If you or your spouse own a Limited Liability Company (LLC), you may be wondering how the business will be handled during a divorce. An LLC is a valuable asset — and like all property acquired during a marriage, it may be subject to division.
So, how is an LLC treated in a divorce?
The answer depends on several factors, including the state you live in, when and how the LLC was formed, and how it’s used and valued. Let’s break it down.
—
Is an LLC Considered Marital Property?
An LLC may be considered marital property or separate property depending on the circumstances:
- If the LLC was formed or acquired during the marriage, it is often considered marital property and may be subject to division.
- If the LLC was formed before the marriage and remained completely separate, it may be treated as separate property.
However, even if an LLC was started before marriage, any increase in its value during the marriage may be considered divisible, especially if both spouses contributed to its growth or success.
—
State Laws Matter: Equitable Distribution vs. Community Property
How an LLC is divided in divorce largely depends on your state:
- Equitable Distribution States (e.g., Florida, New York, Illinois): The court divides property fairly — not always equally — based on contributions and other factors.
- Community Property States (e.g., California, Texas, Arizona): All marital property is generally split 50/50.
Most states are equitable distribution states.
—
Key Factors Courts Consider
When deciding how to treat an LLC in a divorce, the court may consider:
- When the LLC was formed (before or during the marriage)
- How the LLC was funded
- Each spouse’s contributions (financial or otherwise)
- Whether the business was commingled with marital assets
- The value of the LLC at the time of divorce
- Clauses in the operating agreement or prenuptial/postnuptial agreements
—
How Is an LLC Valued in Divorce?
LLC valuation is a critical part of divorce proceedings. The court may appoint a business valuation expert to determine the fair market value of the LLC using methods such as:
- Income approach (based on profits or earnings)
- Asset approach (based on business assets and liabilities)
- Market approach (based on sales of similar businesses)
This valuation helps determine how much of the LLC’s value should be included in the marital estate.
—
Can a Spouse Claim Ownership in the LLC?
Possibly. If the LLC is considered marital property or the spouse contributed to its growth, the non-owner spouse may:
- Be awarded a percentage of the business’s value
- Receive other marital assets in exchange for the business interest
- Be entitled to income generated by the LLC
It is rare for a court to force the original owner to share business management unless both spouses were active participants in the company.
—
Protecting Your LLC from Divorce
Here are a few ways to protect your business before or during marriage:
- Form an LLC before marriage and keep it legally and financially separate.
- Use a prenuptial or postnuptial agreement to define business ownership and interests.
- Draft an operating agreement that includes provisions for ownership changes or buyout in case of divorce.
- Avoid commingling business and personal finances.
- Keep detailed records of business contributions and transactions.
If you’re already married and own a business, consult an attorney to update your operating agreement or estate plan.
—
What Happens to the LLC After Divorce?
Post-divorce scenarios may include:
- One spouse buys out the other’s interest in the LLC
- The business is sold and proceeds are split
- One spouse retains the LLC, and the other receives offsetting assets
- Continued co-ownership (less common and not always practical)
The goal is often to allow the business to continue running while providing a fair division of value.
—
Final Thoughts
Yes — an LLC can play a significant role in a divorce. Depending on how it was formed and operated, the business may be considered marital property and subject to division.
To avoid costly surprises:
- Have clear legal agreements in place
- Keep your business and personal finances separate
- Seek professional legal and financial advice if divorce is likely
Looking to form a U.S. LLC or update your operating agreement for protection? FormLLC can help with legal filings, EIN registration, BOI reporting, and much more — all done professionally and affordably.
—
