How does divorce affect your LLC?

On Behalf of | Sep 9, 2021 | Property Division |

As a business owner, you may worry about losing your company in a divorce. However, depending on the business structure and the other people involved, you might have a degree of protection. According to Wallet Hub, Texas tops the list of the best states to start a business. A Limited Liability Company is among the most popular business structures for new entities. It provides similar benefits as a corporation and allows for personal asset protection.

The way you address the company during divorce proceedings may depend on a variety of factors, including whether you created it before or after the marriage and members. Limited partnerships and family businesses are the two types of LLCs.

Limited partnerships

Limited partnerships typically have several members. At least one member is a general partner who has protection from liability. The general partner has a say in the operational matters of the LLC. Limited partners have liability equal to their contribution to the formation of the LLC. However, they have no say in the way the business operates. Spouses who own part of the LLC must calculate the value of the portion they own as individuals or as a couple before addressing it during mediation or trial.

Family businesses

Family businesses often have one or only a few members. A spouse that is also a member of the entity must put the community estate ahead of their personal interests when conducting LLC business. Since family businesses typically have fewer members than limited partnerships, dividing the ownership interest may be easier. The parties involved oft divide the LLC between themselves. Another option involves retaining ownership by giving up property or assets equal to the business interest.

The law provides for a fair division of property, which does not necessarily mean equal. Utilizing mediation or other dispute resolution methods might help you reach a settlement agreement faster and less expensively than a court trial.