Can an LLC protect my family's assets in lieu of a prenup during a divorce? (in California)

Asked almost 2 years ago - Los Angeles, CA

My family owns a business and several properties including a commercial property that pays rent each month. Our family members, including myself, are members of the LLC that own the properties.

This is a hypothetical question, as I am not currently married. One of my parents lost a significant amount of money during their divorce so I would like to be cautious if I ever decide to take the plunge with my current partner.

Are my shares of the properties protected in the event of a divorce, in lieu of a prenup? Could I simply transfer my shares to a family member before a divorce is filed?

What happens if I purchase a property after I am married, and decide to put the property under the LLC instead of a joint ownership with my husband – would that provide an extra amount of protection?

Additional information

I also work for the family company and have shares in it.

Attorney answers (4)

  1. Donald Frederick Conviser

    Contributor Level 19

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    Answered . Get a good prenup prepared and entered before you get married. Don't try "angles" or tricks like you proposed instead of a good prenup. Transferring property to a family member before a divorce is filed would be a breach of your fiduciary duty, and get you in trouble with a divorce court. Putting property purchased during marriage into an LLC wouldn't protect you. If you want to get protection, retain an experienced Family Law Attorney to draft and negotiate a good prenuptial agreement for you.

    Please note that this answer does not constitute legal advice, and should not be relied on, as each situation is... more
  2. Daniel Seth Williams

    Pro

    Contributor Level 18

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    Answered . Your shares you own prior to marriage are your shares, separate property. Income derived from them would be community income. Purchasing property during marriage and then putting it in the LLC, would probably be seen as a "straw" transaction and not be governing.

    Attorney Williams practices FAMILY LAW throughout the State of California. The response provided in this forum is... more
  3. William Martin Burbank

    Contributor Level 12

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    Answered . The property you already have is your separate property and you will want to have a good pre marital agreement to protect that and to keep it characterized as separate property. If you are likely to inherit additional property or interest in the LLC, i would recommend the person leaving it to you see a good Estate Planning attorney that knows how to draft trusts that provide asset and divorce protection to the beneficiaries. Most trusts do not contain such provisions. Any trust that calls for outright distribution at some age is vulnerable to creditors. I would recommend this even if you have a good pre marital agreement, as pre marital agreements may make you sleep well at night, when tested they often fail. A strong trust will protect you better but only as to future bequests.

    Every situation is different, it is important to discuss your legal issue with a knowledgeable attorney in your... more
  4. Douglass S Lodmell

    Pro

    Contributor Level 13

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    Answered . A prenuptial agreement is a very efficient way to reduce the potential financial impact of a divorce. However, a lot of people put off this idea because of the negative connotations it brings up. A well crafted asset protection plan that is set up before the marriage will also protect your wealth in the event of a divorce.

    You may want to consider putting your share of the LLC that holds the rental property (and eventually your share in the family business) in a legal tool that is specifically crafted for asset protection purposes: a Family Limited Partnership filed in a state with strong charging order rules and a strong legislative history as NV or AZ. The partners in this FLP don’t need to be necessarily family members.

    This way, you protect your share in the rental property (and eventually the family business) and you isolate the risk they generate. The FLP may hold directly your personal assets (bank and brokerage accounts).

    You need the advice of an estate planning attorney and/or an attorney with proven expertise in asset protection planning.

    Douglass Lodmell is the nations #1 Asset Protection attorney and has clients in all 50 states, protecting over $4... more

Related Topics

Divorce

Divorce is the process of formally ending a marriage. Divorces may be jointly agreed upon, resolved by negotiation, or decided in court.

Small business LLCs

An LLC (limited liability company) is a business entity that has elements of both a corporation and a partnership (or sole proprietorship).

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