When you are going through a divorce, or about to go through a divorce, the division of the marital assets can be a particularly stressful sticking point of the whole process. After all, some of our assets are not only financially lucrative, but are also incredibly personal. If you are a business owner, for instance, you have likely poured much of your time, energy, and heart to growing and sustaining your business. The thought of having your business interests subject to division during divorce can be a tough pill to swallow. Before panicking, it’s important to look into your options and see what can happen to an LLC in a divorce and what you can do to protect your business interests.
What Happens to an LLC in a Divorce?
To be clear, an LLC can be considered a marital asset and, thus, a spouse’s interests in the LLC can be subject to equitable division. An owner of an LLC, or “member,” holds a membership interest in the LLC which is considered a property interest like any other asset that would be subject to division in a divorce. It’s interesting to consider that forming an LLC can help protect certain assets in the event of a divorce, but the LLC itself is not generally protected from equitable division in a divorce.
There are, however, ways that you can protect your LLC in the event of a divorce arising down the road. For starters, you can protect your LLC interests in a prenuptial or postnuptial agreement. A prenuptial agreement is an agreement between two soon-to-be spouses that will dictate things like how property will be divided in a divorce as well as addressing issues such as alimony. A postnuptial agreement can do the same thing, but it is established after the couple has already been married.
A court will only divide property deemed to be marital property in a divorce. Separate property remains under the ownership of the spouse that brought into the marriage. Marital property is generally considered that which was acquired during the marriage. Separate property is generally considered to be that which was acquired prior to the marriage, or which one spouse was gifted or inherited. An LLC you formed prior to marriage may be considered separate property, but it may still, in part, be considered a marital asset if your spouse has made contributions to the business increasing its value. To help protect your LLC from being considered marital property and subject to division, state that your LLC interests are to be considered separate property in your prenuptial or postnuptial agreement.
You can also protect your LLC through a well drafted operating agreement. While having your former spouse receive part of your LLC interests in divorce proceedings still will not mean that they can run your business, it can still be uncomfortable to consider they have an interest in the business. Your former spouse will be considered a third party member of the LLC and will, as a result, have a right to financial distributions made by the LLC. A third party of an LLC, however, cannot be members of the LLC unless it is approved by a majority of those holding membership interests. This LLC protection can be further strengthened by specifying that a larger amount of membership consent is needed in order to admit a new member to the LLC.
Florida Family Law Attorneys
For more ways to protect yourself in the event of divorce, talk to the team at Bernal-Mora & Nickolaou about your options. Contact us today.