When you get married and choose to merge finances to create a true partnership, not everyone thinks about the “what ifs” later in life. That can be particularly true when you choose to start a business. Most couples are focused on the details of ensuring their new venture is being set up and run properly. Even if only one spouse has started the business, there will be considerations to take into account should something ever go awry in your marriage.
Anyone who owns a business can attest to the fact that it’s a stressful endeavor. Most people dream about becoming self-employed with the goal of having more free time for family and to enjoy life more. The truth is you work longer and harder for yourself every day than you do working for anyone else and it can take a toll on even the best of marriages. Now throw the stress of running a successful company into the mix of assets when 50 percent of typical marriages end, and you may be facing a more complicated high net worth divorce.
What is an LLC?
An LLC is a limited liability company. It’s a way to officially organize your business through the Secretary of State, and it comes with certain legal protections and tax advantages. Different business structures are better suited for concerns regarding the number of partners, who will have more liability and control, and so on.
When it comes to business, the name of the game is protecting everything you’ve worked for from loss such as what you can experience from a lawsuit. For example, say you own a successful dental practice, and a patient claims you’ve injured him and he sues. Operating under an LLC means your business can be sued, but you cannot be personally sued. Your home, cars, retirement accounts and other marital assets will be shielded.
It also means that if you incur debt to grow your business, only those named as partners will be responsible for the liabilities of the company. So if you divorce, and only one spouse owns the LLC, that spouse is solely responsible for the debt associated with the business. If both spouses own the company, you’ll both bear the responsibility.
Could I receive part of my spouse’s LLC in a divorce?
While the point of forming a LLC is typically to protect the business assets from anyone who isn’t an owner, that may not be the case in a divorce. If marital funds were used to start the business or to maintain it at any point, funds have very likely been co-mingled enough to have transformed it into at least partial marital property. That means you will have a right to a partial interest in the company, and the business will have to be valued to determine your share.
In some cases it may require some financial juggling to buy you out, if that’s what you want. However, if your spouse’s business has been suffering and marital funds were used to keep it afloat, that marital asset could very well end up being handed over to you as part of a settlement agreement or award at trial.
If you and your spouse both equally own the business then you will need to determine how to proceed after divorce, whether that be:
- Retaining co-ownership
- Initiating a buyout
- Dissolving the company
Do I need an LLC if I’m not sure about marriage?
As a business owner, it is smart to form an LLC, assuming that type of organization is an appropriate fit for your type of operation. The primary question should be whether one or both spouses should become owners if you decide to get married. Even if you’re already married and things are going great, you may want to discuss forming an LLC with an accountant and family law attorney if you are preparing to venture into self-employment. Premarital or postmarital agreements may offer further benefit to both spouses regardless of what the future may hold. You can outline protections to ensure your spouse doesn’t have any right to make a claim against your business should you divorce. In the alternative, you can protect your spouse from any trouble that could arise from the business in the future.
Whether or not you are married, often an LLC is a solid method of protecting your livelihood as an entrepreneur. It can become crucial to maintaining your means to earn a living if your marriage is ending, but you need to be aware of the pitfalls that can damage that layer of protection. The Charlotte high net worth divorce attorneys at Epperson Law Group, PLLC can explain the pros and cons to you so that you aren’t left vulnerable. To schedule your private consultation with one of our caring family law attorneys in our Charlotte, Boone, Concord, or Weddington offices, call 704-321-0031, or reach out to us through our contact page.
At Epperson Law Group, PLLC, we are guided by a commitment to helping you achieve favorable results in an efficient manner. Our Charlotte divorce and family law attorneys work with clients every day who face a range of divorce, custody, and other family law issues.
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