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division of LLC

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What is the name of your state (only U.S. law)? Calif
The judge granted a joinder of a commercial building held as an LLC. My stbx owns 50%, his partner the other 50%. It was bought 10 years ago. We were married 30 years.
Real estate has gone down. They probably have no equity in the building. The LLC rules state one of them (or both) must buy me out if we divorce.
Am I entitled to (25%) of the currant appraised value MINUS the amount owed or the currant appraised value period? Or the value at the time of seperation (3 years ago)? Community property and my personal property has been invested in the LLC. I would like some of it back.
Should I wait till the market goes back up or just take it an run? My stbx says he owes me nothing because the value has gone down.
 


mistoffolees

Senior Member
What is the name of your state (only U.S. law)? Calif
The judge granted a joinder of a commercial building held as an LLC. My stbx owns 50%, his partner the other 50%. It was bought 10 years ago. We were married 30 years.
Real estate has gone down. They probably have no equity in the building. The LLC rules state one of them (or both) must buy me out if we divorce.
Am I entitled to (25%) of the currant appraised value MINUS the amount owed or the currant appraised value period? Or the value at the time of seperation (3 years ago)? Community property and my personal property has been invested in the LLC. I would like some of it back.
Should I wait till the market goes back up or just take it an run? My stbx says he owes me nothing because the value has gone down.
If it were a simple joint ownership, you would probably be owed 25% of the current equity (that is, the value minus the debt). I would suggest that you get an independent appraisal of the value rather than relying on your ex.

There is a very slight chance that you might be entitled to the equity at the time of separation. What is the exact wording of the section of the divorce decree dealing with the LLC? When was the divorce finalized?

Whether you should wait until the market goes back up is probably not your choice to make. The LLC rules probably dictate that you have to sell your shares. You also need to get the LLC rules. There is probably something in the LLC which says how the value of your units would be determined. This may or may not be related to the property value. What does the LLC say about repurchasing share in the event of a divorce?
 

LdiJ

Senior Member
If it were a simple joint ownership, you would probably be owed 25% of the current equity (that is, the value minus the debt). I would suggest that you get an independent appraisal of the value rather than relying on your ex.

There is a very slight chance that you might be entitled to the equity at the time of separation. What is the exact wording of the section of the divorce decree dealing with the LLC? When was the divorce finalized?

Whether you should wait until the market goes back up is probably not your choice to make. The LLC rules probably dictate that you have to sell your shares. You also need to get the LLC rules. There is probably something in the LLC which says how the value of your units would be determined. This may or may not be related to the property value. What does the LLC say about repurchasing share in the event of a divorce?
LLCs don't have shares. They have members. She doesn't appear to be an actual member of the LLC. It appears that the divorce has awarded/is awarding her 1/2 of her husband's equity in the LLC.
 

mistoffolees

Senior Member
LLCs don't have shares. They have members. She doesn't appear to be an actual member of the LLC. It appears that the divorce has awarded/is awarding her 1/2 of her husband's equity in the LLC.
LLCs have UNITS - which are functionally equivalent to shares in a public company.

Members are the people who are part owners. Units are the fractional portions that they own.

LLC: Members own units

Public company: Shareholders own shares

The LLC probably has a rule on how the units have to be bought back - including the valuation. Or it would it if was properly created.
 

LdiJ

Senior Member
LLCs have UNITS - which are functionally equivalent to shares in a public company.

Members are the people who are part owners. Units are the fractional portions that they own.

LLC: Members own units

Public company: Shareholders own shares

The LLC probably has a rule on how the units have to be bought back - including the valuation. Or it would it if was properly created.
In your state perhaps LLCs have "units". However no LLC that I have ever owned or ever dealt with had any kind of shares or units. That is one of the beauties of an LLC.

Any corporation has shares, whether the company is public or private. Those shares are tangible assets that can be bought, sold or traded, in sum or in part. They can have liens/judgements placed against them.

