Louisiana business owners who form single-member limited liability companies (SMLLCs) often overlook a critical aspect of their business structure: the intersection of community property law and succession planning. If you are married and reside in Louisiana, your single-member LLC may not be as “single” as it seems in the eyes of the law.

In this article, we explore why it is essential to have a well-drafted operating agreement that includes your spouse and a coordinated estate plan to protect the integrity and continuity of your LLC.

1. The Community Property Trap in Louisiana

Louisiana is one of only nine community property states in the U.S., which means that, absent a prenuptial or postnuptial agreement, most assets acquired during marriage are jointly owned by both spouses—even if title is held in only one spouse's name.

This legal framework complicates the notion of “single” ownership in an SMLLC. If the membership interest in the LLC was acquired during the marriage, it is presumptively community property. That means your spouse may own 50% of the economic interest in your business, whether you intended that or not.

Why This Matters

• Legal ambiguity: Without an operating agreement, there's no clear distinction between management and ownership roles. If your spouse owns half of the economic interest, are they entitled to a say in operations?

• Creditor risk: In the event of personal liabilities or divorce, your spouse's interest could become exposed to claims, affecting your business operations.

• Tax consequences: For federal tax purposes, the IRS disregards single-member LLCs. However, when a married couple jointly owns an LLC under community property law, it may qualify for different treatment (e.g., as a qualified joint venture). Misalignment between legal ownership and tax treatment can lead to compliance issues.

2. The Role of a Spousal-Inclusive Operating Agreement

An operating agreement is the backbone of your LLC. For married business owners in Louisiana, it should do more than define management and profit allocations—it should explicitly address the spouse's rights, responsibilities, and expectations.

Key Clauses to Include

• Acknowledgement of community property: Clarify the nature of the LLC interest and acknowledge whether it is separate or community property.

• Spousal consent and waiver: Include a spousal waiver or consent to the terms of the operating agreement to avoid future disputes.

• Buy-sell provisions: Anticipate events like divorce or death and outline how the interest will be valued, transferred, or purchased.

• Management authority: Affirm that only one spouse (the named member) has authority to manage and bind the LLC.

By making your spouse a signatory—either as a consenting non-member or a non-voting member—you reinforce the LLC's structure and avoid ambiguity.

3. Estate Planning for Membership Continuity

Without a coordinated estate plan, the death of a single member in a Louisiana SMLLC can result in business paralysis or unintended transfers.

Potential Pitfalls

• Succession delays: If no succession plan is in place, the membership interest may be tied up in court, stalling business decisions.

• Confusion over heirs: Without clear directives, the surviving spouse may share the interest with children or other heirs, creating friction and potential deadlock.

• Loss of limited liability: If the business isn't operated properly during the transition, it could risk piercing the corporate veil.

Solutions

• Transfer-on-death provisions: Use an operating agreement or will to specify who inherits the membership interest.

• LLC membership trusts: Consider transferring the LLC interest into a revocable living trust for streamlined management and succession.

• Durable power of attorney: Ensure someone can step into your shoes for business operations if you become incapacitated.

An estate plan aligned with your operating agreement ensures the LLC continues to operate smoothly and reflects your wishes.

4. Conclusion: Legal Formalities Are Not Optional

The SMLLC may appear straightforward, but in Louisiana, its simplicity can be deceptive. Failing to account for community property laws and post-death transitions can leave your business vulnerable to disputes, delays, and even dissolution.

By executing an operating agreement that involves your spouse and a corresponding estate plan, you protect your business, your family, and your legacy. At Business Law Group, we help married business owners in Louisiana create clear, comprehensive, and enforceable plans for their LLCs.

Need help drafting an operating agreement or estate plan tailored to your unique situation?
Contact us today to schedule a consultation.