How do I take property out of an LLC? This reader wants to know how to take their house out of an LLC that’s in administrative dissolution.
Q: I hope you can help me with this mess. I have an ex-partner who talked me into putting my house into a limited liability company (LLC) with her as the managing member. She has total say and control over the LLC but we are 50/50 owners in the company. The purpose of the LLC was for investment.
She was going to run a business of renting the property through the company and handle all the expenses and filings. However, no business has ever been done with the LLC, no bank account created and now the LLC is in administrative dissolution.
Can I file to dissolve the LLC and if I do, how do I get my home out of the LLC? What tax problems will I have? The LLC was set up with her Social Security number and name and has an EIN number.
I know now the whole thing was a bad idea, but my goal is to get the property out of the LLC and into my name.
How Do I Take Property Out of an LLC?
A: Have you talked to your ex-partner about the situation to see if the two of you can resolve your differences? As a start, you need to ask her to convey the property to you. If she is willing to do that, great. But, we’re going to assume she’s not going to help you out – at least not willingly.
In fact, we’re going to have to make a bunch of assumptions, as there is a fair amount of detail missing from your email, such as whether you and your ex-partner were married (making her your ex-spouse) or were just business partners. We’re also unclear as to whether you and your ex-partner actually lived in the property together.
First, we’re going to assume that you and your ex-partner no longer live in the home as you mentioned that the home was going to be used as an investment property for what we assume was a rental property business.
We’re also going to assume you were married and are now divorced. If that’s the case, one important question is whether you put the home into the LLC before or after your divorce. If you put the property into the LLC before your divorce, the divorce decree should have dealt with the LLC and the disposition of the home. So, if you have some legal direction from your divorce decree as to who owns the LLC and the property it holds, that may give you some leverage to have your ex-spouse convey the property as required by the divorce decree.
Having said that, it may be that you are not divorced or were never married to your ex-partner in the first place. It’s also possible that there is no paperwork about the LLC other than the documentation that was used to create it.
Your Rights as a Member of the LLC
As a member of the LLC, though not the managing member, you may have some rights and some of those rights should be described in the operating agreement for the LLC. You should find the operating agreement and determine whether it contains a dispute resolution provision. That dispute resolution provision may give you the right to take some action, perhaps enough to prod your ex-partner into motion.
We don’t know how you and your ex-partner decided to put the home into the LLC. And, we don’t know whether you got paid for putting the home into the LLC or it was part of a larger arrangement. We’re thinking if you put the home into the LLC and received nothing for it, you might be able to unwind the transaction.
What do we mean by unwind the transaction? First, see if you and your ex-partner can get together and amicably resolve the situation and have her convey the home back to you. If not, you’ll have to hire an attorney to force the resolution and have the ownership revert back to you.
However, if you put the home into the LLC and you got something for it or the divorce decree provides for the division of property differently, you may be stuck. In this last scenario, you may have to punt and work with an attorney to review all the documentation and see if you have any other options available.
Tax Implications of Taking Property Out of an LLC
From a federal income tax perspective, it may matter if you received something of value for your property from the LLC. Most people, when they set up an LLC between spouses or friends, they have the tax situation flow to the individuals. This would mean that whatever occurs on the tax side at the LLC level, those taxes owed would become the obligation of the members of the LLC.
You’ll need to check if your ex-partner ever filed a tax return for the LLC or even needed to file. Based on the way you phrased your email, we’re assuming that she probably did nothing other than create the LLC and transfer your house into it. Now, as part of the unwinding, you may have to deal with a variety of tax issues, including the conveyance of your home to the LLC, any tax issues stemming from the time period the LLC owned the property, and the conveyance of the property from the LLC back to you. You may need to consult your tax preparer, an accountant or an enrolled agent.
Should I Dissolve the LLC?
In our view, simply dissolving the LLC may not help that much. The LLC may no longer exist under the eyes of the state in which you live, but the home would still need to be transferred from the LLC (or the owners of the LLC) to you or someone else. The dissolution of the LLC won’t automatically return the home to you, and could complicate matters. Once dissolved, the members of the LLC would effectively become owners of the property. Your ex-partner would own half the property and you’d still have to deal with her to get her share.
While we agree that this wasn’t your smartest move, that doesn’t mean it has to cost you half of an asset you owned prior to the creation of this LLC. Please get the help you need to reclaim your property.