How is an LLC Treated in a Divorce?

When a couple goes through a divorce in Florida, dividing assets can become complex, especially when a limited liability company (LLC) is involved. Whether the LLC is jointly owned or operated by one spouse, its classification as a marital or non-marital asset determines how it will be divided. To protect your interests, you should hire a divorce attorney with experience in handling the division of business assets. 

Marital vs. Non-Marital Property in a Florida Divorce

Florida follows equitable distribution laws, which means that marital property (including both personal and business assets) is divided fairly but not necessarily equally. Before dividing an LLC, the court must determine whether the business interest is considered marital property.

• Non-Marital Property: If an LLC was formed before the marriage and was not financially supported or enhanced by the other spouse, it is generally considered non-marital property and not subject to division.
• Marital Property: If the LLC was established during the marriage or if the non-owner spouse contributed to its growth—whether financially, through labor, or strategic involvement—it may be classified as a marital asset.
• Partial Marital Interest: If an LLC was founded before marriage but increased in value due to joint marital efforts or shared finances, the increase in value might be subject to equitable distribution.

How Florida Courts Divide an LLC in Divorce

The following are common ways in which a Florida divorce court handles LLCs in divorce proceedings:

Awarding the Business to One Spouse

In many cases, one spouse is awarded full ownership of the LLC while the other spouse is compensated through other marital assets. This method avoids business disruptions and ensures continuity in operations.

• The court may award the business to the spouse who primarily operates or manages it.
• The other spouse may receive additional assets, such as real estate, retirement accounts, or cash, to offset their share of the LLC’s value.

Selling the LLC and Dividing the Proceeds

If both spouses have an equal or substantial interest in the LLC, selling the business and splitting the proceeds may be an option. This is usually considered when:

• Neither spouse can afford to buy out the other’s interest.
• The business is no longer viable or profitable post-divorce.
• Both parties agree that selling is the most practical resolution.

This option allows for a clean break, but it may not be feasible if the business is challenging to sell or if it generates significant ongoing income.

Co-Ownership After Divorce

In rare cases, ex-spouses may choose to continue co-owning the LLC after divorce, especially if the business is highly profitable and both parties play an active role. However, this arrangement requires:

• A detailed operating agreement outlining roles, responsibilities, and profit distribution is vital.
• Awareness that co-ownership can be a risky option if conflicts arise, potentially leading to future litigation.

Valuing the LLC for a Buyout

If one spouse wishes to keep the LLC, the court will determine its fair market value to facilitate a buyout. This process involves:

• Hiring business valuation experts to assess the LLC’s assets, revenue, liabilities, and market conditions.
• Using methods such as income-based valuation (projecting future earnings) or asset-based valuation (calculating the value of physical and financial assets).
• Negotiating a structured buyout where the purchasing spouse pays the other over time instead of a lump sum.

Challenges in Dividing an LLC During Divorce

Determining True Business Value

Valuing a family business or an LLC during the divorce process can be complex, especially if financial records are unclear or if the owner-spouse attempts to underreport income. Courts may enlist forensic accountants to investigate financial statements, cash flow, and hidden assets.

Protecting Business Continuity

Dividing an LLC can disrupt operations, especially if the divorce is contentious. Business owners often need legal strategies to protect the LLC’s stability, such as negotiating settlement terms that allow the company to continue operating efficiently.

Pre-Existing Business Agreements

Some LLCs have operating agreements or buy-sell agreements that dictate what happens in the event of a divorce. These agreements may include clauses that:

• Restrict ownership transfer to non-members.
• Require the LLC or other members to buy out the divorcing spouse’s interest.
• Define a predetermined valuation method for ownership stakes.

Such agreements can significantly impact how an LLC is handled during a divorce.

How to Protect an LLC in a Florida Divorce

Business owners can take proactive measures to safeguard their LLC from complications in a divorce:

Drafting a Prenuptial or Postnuptial Agreement

A well-drafted prenuptial or postnuptial agreement can specify that the LLC remains separate property, regardless of future marital contributions. This can prevent disputes over ownership and valuation.

Structuring the LLC with Protective Provisions

An LLC’s operating agreement can include protective clauses that:

• Limit ownership transfers to spouses.
• Approval from other members is required before transferring ownership.
• Set a fixed valuation formula for ownership interests.

