LLC and Divorce

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LLC and Divorce

Any property you or your spouse acquired during your marriage is generally considered marital property. Marital property in New Jersey is divided based on numerous equitable factors. Some splits can be 60/40 or even 70/30. The division of property is not based on who has title to the property. Our skilled New Jersey division lawyers work aggressively to determine all the assets you and your spouse own and what their value is.

While some assets are easy to value and split, the issue of LLC and divorce can be very complicated. For example, it’s easy to value a bank account. Your account is worth a specific sum. If the account is to be divided in half, you just divide the amount in two. Determining the value of an LLC is quite difficult.

There are usually different ways to split LLC divorce assets. The two most common ways are:

  •       Selling the business and dividing the proceeds
  •       One spouse buys out the other spouse’s interest in order to keep sole possession of the business.
  •       Keeping a co-ownership in the business

What is an LLC?

According to Investopedia:

“A limited liability company (LLC) is a business structure in the U.S. that protects its owners from personal responsibility for its debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.” “While the limited liability feature is similar to that of a corporation, the availability of flow-through taxation to the members of an LLC is a feature of a partnership rather than an LLC.”

The first task in deciding how to divide a business involving LLC and divorce is determining the value of the LLC. There are various factors that business appraisers use in LLC and divorce valuation matters. These include examining the assets, the liabilities, the income the LLC generates, the number of employees, the location of the business, the type of business, and many other factors. Normally, you and your spouse will have separate appraisers evaluate the worth of the LLC in an LLC and divorce case.

Divorce and LLC ownership. The Buyout

There are generally two ways to buy out your spouse’s interest in your property or for your spouse to buy out your interest. The first is to trade other marital property. Where your spouse wants to keep his/her LLC (in an LLC and divorce case), your spouse may agree to waive/trade-off their interest in the marital home, your retirement accounts, or a business you own.

A second way for your spouse to buy out your interest in the LLC (in an LLC and divorce case), is to arrange for a loan to buy out your interest. Once your spouse acquires the loan, he/she pays you the loan amount and then makes regular loan payments. Alternatively, your spouse can use his/her existing bank accounts to buy out your interest. If your spouse cannot obtain a loan, then you “might” consider arranging to waive your interest in the LLC in return for regular installment payouts until the buyout is complete. These decisions can be made during a mediation session.

There may be tax consequences to the buyout which need to be reviewed.

Divorce and LLC ownership. Sale of the LLC

With this method, the LLC (in an LLC and divorce case) is sold and the proceeds are divided in accordance with the equitable distribution order. The key deciding factors are:

  •       Does one spouse want to keep the business? Many LLCs are valuable primarily because they provide an income. If your spouse has a professional LLC, then selling the business means losing his/her livelihood. 
  •       How much is the business worth? Some LLCs (in an LLC and divorce case), are hard to sell. It may take months or years to find a buyer. Other businesses are very desirable and can be sold quickly. 

Selling a business usually means paying a commission to a broker or someone experienced in the sale of  businesses.

Divorce and LLC ownership. Co-ownership of the LLC

If you and your spouse own a business together, you can continue to own the business together even if the divorce means you won’t be living together. You could continue working together. Even if just one spouse ran the business before the divorce , you could both agree to run the business together after the divorce. 

Normally, if spouses can’t get along well enough to live together, they can’t get along well enough to work together. There are exceptions though. If a buyout or a sale isn’t practical, then a co-ownership may be the best option.

Other factors that impact the dissolution of an LLC and LLC protection from divorce are the status of the spouse in the LLC (in an LLC and divorce case), – including ownership status, management status, and work status. For example, it may make a difference what type of partnership interest you have. Do you work with other family members or with business partners? Does the LLC have a buyout plan? There are many decisions that need to be considered.

At DeTorres & DeGeorge Family Law, our lawyers understand the various ways to dissolve businesses. We understand the relevant issues in an LLC and divorce case. We work with experienced financial professionals. To discuss your divorce rights, call us at 908-691-2104 or use our contact form to make an appointment. We have offices in Clinton and Morristown.

Erin D. DeGeorge
Erin D. DeGeorge joined DeTorres & DeGeorge, LLC as partner to the firm in June of 2010. Prior to joining DeTorres & DeGeorge, Erin was associated with the national firm of Fox Rothschild LLP and Cutler, Simeone, Townsend, Tomaio & Newmark, LLC...
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