Building a profitable business from scratch can be a rewarding journey. However, what happens if that business becomes a point of contention during a divorce? For business owners, the possibility of losing the company they invested time and effort into can seem unfair.
What Is an LLC?
An LLC (Limited Liability Company) is a business structure where owners have limited personal liability for the company’s debts. This model is popular with small businesses because it separates owners’ personal finances from their liabilities. LLCs also allow profits to be taxed as personal income, avoiding the double taxation that occurs with other business structures.
How Is an LLC Treated in a Divorce?
In New Jersey, an LLC formed during a marriage is typically considered a marital asset. This means its value must be determined and divided fairly. However, New Jersey follows equitable distribution laws, which do not require a 50/50 split but instead consider what is fair based on various factors, including the length of the marriage, each spouse’s contributions, and future financial needs.
A company established before the marriage might be treated differently than one started during the marriage. Additionally, a prenuptial or postnuptial agreement that addresses the LLC could offer protection, as it may outline how the business should be treated in a divorce.
How Can I Protect My LLC in a Divorce?
If you own an LLC, there are several steps you can take to help protect it in the event of a divorce:
- Operating Agreement: An LLC’s operating agreement, which outlines ownership and management, may contain provisions for handling the business in case of divorce. This document can help clarify ownership and protect the company.
- Prenuptial or Postnuptial Agreement: These agreements can specify how the business will be handled if the marriage ends. If such an agreement is in place, it will often govern the distribution of the LLC.
What Are My Options for Dividing the LLC?
When dividing an LLC during a divorce, several options may be considered:
- Buyout: One spouse may buy out the other’s share of the LLC. This can involve cash, loans, or trading assets such as real estate or retirement funds.
- Sale of the Business: The business could be sold, and the proceeds split between both parties. This option might be chosen if neither spouse wants to continue operating the business or cannot agree on a buyout.
- Co-Ownership: In some cases, ex-spouses may decide to co-own the LLC post-divorce. However, this option is less common because running a business together after a divorce can be challenging.
How Is the Value of the LLC Determined?
In most cases, a third-party appraiser will be hired to determine the LLC’s fair market value. This valuation process considers tangible assets like real estate and equipment and intangible assets like intellectual property and goodwill. Debts or liabilities will be subtracted from the total value to arrive at the final number.
What Should I Expect During the Process?
Dividing an LLC in a divorce can be complex and may not always proceed smoothly. Divorce proceedings often come with emotional challenges, and disagreements about the future of the business can arise. It’s important to be prepared for potential roadblocks and to work with an experienced divorce lawyer who can guide you through the process.
The Monmouth County Divorce Lawyers at Zeigler Law Group, LLC Will Help You Protect Your Business
You need skilled legal representation if you are concerned about protecting your business during a divorce. The Monmouth County divorce lawyers at Zeigler Law Group, LLC can guide you through the legal process and help you safeguard your company. For a free consultation, complete our online form or call 732-361-4827 today. With offices in Toms River, Red Bank, Princeton, and Mount Laurel, New Jersey, we serve clients in Ocean County, Monmouth County, Mercer County, and Burlington County.