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ILLINOIS APPELLATE COURT ENFORCES THE PROVISIONS OF LLC OPERATING AGREEMENT CONCERNING THE HANDLING OF A DIVORCING MEMBER’S LLC INTEREST

Many businesses, whether operating as a limited liability company (LLC), a corporation or a partnership will have more than one owner. These businesses are often started or experience appreciation in their value during the marriage of their owners. Therefore, if one or more of such owners should be divorced, the owner’s interest in the business will be subject to division as marital property. As such, there is a significant risk that the spouse of an owner could become an unwanted “partner” of the other owners of the business.

In order to prevent that undesirable outcome, the owners of a business should enter into an agreement which governs the handling of the owner’s interest should the owner be divorced.Such an agreement can also, and usually does, cover death, disability and loss of an owner’s interest to a creditor. It can be a stand alone, or part of a broader agreement dealing with other matters regarding the rights and obligations of the co-owners.

Provisions dealing with divorce are much less common than provisions dealing with the handling of a deceased or disabled owner’s interest in the business. Yet, with the increasing divorce rate, a provision dealing with the handling of an owner’s interest should the owner be involved in a divorce is imperative.

Recently the Illinois Appellate Court, Second District, enforced the terms of an LLC operating agreement with respect to the handling of a divorcing member’s interest. The court reversed the trial court which had ordered the interest divided between the divorcing member and her spouse. The court held that the operating agreement must be enforced and ordered the divorcing member to sell her interest to the LLC pursuant to the terms of the operating agreement. See Schlicting, 2014 IL App (2nd 140158) 2014.

About Alan Sohn

Alan E. Sohn received his Juris Doctorate from the College of Law of the University of Illinois. Mr. Sohn has been a partner in both large and smaller law firms and for the past 21 years has been in private practice. Mr. Sohn - Chicago Estate Planning Lawyer and Business Attorney - is admitted to practice law by the Illinois Supreme Court, the Trial Bar of the United States District Court for the Northern District of Illinois, Seventh Circuit Court of Appeals and the United States Supreme Court. He is also a member of the Chicago Estate Planning Council and the Illinois State Bar Association.
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