Are LLCs ‘divorce-proof´? How is an LLC treated in a divorce?

Posted on September 16, 2021

A divorce case can quickly become complicated if the parties have a shared business. When a couple co-owns a business, they may face more complex decisions (with a higher financial impact) during the separation process.

If you and/or your spouse own a business or part of it, it is likely to be classified as a Limited Liability Company (LLC). This is not a bad thing. You can also form an LLC to take advantage of its benefits, such as:

• The ability to separate personal and business assets.
• A lower amount of paperwork compared to a traditional corporation.
• Flexibility to adapt the company to your needs.

This type of corporation is designed to protect its owners from liability and give them more control over their business. However, most states require that couples divide their marital properties equally after a divorce, and LLCs may be considered marital property in some cases. Therefore, during the divorce process, it is necessary to determine what will happen to the partnership.

Types of LLC you should know

As with many laws, each state has its version of what is considered an LLC, yet the legal structure is similar in most cases. The most important thing to know is that the owner of an LLC is also considered a member, and LLCs can have one or multiple owners. Below, we will briefly discuss some of the most common types of LLCs.

• Single-Member LLC
  This is the most popular and affordable filing type since it requires less paperwork than other LLC formations. In this kind of LLC, the owner is personally responsible for company transactions, taxes, and debts.
• General Partnership
  This is the preferred formation for LLCs with multiple members. In a General Partnership, all members take responsibility for company transactions, taxes, and debts.
• Family Limited Partnership
  Families can form LLCs to protect their property and business interests. This structure enables the transfer of the ownership from a generation to the next while securing some tax protections. In this LLC, there are two types of partnership involved: General partners are responsible for the management of the partnership and have unlimited liability. Limited partners don’t have any say in the management but also have limited liability.
• Series LLC
  In this business entity, debts, rights, and obligations are separated between a master LLC and one or multiple smaller cells (e.g., managers, members, etc.) called series. This kind of LLC is only available in some states, but it is quickly gaining relevance. Its unique structure helps segregate risks.

How is an LLC treated in a divorce?

Florida is an equitable distribution state. This means that, for divorce purposes, the property is divided as fairly as possible between both parties. Any property acquired during the marriage is considered marital property, while property acquired before, excluded by agreements, or inherited during the marriage, are referred to as non-marital property.

Your LLC could be considered a marital property depending on different factors:

• When the LLC was created.
• If you invested marital property in the LLC.
• Whether your partner contributed to the LLC.
• Any agreements related to the LLC.

For example, even if your LLC was created BEFORE marriage, it can be considered as marital property if you invested marital property in it.

Remember: An LLC is a financial asset and, as such, should be appraised during the separation process. You can hire the help of a lawyer or business appraiser or make an estimate of the value of the LLC on your own and share it with your partner and his attorneys to see if they agree.

An experienced family lawyer can help you determine the value and situation of your LLC, while protecting your ownership in case of a divorce. At the Roberts Family Law Firm, we will not only help you understand your situation and advise you on how to make the right decision, yet we will also negotiate aggressively to protect your interests and your business. Call us today at 407-426-6999 to speak with one of our experienced Orlando Divorce lawyers and learn more about our services.

David Roberts
Family Law Attorney