Quit Claim into SMLLC - Need to be Married SMLLC? (Community Property State)

[Michael Izbotsky]

Hi Brain Trust,

My wife and I are purchasing a property in St. Louis, MO where we are both on the loan and title. I was planning to quit claim the property into my LLC after we close on the property. My wife still needs to have at least 50% ownership in the property since she is on the loan.

I am currently the sole 100% owner of this SMLLC formed in CA. We're in a community property state, where I believe my wife is automatically considered an owner.

Would you be able to clarify if I am allowed to quit claim into this LLC as is, or if I'll need to add my wife to become a married single member LLC (married SMLLC)? If I did it that way, the ownership would read [Wife's First Name] & Michael Izbotsky as 100% owner.

I'm asking because it will save me from headaches and filing paperwork.

Many thanks in advance, and happy Thanksgiving!

Best,

Michael

[Ashish Acharya]

@Michael Izbotsky In community property states like California, assets acquired during marriage are typically owned equally by both spouses, which may complicate transferring jointly owned property into your sole-member LLC. Transferring the property could trigger a lender's due-on-sale clause, requiring immediate loan repayment. To align with community property laws and avoid legal or financial complications, consider forming a jointly owned LLC with your wife as a member. Review your loan agreement for restrictions, and consult legal and tax professionals to ensure compliance and protect your interests.

In C State, you can elect to file MMLLC as disregarded entity for tax reasons.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

[Katie Balatbat]

@Michael Izbotsky

Is it a big deal to update the governing documents to add your wife to title of the LLC to match title of the real estate? Sounds like you don't have a living trust yet, which likely would have you and your wife as trustees and beneficiaries as well. If you don't have an estate plan in place, you should also be considering that to align with your business ventures.

*This post does not create an attorney-client or CPA-client relationship.  Readers are advised to seek professional advice.  The information in this post is not to be relied upon.

[Michael Izbotsky]

@Ashish Acharya My SMLLC was created after we married, so couldn't that argument carry over that the LLC is "owned equally by both spouses"? Therefore, transferring our jointly owned investment property into my SMLLC would not trigger a due-on-sale clause?

@Katie Balatbat I'm sure it's not a huge deal. I just don't want to go through the hassle of updating documents, filing a statement of info, etc. As for the living trust, I'm assuming you mean to have the LLC within the trust to avoid probate? Or am I missing something else?

[Katie Balatbat]

@Michael Izbotsky

An estate plan serves several purposes, but, in CA, yes, particularly to avoid probate.

*this post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

[Ashish Acharya]

Quote from @Michael Izbotsky:

@Ashish Acharya My SMLLC was created after we married, so couldn't that argument carry over that the LLC is "owned equally by both spouses"? Therefore, transferring our jointly owned investment property into my SMLLC would not trigger a due-on-sale clause?

@Katie Balatbat I'm sure it's not a huge deal. I just don't want to go through the hassle of updating documents, filing a statement of info, etc. As for the living trust, I'm assuming you mean to have the LLC within the trust to avoid probate? Or am I missing something else?

In a community property state like California, if your SMLLC is considered jointly owned due to community property laws, transferring a jointly owned property into it might not trigger the due-on-sale clause. However, this depends on your lender's specific loan terms, as some treat LLC transfers differently.

[Michael Izbotsky]

Quote from @Ashish Acharya:

Quote from @Michael Izbotsky:

@Ashish Acharya My SMLLC was created after we married, so couldn't that argument carry over that the LLC is "owned equally by both spouses"? Therefore, transferring our jointly owned investment property into my SMLLC would not trigger a due-on-sale clause?

@Katie Balatbat I'm sure it's not a huge deal. I just don't want to go through the hassle of updating documents, filing a statement of info, etc. As for the living trust, I'm assuming you mean to have the LLC within the trust to avoid probate? Or am I missing something else?

In a community property state like California, if your SMLLC is considered jointly owned due to community property laws, transferring a jointly owned property into it might not trigger the due-on-sale clause. However, this depends on your lender's specific loan terms, as some treat LLC transfers differently.

Thanks, @Ashish Acharya. That was my thought as well. Either way, I ended up adding my wife to my SMLLC to further clarify. That way there shouldn't be an issue with a due-on-sale/transfer clause. 

For anyone following: It cost me $5 to file the updated statement of info and I simply drafted an amendment to the existing internal operating agreement to clarify our intent to operate as a married SMLLC. 

Thanks everyone!