Keeping Business and Personal Finances Separate

Mixing personal and business finances can make it easier for a spouse to claim marital interest in an LLC. Business owners should:

• Maintain separate business bank accounts.
• Avoid using matrimonial funds to support the business.
• Keep detailed financial records to prove the LLC’s status as a separate property.

Using a Trust to Hold Business Interests

Placing an LLC interest in a trust can shield it from equitable distribution by legally separating ownership from the individual spouse. However, this strategy must be implemented carefully and well in advance of a divorce.

How Our Florida Divorce Attorneys Will Protect Your Business and Financial Interests When an LLC is Involved 

At Veliz Katz Law, we understand that your business is more than just an asset—it represents years of hard work, investment, and planning. Our experienced Florida divorce attorneys will take strategic steps to safeguard your financial interests and ensure a fair resolution when an LLC is part of the marital estate.

Accurate Business Valuation to Prevent Unfair Division

If the LLC is deemed marital property, a fair and accurate valuation is essential to ensure equitable distribution. At Veliz Katz Law, we work with forensic accountants, business valuation experts, and financial analysts to assess the true worth of your business.

• Income-Based Valuation: Evaluating past and projected earnings to determine the LLC’s financial health.
• Asset-Based Valuation: Assessing tangible and intangible assets, including equipment, intellectual property, and goodwill.
• Market-Based Valuation: Comparing the business to similar LLCs in the industry to establish fair market value.

Develop a Strategy to Retain Ownership

If you wish to retain full ownership of the LLC after the divorce, we will negotiate terms that allow you to do so while fairly compensating your spouse. Possible solutions include:

• Buyout Agreements: You may offer your spouse a lump-sum payment or structured payments over time in exchange for their share of the LLC.
• Offsetting Assets: Instead of dividing the LLC, we can negotiate an asset trade where your spouse receives other valuable assets, such as real estate, retirement funds, or investments.
• Revenue Sharing Agreements: In some cases, if a complete buyout is not feasible, structured profit-sharing agreements can be negotiated to provide the non-owner spouse with a fair share of business income.

Enforce Operating Agreements and Business Protections

Many LLCs have operating agreements that outline ownership rights, restrictions, and succession plans. If your business has such an agreement, we will enforce its terms to protect your interests. Standard protective provisions include:

• Transfer Restrictions: Preventing the transfer of ownership shares without the approval of other LLC members.
• Preemptive Buyout Rights: Allowing existing members to buy out the divorcing spouse’s interest before outside ownership is introduced.
• Fixed Valuation Methods: Establishing predetermined formulas to calculate the LLC’s value in the event of a divorce.

Prevent Business Disruptions During Divorce

Divorces can be stressful, but they should not disrupt business operations. Our attorneys take proactive measures to prevent legal disputes from interfering with your company’s stability, such as:

• Negotiating Confidentiality Agreements: Protecting sensitive business information from being used against you or exposed in legal proceedings.
• Minimizing Litigation Risks: We seek amicable solutions through mediation or collaborative divorce whenever possible to prevent lengthy court battles that could harm your business.
• Structuring Legal Protections: We can help establish protective legal entities, such as trusts, to shield your business interests from being unnecessarily entangled in the divorce.

Legal Guidance on Post-Divorce Business Operations

Even after the divorce is finalized, certain legal and financial adjustments may be necessary to protect your business. Our team at Veliz Katz Law will assist with the following:

• Updating Business Documents: Ensuring ownership records, tax filings, and business agreements reflect the new structure.
• Creating New Operating Agreements: If your spouse was involved in the business, a revised operating agreement may be needed to reflect new leadership or management roles.
• Establishing Future Asset Protection Measures: Implement strategies to safeguard your LLC from future legal challenges, such as prenuptial agreements for future marriages or restructuring ownership.

Protect Your Business with Our Florida Divorce Attorneys

When an LLC is involved in a divorce, skilled legal representation is essential to protecting its financial interests. Veliz Katz Law has the experience, knowledge, and resources to help business owners manage property division and achieve the best possible outcome. Call us at 407-634-1835 or contact us online to schedule your free consultation.