Q:

Subject: s corporation

I have a big question. My husband and I have a business as S corporation. I have filed for divorced . How will this effect the corporation? My husband and I are the only shareholders. When I get my pay off any suggestions on what to do to save on Taxes?

A:

It sounds like you are in for a lot of negotiating. 

The corporation will technically go on the same regardless of your marital status. 

I'm assuming you are each 50% shareholders.  What you and he need to work out is if that will continue after the divorce or if one of you will buy out the other.  If one of you buys out the other before the end of the year, there will be even more negotiating as to how to divvy up the year's net income or loss between your K-1 and his.  There are all kinds of ways in which to do this allocation.

The other issue with a buy-out will involve whether or not the selling spouse will want to recognize any gain.  The tax law does allow the transfer of assets between spouses incident to a divorce to be a tax free event, with the acquiring spouse taking over the cost basis from the departing spouse.  What this generally means is that the spouse who keeps the assets is also accepting responsibility for all future capital gains taxes; while the departing spouse is released from that potential liability.  I have worked on several cases over the years where we calculate the avoided taxes for the departing spouse, and adjust the buy-out price downward accordingly.  But, that is also completely negotiable between the parties involved.

You and your husband will need to work with your own personal tax advisors to work on a mutually acceptable plan. 

Good luck.

Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 7/31/2005 02:35:00 PM Send this post: