Legal Question in Business Law in California

Re LLC and Spouse rights

Two years ago my husband's attorney wanted me to sign a spousal agreement. It said I understood and agreed that all my personal money and community assets invested in the LLC were no longer mine and I had no claim over the money invested. I refused to sign because it did not sound fair.

Since then my husband invested all the equity in our house plus my retirement fund into the LLC.

I am looking into a divorce and what my financial situation will be now.

I recently asked the attorney for a copy of the orginal spousal agreement. He sent me a document I had never seen before, totally different, very nonintimidating, dated 8 months after the original agreement. He and my husband say I am wrong, it is the same spousal agreement I had refused to sign. However, nothing is mentioned about personal or community assets.

I know the attorney represents my husband and the LLC, but as a spouse of the LLC owner, is there an obligation to look after my rights too? Or at least give me the facts as to where I stand financially?

If my husband has an attorney representing his business interests in a community property state, is he my attorney too? It is such a waste of money to hire another attorney.

Asked on 2/15/06, 9:06 am

4 Answers from Attorneys

Gregory Cartwright The Cartwright Law Group, APLC

Re: Re LLC and Spouse rights

It's unclear from the facts given whether or not the attorney was also representing you. So let's leave that issue aside for the moment.

Also, I can't comment directly on an agreement I havent' seen, and which may or may not have been signed by you.

One of the key issues here is whether or not your community property interest was transmuted (changed into) your husband's separate property. The Family Code and applicable case law require that in order for that to happen, there must be something in writing that clearly which sets forth your rights and intention to accomplish the transmutation.

However, even where there is such an agreement, the Family Code also provides that your husband owes you a fiduciary duty to not damage your rights.

This is an extremely complicated area of law, and before you decide what you want to do with respect to the marriage and/or the community property, you should seek an attorney immediately to review the agreements in more detail, and provide you an opinion regarding your options. Feel free to email me to set up a consulation if you wish.

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Answered on 2/15/06, 9:32 am
Edward Ardzrooni Law Offices of Edward Ardzrooni

Re: Re LLC and Spouse rights

Dear Inquirer:

Your husband's attorney has a duty not to deceive you in any way, even if he represents your husband's interests against yours.

By what your say, it seems quite unwise for you to trust your rights and your proerty to decisions of that attorney.

You have serious property issues. There seems no reason why those issues cannot be resolved (and resolved fairly) without legal maneuverings and clamor and lawyers focussing on combat.

I suggest that you seek out and obtain the services of a lawyer for either of the following functions:

1. Obtain a neutral lawyer who will act for both you and your husband in explaining your respective rights and duties, your options, and preparing a Settlement Agreement for the 2 of you. There are now lawyers willing to serve in this role. Your husband can have his present lawyer analyze the Settlement Agreement to make sure it is fair to him.

If you and your husband are not able to come to an agreement by using the services of a neutral lawyer, then the neutral will withdraw, and you will have to obtain a lawyer to represent only your interests.

2. You get a lawyer to represent only you, but one who is dedicated to fair and effective settlment rather than contest, and who will not take issue in any area or on any item on which your husband agrees to treat you fairly. By what you have said about your husband and his present lawyer, it would be wise for you to choose a lawyer for yourself who is not ease in contesting the case in court if all reasonable efforts at negotiation fail.

I wish you success in your effort. LawGuru restricts the length of these replies; so I am not able here to make this as informative to you as I would like.

If you wish some additional suggestions, please contact me by phone or e-mail. My contact information accompanies this reply.


Edward Ardzrooni

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Answered on 2/15/06, 11:28 am
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Re LLC and Spouse rights

If you never signed any agreement, neither the first version, nor the eight-months-later version, nor any other, it's more likely than not that no transmutation has occurred, and that the LLC will be community property, or largely so. Allocation of the value of a married couple's business often depends upon the nature of the business and the extent to which capital (money) contributes to its success and growth as opposed to the skill and efforts of one spouse. At minimum, you should get back the lesser of 1/2 of its current value or 1/2 of the community assets invested. If you invested your separate property, you would be entitled to that as well.

I think you are in a position where you are vulnerable to being conned, and relying upon yourself or a lawyer who is in someone else's employ will lead to a bad result.

Also, while use of a neutral attorney-mediator is cost-effective and has a pretty high success rate in uncontested divorces or where the disputes are in good faith and not highly rancorous, I'm inclined to think there is not a whole lot of good faith being shown by your husband and his attorney.

Assuming it turns out that you are a substantial co-owner of the LLC (as seems reasonable under the facts), there is probably a conflict of interest for the same attorney to represent both the husband and the LLC. This type of conflict can be waived, but probably shouldn't be here. As has been pointed out, the attorney has a certain ethical duty toward you, but in a divorce he will be representing an adversary and would have a strong duty of loyalty to your husband.

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Answered on 2/15/06, 12:06 pm
Edward Ardzrooni Law Offices of Edward Ardzrooni

Re: Additional Suggestion Re LLC and Spouse rights

Dear Inquirer:

This is a follow-up on the reply I made to you early this morning. An all-morning commitment prevented me from including this suggestion along with the two others.

It seems to me you have a third course of action available, in addition to the two I mentioned earlier.This one kind of "jumped out" at me as I was finishing my previous reply:

Promptly obtain the services of an attorney on a consultative basis (i.e., not necessarily with an eye to long-term involvement). Obtain from this attorney a comprehensive evaluation of your property interests and property rights (both separate and community). Have the attorney analyze the most recent proposed agreement from your husband's attorney. You and your consultative attorney make a preliminary list of what, if anything more, needs to be provided you than is already included in that proposed agreement. Give particular attention to getting more information about the LLC `-- its present worth, its earning power, its future potential.

Once you and your consultative lawyer have your preliminary goal in mind, have the attorney contact your husband's attorney for (a) discus-sion,(b) to get more information and (3) for negotiation once you have obtained the added information your attorney thiks is necessary.

As long as you and your consultative attorney are quite careful, and reasonably patient, this course might be the most furitful, least drawn out, and the least costly in attorney fees. It may end up that you and your husband will be able to reach a comprehensive divorce settlment, or perhaps settlment of only the property aspects of your marriage/divorce relationship. If you are able to settle just the property aspects alone, you will have resolved the single biggest problem in the divorce.q


Edward Ardzrooni

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Answered on 2/15/06, 4:00 pm

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