How Is an LLC Treated in a Divorce in Minnesota?

How Is an LLC Treated in a Divorce in Minnesota?

October 15, 2023

By FairWell Family Law Mediation

How is an LLC treated in a divorce? This is a common question business owners have when getting a divorce. Luckily, our guide here has you covered.In the United States, about one-third of men and women who have been married have also been divorced.

Although that is better than the myth that says that half of marriages end in divorce, it is still concerning. As divorce rates remain high, many people end up wondering, “How is an LLC treated in a divorce?”

LLC stands for Limited Liability Corporation. Unfortunately, there is no simple answer to how an LLC is treated during a divorce. However, there are some general principles that can help you understand your legal situation when you have an LLC and are dividing assets.

The better you understand how Minnesota treats LLCs during divorces, the easier it will be for you to decide what the right move is for your company.

Read on to learn all about the most vital things to know about how LLCs are treated in a divorce in Minnesota!

How Is an LLC Treated in a Divorce?

Some people have heard that there is no need to know how to divide a business when getting a divorce because LLCs are protected from divorce. However, any share of ownership you have in an LLC can be potentially divided or sold according to current divorce laws.

As a general rule, knowing how to get a divorce without having to do this comes down to whether your LLC ownership counts as marital property or nonmarital property. In some cases, it might even be considered a combination of both. So what determines if your LLC is marital property or not?

Understanding LLC Nonmartial Property

In most cases, if your LLC was formed before your marriage, it will count as nonmarital property. As a result, it won’t be included in the marital estate and you won’t have to look into how to divide a business so that you can share it with your spouse.

On the other hand, what if your LLC was formed after you were married? In that case, it will almost always be considered marital property.

Hybrid LLC Situations

But how can an LLC be a combination of marital and nonmarital property? If marital property is used at any point to support an LLC that was created before the marriage, a court might determine that some portion of the LLC will count as marital property.

Considering Prenuptial Agreements and LLCs

However, a prenuptial agreement can protect an LLC during the divorce even if it would otherwise be considered marital property. If your spouse agrees to a prenup with effective wording, then it may supersede any laws that might require you to treat your LLC as marital property.

At the same time, some prenuptial agreements have flaws that weaken their efficacy. Some people think that they might be able to get everything they want in a prenuptial agreement if they have a lawyer on their side and their spouse doesn’t. However, this strategy can actually increase the chance that a prenuptial agreement will be ignored during a divorce.

It is important that both parties signing the agreement have a complete understanding of it as well as legal counsel on their side to increase the chance it will remain in full force.

Postnuptial Agreements for LLCs

Of course, it is probably too late for you to get a prenuptial agreement if you are thinking about getting a divorce. However, it may be worth considering the possibility of postnuptial agreements as well. Although they are not always as airtight, they can still have a lot of influence on whether or not your LLC will be counted as marital property and divided between you and your spouse during the divorce process.

Protecting LLCs While Dividing Assets

Sometimes, people are more concerned about an LLC failing because one of the people with significant ownership gets a divorce. The good news is that you can use LLC divorce clauses to protect all other LLC members if you end up needing to split ownership of your LLC with your spouse.

These kinds of divorce clauses can provide other LLC members with options, helping them maintain control of the business. For example, they might have the right to buy out membership interest in the LLC if some of it goes to a member’s ex-spouse during a divorce.

Divorce Laws for LLC Valuations

If a court determines that your LLC will count as marital property, then you will have to come up with a precise evaluation for your ownership of it. One way to do this is to rely on the expert analysis of business appraisers.

In other cases, you can calculate the value of an LLC by counting up its assets or measuring its income. However, at the end of the day, it will be up to the court to decide which LLC evaluation will be relevant during the divorce process.

Considering Your Options

If your LLC ownership counts as marital property, you may still be able to keep all of it. For one thing, you might be able to purchase your spouse’s interest in the company. In other cases, you and your spouse might come to an agreement to act as co-owners of the LLC.

If necessary, you can also sell your LLC ownership to a third party. Then, you can split the proceeds between you and your spouse.

Find a Divorce Mediation Lawyer to Help You

Of course, the right strategy for your situation will depend on your unique circumstances. You might want to find an experienced divorce mediation lawyer to help you figure out the best way to come to an acceptable agreement with your spouse while still protecting your LLC.

The right divorce mediation lawyer will have helped many other couples manage similar situations involving LLCs.

Understand How LLCs Are Treated in a Divorce

If you have ever wondered, “How is an LLC treated in a divorce?”, we hope this article has answered your questions. The bad news is that LLC situations can be complicated when you are going through a divorce. The good news is that you often have options to avoid splitting up your business.

To find out more about how you can get the best legal help for navigating a difficult divorce situation, contact us at FairWell Family Law Mediation at any time!


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