An LLC is different. An LLC is more similar to a partnership in many aspects. As a member the members of the LLC are entitled to an income stream from the LLC, and only that income stream can be attached for judgements or liens. Nor can a person sell just part of their membership. They also can only sell their entire membership to someone outside of the LLC if the LLC allows memberships to be sold in that manner. Generally memberships can only be sold back to the LLC or purchased from the LLC.

A court could not award her 1/2 of his membership in the LLC. A court could only award her 1/2 of his equity in the LLC and it would be payable by him, not by the LLC itself.
 

tranquility

Senior Member
From California Corporations code:

17000. This title shall be known and may be cited as the
Beverly-Killea Limited Liability Company Act.

17001. Unless the context otherwise indicates, the following
definitions govern the construction of this title:
.
.
.
(x) "Member" means a person who:
(1) Has been admitted to a limited liability company as a member
in accordance with the articles of organization or operating
agreement, or an assignee of an interest in a limited liability
company who has become a member pursuant to Section 17303.
(2) Has not resigned, withdrawn, or been expelled as a member or,
if other than an individual, been dissolved.
(y) "Member of record" means a member named as a member on the
list maintained in accordance with paragraph (1) of subdivision (a)
of Section 17058.
(z) "Membership interest" means a member's rights in the limited
liability company, collectively, including the member's economic
interest, any right to vote or participate in management, and any
right to information concerning the business and affairs of the
limited liability company provided by this title.
 
The rules state Members shall deliver to spouse money equal to 50% of the LLC member's interest
remaining members shall have option to purchase interest of terminated or w/drawing member in the assets and goodwill of the LLC business by paying to such member (or person) leglly entitled.
I thought that sounded like I would get paid 25% interest of the appraised value, not the appraised value minus money owed. Considering I invested about 1 million (without my knowledge or consent) to the purchase and upkeep of the LLC, if the LLC is worth 4 million (regardless of the outstanding loan) I feel as if I should entitled to 1 million. After all, it is worth 4 million even if at the time of purchase it was worth 6 million.
 

ecmst12

Senior Member
That's a lot of money. You must have a lawyer. So, what did your lawyer tell you?

It seems to me that if you are owed 25% of the equity NOW, but there is no equity, then you are owed nothing, and that won't change when the market changes, because it's based on NOW. But you really need individual professional advice here, not just a message board.
 

mistoffolees

Senior Member
In your state perhaps LLCs have "units". However no LLC that I have ever owned or ever dealt with had any kind of shares or units. That is one of the beauties of an LLC.

Any corporation has shares, whether the company is public or private. Those shares are tangible assets that can be bought, sold or traded, in sum or in part. They can have liens/judgements placed against them.

An LLC is different. An LLC is more similar to a partnership in many aspects. As a member the members of the LLC are entitled to an income stream from the LLC, and only that income stream can be attached for judgements or liens. Nor can a person sell just part of their membership. They also can only sell their entire membership to someone outside of the LLC if the LLC allows memberships to be sold in that manner. Generally memberships can only be sold back to the LLC or purchased from the LLC.

A court could not award her 1/2 of his membership in the LLC. A court could only award her 1/2 of his equity in the LLC and it would be payable by him, not by the LLC itself.
Sorry, but you're just plain wrong. In fact, you couldn't be more wrong if you tried:
http://www.medlawplus.com/legalforms/instruct/sample-llc.pdf

I've created THREE LLCs in the past year and every one of them has units. The first has 1,000 units, the second has 100,000 and the third was 3 units.

A member can buy and sell units. For example, the LLC which had 100,000 units was originally owned 50:50 by two people, but they sold units to their employees over time - at a fixed 3.5 times trailing 3 year EBITDA.

The units in an LLC can be transferred just like shares of stock. The major difference is that since the LLC is so closely controlled, the LLC operating agreement typically states that if any units are to be transferred, the remaining members have the right to buy back the units, either at fair market value (which is hard to determine) or a pre-determined price or formula.

