How Does Divorce Impact an LLC? (What Can You Expect)

Delina Chantel Yasmeh
Published by Delina Chantel Yasmeh | Author
Last updated: March 11, 2024
We meticulously research and verify the information presented in our articles. By consulting reliable sources and ensuring factual accuracy, we are committed to providing readers with well-informed, trustworthy content.

If you are considering filing for divorce, it's important to get some idea of how the financial aspects of the divorce might impact your LLC.

Divorce effects on LLCs can come in the form of taxation, which is considered business income, alimony payments, and property division.

When you own an LLC with your spouse, marital assets may be included in determining property division.

After consulting our team of legal experts and conducting extensive research, we will provide you with a detailed discussion regarding the impact of divorce on an LLC.

Quick Summary

  • Divorce can significantly impact an LLC, affecting ownership rights and the division of business assets.
  • Protecting an LLC from divorce effects involves drafting prenuptial, postnuptial, or operating agreements specifying ownership and division terms.
  • According to the National Federation of Independent Business, approximately 50% of small business owners experience at least one divorce, highlighting the importance of protective measures for their businesses.
  • From my perspective, it is vital for business owners to proactively separate their personal and business finances and legal affairs to prevent personal relationship issues from jeopardizing their business interests.

What Are the Implications of a Divorce on an LLC?

The main implication of a divorce for a limited liability company involves the equitable division of marital property between both parties. The proportion may vary depending on the specific state laws where the divorce was filed.

A study by the National Federation of Independent Business revealed that approximately 50% of small business owners have experienced at least one divorce, which is notably high considering the average divorce rate in the United States ranges from 40–50% [1].

If your LLC is marital and you file for divorce, the court will determine which and how the assets will be divided based on the significant time or money spent on the business by either spouse.

When determining the assets of a limited liability company, all real estate and business interests are considered marital property.

A court might also require one spouse to pay more for marital property to equalize the assets up to an agreed-upon level, or it may have a different approach depending on your specific divorce case.

Divorce courts are allowed to divide every marital asset in whatever manner they see fit.

The marital property division that you will be subject to is at the discretion of your divorce court but can be predicted by reviewing previous cases decided in your local jurisdiction.

Marital Property

An image symbolizing marital property

A marital property pertains to properties acquired by a couple in the course of their marriage. This includes real estate, property investments, vehicles, and other material possessions under both their names.

Property acquired by the couple during the marriage is subject to property division.

The following criteria describe how marital property is categorized:

  • In many states, property acquired by gift, bequest, or descent during the marriage is considered to be marital property. It is important to verify state laws regarding property classification.
  • In addition, property may be classified as marital property if purchased with funds from a joint bank account during the marriage.
  • If purchased before the marriage but which is not held in its individual name.
  • Intangible assets acquired during the marriage may also be considered property subject to property division.

If a property is marital property, it must be divided somewhat per state laws that are equitable to both parties during the divorce.

Non-Marital Property

Non-marital property is anything that was either owned before marriage, acquired by gift or inheritance, or kept separate during the marriage.

Therefore, anything considered non-marital would not be subject to division with your spouse as part of a divorce settlement.

However, the distinction between marital and non-marital property can sometimes be complicated, so it is advisable to consult with a competent attorney when you have property questions.

Is My LLC Marital or Non-Marital Entity?

Man and woman having a serious discussion about how divorce will impact an llc

According to the law, a limited liability company may be classified as marital or non-marital, depending on when it was created.

If the entity was formed before the marriage, then it falls under non-marital. If it was created during the marriage, it is categorized as a marital business.

However, several factors may affect the status of the LLC, including:

  • If the marital property is invested in the business
  • If the spouse contributed to the limited liability company in any way
  • If divorce conditions are included in the LLC Operating Agreement

Only marital assets are considered marital property. Property is deemed marital if it is acquired during the marriage or gifted to you by your spouse during the marriage.

Non-marital assets include any assets that were acquired before the marriage, which provides for assets received by inheritance or an award for personal injury claims (provided they did not receive marital assets in exchange).

If your LLC was obtained during your marriage or if marital assets were invested in the limited liability company, it is considered marital property.

If marital assets were not used in creating your LLC, they are regarded as separate property.

How Can I Protect My LLC Ownership From Divorce?

Protecting and holding folder

To protect your LLC ownership from divorce, include language in the operating agreement and draft a prenuptial and postnuptial agreement.

A case highlighted by Reuters underscores the severe impact divorce can have on small businesses: one entrepreneur's divorce proceedings, for instance, cost more than $200,000—equating to a quarter of his annual revenues at the time—stemming from lost potential new business and add-on business with existing clients [2].

