No, I am not venturing into family law.
A while ago, someone at a Chamber of Commerce meeting told me that they were in an LLC with their spouse and wanted to change that to a sole proprietorship.
It turns out that the IRS has since 2007 had rules for spouses who want to be in business together without having the formalities of an LLC or partnership (K-1s, etc.). The IRS rules can be found at https://www.irs.gov/businesses/small-businesses-self-employed/election-for-married-couples-unincorporated-businesses. They involve the spouses electing to be treated as a qualified joint venture on a joint return (married filing jointly) to which each spouse attaches an individual schedule of business income, gain, loss, deduction, and credit according to that spouse’s interest in the business. It’s not totally clear from the IRS instructions, but seems like the split on the schedules may affect the spouses’ Social Security cumulative income calculations. 50/50 would be simplest.
One little thing about the qualified joint venture is that (unlike an LLC or partnership) both spouses must be active in running the business. Having one spouse be the silent partner won’t work for this.
Another thing is that you still must keep business financial records to support filing the individual Schedule Cs.
