While thousands of LLCs, or limited liability companies, are formed every year in Arizona, that’s just the business entity. What about the people who are members of the LLC? If a member gets divorced, is the LLC considered community property?
Defining Community Property
Arizona is a community property state. That means community property law controls the division of all assets of the marital estate. All community property acquired during the marriage is generally divided equally when divorce occurs. The only exception is when the presumption of community property is overturned or if the property is separate property.
If you formed an LLC while you were married, should you get divorced, your spouse may have rights to half of the economic benefits you receive from the business. However, your spouse will probably have no rights to the management or control of the business.
The same holds true if you die as a member of the LLC.
In the instance that you die as an LLC member, your heir, representative, or other successor may be assigned the membership. Still, though, they will not have control or a say in the business.
If the business is truly your business and your spouse does not want any part of it, it is wise to document that with a proper disclaimer.
If you have partners in the business who are married, even if you are not, you should have a proper operating agreement, which addresses the rights of all spouses who are not active members of the LLC to make sure you do not end up with someone else’s spouse as your partner. That could be a disaster.
Pre-planning to Protect Your LLC
These kinds of situations are why you need to be prepared in advance. Contingency plans help protect your business. More often than not, in the event of a divorce or death, members may prepare an operating agreement with buy / sell sections to purchase the membership interest from the surviving spouse or divorced partner.
As you form your LLC, it is important to consult with a professional business attorney. They can help you plan for any contingencies in advance so you can protect your LLC and determine if your LLC is considered community property. Attorneys provide counseling on these issues and present alternatives for your unique situation; online forms just do not.
Poulos Law Firm has extensive experience with forming LLCs and can support you and protect your investment from community property laws. Contact us to learn more.