Valuation disputes: The standards are often governed by local rules. Division of the business : Will the business be able to continue operating if forced to liquidate assets? Tax ramifications : Section. A practicing divorce lawyer will typically confront several typical interests in closely held corporations. These interests can be: 1 stock in the corporation; 2 membership in an LLC; 3 a partnership stake in a partnership; or 4 an ownership interest in a closely held family business.
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Being able to represent a client who is either the business owner or the spouse of the business interest owner requires a basic ability to read business statements. Here are a few basic starting points. A "C" Corporation must file a separate tax return. Income earned by corporation that does not flow through to an individual's return, except to the extent that a spouse is paid wages or compensation that will be on the spouse's W-2 or forms. There, income earned from these entities flows directly to the taxpayer and will be reflected in the individual's tax return.
Income from a single-member LLC should almost always be reflected in a Schedule C of the individual's tax return.
One option is to sell the business and divide the profits. The pros of this option are that both spouses may profit from a sale of the business and can use the proceeds to invest in their own business ventures. Plus, spouses can avoid additional financial ties to their ex-spouse. The downside is that this could take some time; many businesses can't be sold easily and it may be months before a buyer is found. A second option is to buy-out the other spouse's interest.
In a buyout, one spouse keeps the business and buys pays for the other spouse's interest.
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A buyout may be the best option assuming there are sufficient assets to complete the transaction. This can be accomplished if the buying spouse has enough cash or liquid assets available to pay off the selling spouse. Alternatively, the spouses could offset the selling spouse's portion of the business with other assets, for example:.
If the business comprises most of the couple's net worth, the spouses may have to enter into a "property settlement note" or "structured settlement," which will be paid out over time to the selling spouse. A property settlement note is similar to a note at a bank - it should have a reasonable rate of interest, a definite term, and a principal amount.
A third option is to dissolve the business. Dissolving business partnerships is governed by state law, so check your state's website for information about the process and the forms you need to complete.
It usually takes 90 days from filing a statement of dissolution usually a simple one-page form to dissolve a partnership. The process ensures that neither partner will be responsible for the other's debts and liabilities and, once dissolved, that neither partner can enter into any binding transaction on behalf of the partnership.
It also renders your original partnership agreement void. Once the partnership dissolution is in process, draft a dissolution agreement with the help of a lawyer. This will outline the terms of the split and protect you against any future disputes or claims that might be brought against you. Probably the best tool for tracking down cash and other hidden assets are tax returns.
This is because even a spouse who is attempting to hide assets or income through their business was probably not considering such action seven, five, or even three years ago. The first line of can be important because it provides a social security number which can be used for other searches.
The W-2's for the spouse as an employee can also be important. How does the past compare to the present? Bank Statements and Credit Cards can also prove to be equally valuable. There are several key things to look for in this regard.
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Do deposits match invoicing or account receivable? Are wages to relatives or close friends comparable to others performing similar tasks? This can be common where there is an anticipation of the funds being gifted back later. Do known expenses not being paid out of any account signify cash transactions? Were abnormal bonuses paid out?
Do you know of personal use of company assets or perks? What is the value? Are there any transfers or deposits from unknown accounts? Do check registers or cancelled checks show previously unknown accounts? Are regular customers now late with payments delaying income? Has there been a sudden increase in liabilities or loans? An expert's cash flow analysis may uncover the answers to many of these questions. Hiring a forensic accountant or private investigator can also help to uncover hidden assets. You can also try to talk to other witnesses who may have an idea of where hidden income is coming from, such as business partners.
The difficulty with cases involving alleged hidden assets is avoiding the assumption that hidden assets do, in fact, exist. When seeking hidden assets, it is first necessary for investigators whether it be one of the divorcing parties, the attorney, or paralegal to recognize the underlying factor that the possibility of hidden assets must exist before hidden assets can exist.
Investigating under the sole assumption that hidden assets exist can result not only in wasted time and costs but also the risk of discovery abuse, such as placing an undue burden on the opposing party OP. Therefore, the underlying mindset for investigators should always seek the answer the question, "Is it possible that hidden assets exist?
Important questions include, but should not be limited to:. Collecting basic information about the OP before beginning the discovery process is helpful and will aid you throughout the discovery process.
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Start with an initial checklist of background of the OP, such as place of employment, date of birth, social security number, and the individual's last known address. Also consider collecting information regarding the identities of the OP's close friends and relatives. This can often come into play because they will transfer or hide assets in those individuals' names in an attempt to avoid detection. Of course, the relevant discovery requests will vary from case to case but this is a broad overview of the common sources for discovery of hidden assets and is similar to discovery in a standard divorce case.
It is also important to point out other resources which may be useful in a case with hidden assets, specifically forensic accountants and private investigators. While they may be costly, utilizing such resources may be extremely helpful, depending on the complexity of the case. Forensic accountants are especially helpful and often necessary when analyzing tax and financial documents for potential hidden assets.
There are several Tax Forms other than the that may or may not be applicable. It's important to know the standard IRS forms required for offshore asset reporting and their purpose. Other than the standard , there are 7 IRS forms applicable to offshore assets:. However, requesting these tax forms during discovery, either from the individual or the IRS, is only effective if they have in fact been filed.
Individuals with hidden assets typically do not adhere to tax reporting and filing requirements, hence the hidden classification. Therefore, requesting these tax forms is only the starting-point. These can be helpful because hidden assets are typically under a false name or entity but the individual is still likely to receive notifications to their personal email or phone. Resources such as a forensic accountant or a private investigator, while helpful, can also become very costly. Using such resources is primarily recommended in situations when it is known that OP has hidden assets in order to better find them.
The key sources of hidden assets include cash-either actual cash or cash converted into property common method of hiding assets.
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