- Attacking the Enforceability of a Premarital Agreement in a Texas Divorce
- My Fiancé wants me to sign a Texas Prenup. What should I do?
- Dower Contracts and a Texas Divorce
- Can I sue my spouse's mistress in Texas?
- When is, Cheating Considered Adultery in a Texas Divorce?
- 6 things You Need to Know Before You File for Divorce in Texas
- Texas Divorce Morality Clause: Be Careful What You Ask For
Law Office of Bryan Fagan | Business Owner Divorce Lawyer
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Business Owner Divorce Lawyer, it's important to speak with a
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