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Should Your
Spouse be a Member of the LLC?
Question:
Business Law: Sole Proprietorship. My husband started his own
construction/handyman business 3 years ago. It's an LLC and only his
name is listed. He originally did not add my name to the business
because he just didn't think to do it. Should he add my name to the
business? Why or why not?Thank you for your assistance.
Reply: answer is ABSOLUTELY CLEAR. You do NOT want to be a
member. The idea of the LLC is to insulate the family assets from
business liabilities. Even if a creditor or the government can
successfully attack your husband, your assets would be protected. As
a member of the LLC you would have potential liability for Sales and
Use Tax, State and Federal Employment Taxes and NJ Disability and
Unemployment contribution.
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Should Husband and Wife Be LLC Members
to obtain Charging Order Protection?
Question - Can the charging order
pitfalls of a single member llc be avoided by having a husband and a
wife be separate members of the llc? Or would the separate
memberships of the husband and wife likely be disregarded in a SMLLC
charging order analysis?
Answer - I assume you want a
SMLLC in order to have an LLC taxed as a disregarded
entity.
In community property states, the LLC is already
considered to be owned 50/50 by both spouses if it was formed while
they were married. However, it's completely up in the air as to
whether this would give the LLC the charger order protection that a
multi-member LLC would have.
What I often do is hold some of
the membership interest in a discretionary grantor trust, with
spouse A as grantor and spouse B as trustee. Then spouse A is the
other member. Per IRS Rev. Rul. 2004-77, because there is only 1
underlying taxpayer in this arrangement, this LLC will be taxed just
like a SMLLC, i.e. as a disregarded entity.
The reason for
doing this (besides asset protection) is that both spouses wanted to
vote as a member in the LLC, without going through the hassle of
filling out a 1065 return each year.
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