You could ask your spouse if they are willing to voluntarily give up their LLC membership interest. CEO Elizabeth Pharo emphasizes the importance of clear asset definition agreements for couples.

These agreements can help determine if LLC ownership is separate or shared, ensuring business continuity and stability even during a split and preventing significant disruptions.

If you do not have a family law attorney, it's always best to consult with one to protect your business interests.

"In certain cases, a spouse may desire to retain exclusive control of the LLC. In these situations, a viable pathway is the buyout option, which entails one partner acquiring the other's stake in the LLC."

- Jon Morgan, Co-Founder & Chief Editor of Venture Smarter

A family law attorney can review your operating agreement and advise you on what protection you should have to protect your business interests.

At the very least, it's good practice to include language in your LLC Operating Agreement that states that any membership interest or share of profits is not subject to attachment by creditors, including divorce courts.

This will ensure that no creditor can take your interest or profits from an outside creditor, such as a divorce court.

From my experience as a business advisor, such preventive measures are critical to maintaining the integrity and security of a business amidst personal legal challenges.

LLC Operating Agreement

Most states require that an LLC Operating Agreement be in place to form and operate an LLC.

Suppose your operating agreement does not include language protecting your membership interests.

In that case, it's important to consider adding this protective language before filing for divorce or other legal action impacting your interests.

If you have other marital assets, such as real estate or other business interests, it's important to protect those properties from being transferred to your spouse as well.

The operating agreement can set out rules for how profits and other personal and business assets should be split, whether one spouse will leave the business upon divorce, or if they would like the other spouse to continue managing the company.

Other considerations include:

      Membership interest and other income:

  • How will the membership interest and other income be split between spouses?
  • If your LLC is a multi-member LLC, does each member have an equal vote on how business decisions are made?


  • What contributions did each spouse make to establish and grow the company?
  • How will each spouse's contribution be evaluated?

      Business Management:

  • Who is responsible for managing the LLC during and after the divorce?
  • Will one spouse manage the business while the other spouse has a passive role, or will they both actively manage the business together?


  • If divorce occurs, what are the terms for how the LLC interest will be split?
  • Will other income received by another spouse be considered separate income or marital property?

      The Children:

  • If children are involved, does one spouse agree to stay in business while the other spouse has primary custody of the children?

Prenuptial and Postnuptial Agreements

Lawyer having a conversation with client talking about important papers

Prenuptial and Postnuptial Agreements can also be used to protect divorce assets from being subject to an operating agreement or court-ordered settlement.

1. Prenuptial Agreement

In general, a prenuptial agreement is a written contract created before a couple marries so that the divorce property division of marital assets is not subject to divorce court discretion [3].

Your divorce court will abide by the divorce agreement you create with your spouse during a divorce.

2. Postnuptial Agreement

A postnuptial agreement is similar but typically created after the couple has married so that divorce property division of marital assets is not subject to divorce court discretion.

Your divorce attorney can help you create a prenuptial or postnuptial agreement that will protect your business interests and divorce assets during divorce.

How Is an LLC Treated in a Divorce?

In a divorce, an LLC is treated as a business entity, and the property that it owns is not subject to property division through the divorce courts.

This means that if your spouse is awarded 50% ownership of your LLC in a divorce settlement, they will only have the right to receive the profits from the company rather than owning half of the company.

However, suppose your LLC is created before or after marriage, and you fail to create a separate business agreement between spouses.

The ownership interest held by each spouse in an LLC will be subject to divorce property division.

This means that during divorce proceedings, one spouse's share of the company may be awarded to the other spouse as part of the divorce property settlement.

I often advise my clients that, regardless of whether your business interest is subject to property division during divorce, it's important to update your operating agreement to follow the rules during divorce court proceedings.

It's also important to update other arrangements, such as prenuptial and postnuptial agreements, to apply them during divorce proceedings.

Related Articles:


Does My Wife Get Half My Ownership Interest in My LLC?

In a divorce, your wife may get half of your LLC ownership interest if the settlement is decided in court. However, a prenuptial or postnuptial agreement can allow you to keep the business.

Does a Divorce Decree Override an LLC Operating Agreement?

No, a divorce decree does not override an LLC operating agreement. However, the decree can mandate the division of LLC interests between spouses, which must then be addressed within the framework of the operating agreement and applicable state laws.



About The Author

You May Also Like

Leave a Reply

Your email address will not be published. Required fields are marked *