Divorcing spouses who jointly own an S-Corporation—or where one spouse is the sole shareholder—face complex legal and tax issues. Ownership, valuation, and future participation must be resolved, often requiring forensic analysis and structured settlements.
Key Considerations
- Valuation: Determine the fair market value using standard methods, adjusting for control, marketability, and goodwill
- Distributions vs. Retained Earnings: Track what income has been distributed and what is still held in the company
- Tax Basis and Capital Accounts: Essential to understanding the tax effect of buyouts or transfers
- Shareholder Agreements: May restrict transferability or require buy-sell provisions that affect division
Settlement Options
- One spouse buys out the other
- Retain joint ownership with documented management/control terms
- Use structured payments or deferred distributions
A forensic CPA helps model the tax and cash flow impact of these options so clients can make informed decisions.