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  1. #1
    Join Date
    Jan 2016
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    17

    Default Is One Spouse's S-Corporation Considered Marital Property in a Divorce

    My question involves a marriage in the state of: California. In 2003 I created an S-Corp for the purchase of working as a contractor to a major corporation. The S-Corp writes and maintains software. The sole employee is me and I am paid a salary by the S-corp for my work. I am paid as an employee with all of the appropriate withholding etc. The S-Corp has very few assets, a computer, printer, and a company car for travelling to meetings, etc. There is still a small balance on the car loan. When the S-Corp was created there were 10,000 shares of stock created and 5,001 shares were issued to me as the only stock-holder. I receive a K-1 as a result of the corporate tax filings each year which goes on my personal (now our joint) taxes as income or loss....

    I was married in 2010 and now in 2017 I am informed that "I don't want to be married any longer". She wants me to begin the paperwork for a divorce. What I want/need to know is: Do I list the corporation or the corporation stock as an asset? If so, what about the company car? Is that separate or just part of the value of the corporation? The corporation has few assets and some debt, not sure how to value it. Is it community property in California?

    Any help would be greatly appreciated. This is very overwhelming.

    Thanks!

  2. #2
    Join Date
    Oct 2014
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    5,697

    Default Re: Is My S-Corporation Considered Property in the Divorce

    The stock is an asset of yours. The extent to which it is community property is another matter, and for that you’ll want to consult a divorce attorney (you’ll need one anyway). All the assets of the corporation are the corporation’s assets, not yours, so you don’t list them as your assets; the value of the corporate assets is reflected in the value of the stock. As the corporation has few hard assets and basically is just a vehicle for you to use for your employment it probably does not have great value. After all, if you wanted to sell it to someone, I doubt they’d pay much for it, especially if you aren’t going to continue working there. They’d just get a few used assets.

  3. #3
    Join Date
    Oct 2006
    Posts
    13,149

    Default Re: Is My S-Corporation Considered Property in the Divorce

    Quote Quoting Taxing Matters
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    The stock is an asset of yours. The extent to which it is community property is another matter, and for that you’ll want to consult a divorce attorney (you’ll need one anyway). All the assets of the corporation are the corporation’s assets, not yours, so you don’t list them as your assets; the value of the corporate assets is reflected in the value of the stock. As the corporation has few hard assets and basically is just a vehicle for you to use for your employment it probably does not have great value. After all, if you wanted to sell it to someone, I doubt they’d pay much for it, especially if you aren’t going to continue working there. They’d just get a few used assets.
    The only possible thing that might give the shares of the S-corp sufficient value to matter might be the car. The equity in the car would be an asset of the S-corp. If there is enough equity in the car to matter then the value of the shares of the S-corp might matter. The car is also a car available for the OP to drive, which might have an impact as to whether or not the wife is awarded any other car that they might own.

    All in all however, this kind of "business" is not the kind of business that normally would be much of a factor in a divorce.

    All i

  4. #4
    Join Date
    Feb 2008
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    780

    Default Re: Is My S-Corporation Considered Property in the Divorce

    just curious -- who has the other 4999 shares of stock if 10k were issued and you got 5001?

  5. #5
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    Oct 2006
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    13,149

    Default Re: Is My S-Corporation Considered Property in the Divorce

    Quote Quoting hr for me
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    just curious -- who has the other 4999 shares of stock if 10k were issued and you got 5001?
    Nobody...or rather the company itself owns the shares. Its common practice to create a certain number of shares for a company but only actually issue a portion of them. That allows the company to issue/sell more shares later on, should the company choose to do so.

  6. #6
    Join Date
    Feb 2008
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    780

    Default Re: Is My S-Corporation Considered Property in the Divorce

    Quote Quoting llworking
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    Nobody...or rather the company itself owns the shares. Its common practice to create a certain number of shares for a company but only actually issue a portion of them. That allows the company to issue/sell more shares later on, should the company choose to do so.
    thanks! That does make some sense! Learned something new!

  7. #7
    Join Date
    Jan 2016
    Posts
    17

    Default Re: Is My S-Corporation Considered Property in the Divorce

    Thank you all for the comments. I know believe that I can just place a value on the company, including the car, which still has a car loan attached. I can list the stock value as an asset of mine. The comments regarding her car begs another question. Maybe I should start a separate thread......

    She has her own car which is the newest and most valuable car and it is free and clear of any loans, she will be taking that. She also "owns" another car that she purchased for her daughter, without my knowledge, and she makes a monthly car payment from her income. All of our income has been kept separate and we have always maintained our own bank accounts. That car that be bought for her daughter has a loan balance of about $14k. Is that my debt also? Also wondering about credit cards that she has "run-up", am I responsible?

    Thanks!

  8. #8
    Join Date
    Oct 2006
    Posts
    13,149

    Default Re: Is My S-Corporation Considered Property in the Divorce

    Quote Quoting WhoDonnit
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    Thank you all for the comments. I know believe that I can just place a value on the company, including the car, which still has a car loan attached. I can list the stock value as an asset of mine. The comments regarding her car begs another question. Maybe I should start a separate thread......

    She has her own car which is the newest and most valuable car and it is free and clear of any loans, she will be taking that. She also "owns" another car that she purchased for her daughter, without my knowledge, and she makes a monthly car payment from her income. All of our income has been kept separate and we have always maintained our own bank accounts. That car that be bought for her daughter has a loan balance of about $14k. Is that my debt also? Also wondering about credit cards that she has "run-up", am I responsible?

    Thanks!
    I would certainly argue against the loan for the car she purchased for her daughter as being a marital debt...since the car itself (because it was gifted to the daughter) would not be considered a marital asset. The credit cards would be marital debt unless they were used to dissipate marital assets (money spent on another man, money spent on a gambling addiction, money spent on a drug addiction etc.).

    You should be aware however that whomever keeps an asset with debt against it, is responsible for that debt.

    The car that she drives is a marital asset and its fair market value/equity would be considered in the division of assets.

  9. #9
    Join Date
    Jan 2016
    Posts
    17

    Default Re: Is My S-Corporation Considered Property in the Divorce

    Thank you, it is all overwhelming but I understand what you are saying. Papers were filed today.

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