The effect of a divorce on your Limited Liability Company (LLC)

If you or your spouse own a business or a portion of a business, that business may be classified as a Limited Liability Company (LLC). As opposed to operating a business as a sole proprietorship or partnership, an LLC protects the business owners from liability and allows the members to control 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 will be handled due to the divorce. The relevant questions to ask yourself will be discussed today and 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. Some people appraise businesses for a living that can be hired to do this, or you can always submit your estimate to your spouse and their attorney and see if it is accepted.

Depending on how the LLC was started (with what sort of money) and when it began, the LLC may be considered community property and 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 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 sharing your interest. A divorce decree cannot override any prior agreements.

What are the different types of LLCs?

Suppose you or your spouse are the general partners in a limited partnership. In that case, you may have also placed your general partnership within the confines of an LLC 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.

The LLC can take on a limited percentage of ownership in the company but take on all liability. The benefit of being the general partner within an LLC is having a say and directing the day-to-day dealings of the limited partnership.

The limited partner has no liability beyond what they contributed to the formation of the partnership. Still, that party has no control over the company's day-to-day operation; depending on whether or not you and your spouse share in the league, the value of each portion will need to be analyzed before final mediation or trial.

An 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.

Suppose you are the spouse that is a member of this type of LLC. In that case, 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) before your 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 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 family business.

When created, family businesses often place restrictions on who can become a member. This is done to ensure that only family members can join the family business. Divorce is an easy way for an interest in the industry to be divided up in different ways where the "purity" "f own "ship can get muddied. LLCs can restrict membership and keep the "bloodline" s" pure in "the LLC.

How is an LLC formed?

Now that we know a few of the different types of LLCs let's dislet'show one is formed. The origination document is known as an operating agreement. The terms by which the LLC is operated, how debts are paid, or members get paid are laid out, and who can become a member of the LLC.

As we touched on earlier in these blog posts, restrictions on how an interest in the LLC can be transferred are discussed in the operating agreement. Usually, a transfer of an ownership interest is made to be pretty tricky so that membership in the LLC is controllable.

Now that we've diswe'ved the basics of an LLC, we can get into what can happen to an LLC in your divorce. Stay tuned for tomorrow's tomorrow from the Law Office of Bryan Fagan, PLLC, which will discuss precisely that.

Questions about LLC division in a Texas divorce? Contact the Law Office of Bryan Fagan to learn more.

If you are a member of an LLC or your spouse is, it's likeit'shat you have questions regarding how this circumstance will impact your divorce. The attorneys with the Law Office of Bryan Fagan, PLLC, offer free of charge consultations to answer these questions and any others you may have. A consultation is free of charge and can be the difference between having anxiety surrounding your divorce or having peace of mind that your divorce will be handled correctly.

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Law Office of Bryan Fagan, PLLC | Business Owner Divorce Lawyer

The Law Office of Bryan Fagan, PLLC, routinely handles matters that affect children and families. If you have questions regarding Business Owner Divorce Lawyer, it's essential to speak with a Business Owner Divorce right away to protect your rights.

A Business Owner Divorce Lawyer is skilled at listening to your goals during this trying process and developing a strategy to meet those goals. Contact the Law Office of Bryan Fagan, PLLC by calling (281) 810-9760 or submit your contact information in our online form. The Law Office of Bryan Fagan, PLLC, handles Divorce cases in Spring, Texas, Cypress, Spring , Klein, Humble, Kingwood, Tomball, The Woodlands, Houston, the FM 1960 area, or surrounding areas, including Harris County, Montgomery County, Liberty County, Chambers County, Galveston County, Brazoria County, Fort Bend County, and Waller County.