LLC units can have liens placed against them - just like shares in a public corporation. In fact, I've seen it done.

Please stop talking about things you don't understand.
 

mistoffolees

Senior Member
The rules state Members shall deliver to spouse money equal to 50% of the LLC member's interest
remaining members shall have option to purchase interest of terminated or w/drawing member in the assets and goodwill of the LLC business by paying to such member (or person) leglly entitled.
I thought that sounded like I would get paid 25% interest of the appraised value, not the appraised value minus money owed. Considering I invested about 1 million (without my knowledge or consent) to the purchase and upkeep of the LLC, if the LLC is worth 4 million (regardless of the outstanding loan) I feel as if I should entitled to 1 million. After all, it is worth 4 million even if at the time of purchase it was worth 6 million.
That's fairly typical for an LLC operating agreement. There are several issues to watch out for:

NOTE. You didn't provide the exact wording as I asked, so I'm speculating - please provide the exact wording if you want a real answer. However, it seems that:

1. You are entitled to cash equal to 1/2 of the value of your husband's share. It may be set up so the LLC units can not be transferred at all - or maybe they simply don't want them transferred. In any event, you would get 1/4 of the VALUE of the LLC (if your husband owns 1/2). The VALUE is not the selling price - it's essentially the enterprise value for the business. That means that you have to factor:
Plus side:
- Building value
- Net present value of any leases
- Goodwill (if any)
- Other assets

Minus side:
- Mortgage
- Taxes and interest due
- Others

That's not a trivial task and is most certainly not as simple as subtracting the mortgage from the property value. You definitely need a formal appraisal OF THE BUSINESS, not the property.

2. Businesses go up and down in value. Forget the old numbers - they're irrelevant. All that matters is the present VALUE OF THE BUSINESS (again, not the building) which is ALL BUSINESS ASSETS minus all business debts.

3. Note that while CA is a community property state, the court has the ability to divide the property other than 50:50 if that is required in order to be fair. If you can demonstrate that the $1 M you put in was not balanced by your husband contributing a similar amount and that the money was from separate assets, you may be able to get a larger than 50% share of the business. If your divorce is not yet final, you will definitely want your attorney to look into that.

ecmst is right - there's far too much money at stake here to be messing with an online forum. You need a really good attorney.
 

tranquility

Senior Member
Regarding the issue between members and units:
Sorry, but you're just plain wrong. In fact, you couldn't be more wrong if you tried:
http://www.medlawplus.com/legalforms/instruct/sample-llc.pdf
Um..you didn't like my CITATION TO CALIFORNIA LAW?

It's members and LdiJ is correct.

One practical application of this FACT, is the difference regarding what a creditor can seize. If it is merely shares or "units" a creditor, with a judgment, can participate in the LLC in a managerial level. However, many states, like California, have rules regarding charging orders. The reason is that the LLC is more akin to a partnership than a corporation.
 
Last edited:

mistoffolees

Senior Member
Regarding the issue between members and units:Um..you didn't like my CITATION TO CALIFORNIA LAW?

It's members and LdiJ is correct.
You're misreading the law.

Members are the individuals who participate. Units (in most states) and 'Interests' (technically, "Membership Interest") (in CA) are the percentage ownership that the members have. Members are people. Units or interests are measures of how much ownership the member has.

CA is doing the same thing as everyone else with the minor semantic difference that they use the word 'interests' instead of 'units'. Functionally, there's no difference.

See Chapter 7 of the CA LLC laws:
Paralegal-plus.com | California LLC Law

One practical application of this FACT, is the difference regarding what a creditor can seize. If it is merely shares or "units" a creditor, with a judgment, can participate in the LLC in a managerial level. However, many states, like California, have rules regarding charging orders. The reason is that the LLC is more akin to a partnership than a corporation.
Also not correct. Under CA law, the ECONOMIC benefit in the LLC can be transferred separately from the ownership rights. It is absolutely possible to assign someone the economic benefit of a member's interests in an LLC without assigning ownership.

