Alabama Divorce Court Went Too Far in Assigning to Spouse the Assets of an LLC

Alabama Divorce Court Went Too Far in Assigning to Spouse the Assets of an LLC

      In a recent decision from the Court of Civil Appeals of Alabama, it reviewed a divorce decree from what is clearly a contentious dispute. The court addressed, however, one important issue of the law of LLCs. Whaley v. Whaley, 2017 WL 5507928 (Ala. Ct. App. Nov. 17, 2017).

      A crucial rule of the law of limited liability companies is that the LLC owns its own property, and in turn the members own an interest in the LLC. The members do not have an ownership interest in the LLC’s property. This rule was ignored, however, by the trial court in this dispute when, with respect to K2 Enterprises, LLC, an entity in which the husband was apparently the sole owner, then was transferred to the wife K2’s “real property, equipment, contractual rights, intellectual property, proprietary information, patents, patent applications, processes, licenses, leases and other property rights.”

      The Court of Appeals set aside this award on the basis that it went well beyond the husband’s “transferable interest” in the LLC to reach the property that the LLC owned. On that basis, remand was ordered.