RONALD J. CAPPUCCIO, JD, LLM (TAX)


TAX, BUSINESS AND ESTATE ATTORNEY

QUESTIONS
856.665.2121

Your Spouse and the LLC

Should Your Spouse be a Member of the LLC?

Question: 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. 

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?

Reply: 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.