Where you're getting confused is that it is typically the case that one can not transfer their LLC OWNERSHIP without the approval of all the members.

Here's an intro to LLC rules in CA:
Forming a LLC in California - Limited Liability Company Formation
 

LdiJ

Senior Member
You're misreading the law.

Members are the individuals who participate. Units (in most states) and 'Interests' (technically, "Membership Interest") (in CA) are the percentage ownership that the members have. Members are people. Units or interests are measures of how much ownership the member has.

CA is doing the same thing as everyone else with the minor semantic difference that they use the word 'interests' instead of 'units'. Functionally, there's no difference.

See Chapter 7 of the CA LLC laws:
Paralegal-plus.com | California LLC Law

Also not correct. Under CA law, the ECONOMIC benefit in the LLC can be transferred separately from the ownership rights. It is absolutely possible to assign someone the economic benefit of a member's interests in an LLC without assigning ownership.

Where you're getting confused is that it is typically the case that one can not transfer their LLC OWNERSHIP without the approval of all the members.

Here's an intro to LLC rules in CA:
Forming a LLC in California - Limited Liability Company Formation
Membership interest is not the same as "units". I am willing to concede that Oklahoma LLCs apparently have "units".

When are you going to realize that Oklahoma law is not the same as law in other states?

I have also formed multiple LLCs as well as helping clients form dozens more.
 

mistoffolees

Senior Member
Membership interest is not the same as "units". I am willing to concede that Oklahoma LLCs apparently have "units".

When are you going to realize that Oklahoma law is not the same as law in other states?

I have also formed multiple LLCs as well as helping clients form dozens more.
God help your clients.

Pray tell, what is the difference between a membership interest and a unit?

In practice, none at all. Both membership interests and units are devices to show how much of a share each member has in the LLC. Both of them divide profits and distributions pro rata. Both of them can be transferred or a lien placed against them. Both of them typically require approval of all members before they can be transferred. In both cases, the financial benefits can be transferred independently of the ownership interest. Both of them may or may not give voting rights, as defined by the operating agreement. Both of them can be distributed unequally (not all members have to have the same share).

So what is this huge difference?

Note: they're listed as equivalent on this site, as well:
Membership Interest/Membership Unit - LLC Glossary - LegalZoom

And in some states, they're called 'membership interest units' - further demonstrating the rough equivalence:
http://www.leaplaw.com/pubSearch/preview/1193_LLCSubscrip.pdf

And then there's this one from the American Bar Association:
Limited Liability Company Membership Interests: What a Lender Needs to Do with LLC Collateral on Default
It says "In the last several years, commercial borrowers have increasingly provided lenders security interests in limited liability company membership interests (LLC units) as collateral for loans"
That means:
1. The ABA considers membership interests and llc units to be equivalent
2. The ABA acknowledges that a lien can be placed against membership interests/LLC units.
So you were wrong about that, as well.



And how does that explain your huge mistake earlier when you were apparently unable to tell the difference between a member and a membership interest / unit?


Again, God help your clients. If your employer has any brains, your assistance in preparing dozens of LLC documents would be limited to putting the postage on the envelope.
 

mistoffolees

Senior Member
OP - please go back and read my post #10. You're getting bad advice from a couple of other people here - as my documentation proves.

Most importantly, even if the debt on the building is greater than the building value, that doesn't mean the LLC has no value since there would be some value to good will as well as net present value for any leases. Also, any retained earnings and cash in the bank, etc. ALSO, under CA law, if you can show that the money you put in was separate, you may be able to get greater than 50% of your husband's share of the LLC.

PLEASE get yourself to a good attorney Monday morning - I would be looking for one who specializes in family law but with a partner who is very strong on small business law.
 

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