Forming an LLC with spouse

3 Replies

What are some of the pitfalls of creating a LLC with a spouse for rental properties? Is it better to have a single member (just me) to protect her from any litigations against me?

@Anil Rathi , Generally, there is an operational side and an asset side of the rental business. You will find many rental businesses will have an operating LLC that does the property management and cash management for the property. The property itself can be separated and held in either a LLC or trust to protect the asset from lawsuit and to identify ownership. Many times I find clients who have the spouse as trustee in the operating company to improve the ability for either to do business, and not in the asset side so it is easier to complete transfers and loans. The ownership can preserved, but the execution simplified.

This is not legal advice, rather an observation.  When marriage problems occur all the pros/cons change and there are other legal remedies that will come to bear.  It is good to have a strategy to protect the marriage in any business partnership - wish you the best!

@Anil Rathi , sorry for the delay in answer - technical difficulties!

Your question on finance probably is one to ask your bank, since I am not sure if you mean a joint account or setting up an account for the LLC. If you have a single LLC that acts as operating company (property management, public exposure) and holds assets, then your bank will let you know what you will need to authorize who can transfer funds. Normally, each LLC has separate bank accounts to maintain separation of funds between businesses and private funds. When there are sizeable assets for individuals or businesses, I recommend separating operations from assets using traditional and series LLCs to limit exposure to the minimum asset based required of each business.

If the finance question relates to transfer of assets (i.e. land title), this would be regulated by the local authority where the property is registered, and requires a notary who may want a copy of the LLC paperwork to establish authority as trustee for signing purposes.

Your original question was concern for litigation directed at "you" and not your spouse. In operating agreements, we identify both the members and the managers of the the LLC. The litigation normally is directed at the LLC, with the managing trustees responding to the litigation on behalf of the LLC - not responding personally; and the members assets in the LLC at risk in any judgement against the LLC. The best way to protect trustees personal finances from litigation is to separate bank and credit accounts from any personal accounts, and transfer funds between accounts as needed. An accountant can best explain how to do this.

You can see, I don't have enough information from your question to give a simple answer - but I tried!