Facts: Husband and Wife were married. During the marriage, Husband bought two pieces of real estate. A few months later, Husband created an LLC and deeded the two pieces of real estate to the LLC.

During his divorce, the trial court found Husband’s interest in the LLC was marital property subject to equitable division.

When equitably dividing the marital estate, the trial court ordered Husband to convey to Wife the two real properties owned by the LLC.

Notably, the LLC was not made a party to the divorce.

Husband appealed, arguing the trial court could not make a nonparty corporate entity be responsible for paying Husband’s obligation to Wife.

On Appeal: The Court of Appeals reversed the trial court.

Tennessee law provides that a member of an LLC has no interest in specific LLC property and all property transferred to or acquired by an LLC is property of the LLC.

The Court found the trial court erred but proposed a simple workaround for the trial court on remand:

The evidence established that [the] LLC owned only these two pieces of property and that Husband owned the entirety of the interest in [the] LLC. In this instance, an award of the properties to Wife may have the same practical effect as an award of Husband’s interest in the LLC, but we cannot know that for certain. We, therefore, remand for the trial court to clarify its judgment consistent with the legal principles set forth in this Opinion, while emphasizing that the trial court does have the authority to award to Wife Husband’s entire interest in [the] LLC even though it cannot directly award Wife property owned by [the] LLC.

The Court reversed the trial court’s decision and remanded the case back to the trial court for clarification as to the disposition of Husband’s interest in the LLC.

K.O.’s Comment: I predict the trial court will likely do exactly as the Court of Appeals suggests and award Husband’s interest in the LLC to Wife. The outcome is likely to be the same, only with different verbiage used to get there. So, it could be a hollow victory for Husband.

Source: Sexton v. Sexton (Tennessee Court of Appeals, Eastern Section, January 30, 2024).

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