Articles Tagged with business owners

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Dear Carolyn,

My daughter is getting married next year.  We have family business and my daughter works in the business. Is a premarital agreement appropriate for her, even though she is only 25?  When should she bring this up with her fiancé?

Carolyn Answers…

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Dear Carolyn, 

We have a small family business. I do all the work with customers; my ex-wife does the bookkeeping. We both own the company as shareholders. We now are now separated. What protections do I need to put in place? She writes checks that are not for business expenses out of the business account.

– Concerned

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A great aspect of living in the triad area is the rich history of successful businesses that put down roots in the community and prospered over the years.  Greensboro is home to very familiar brands such as Wrangler and Volvo, and right down the road is High Point, which is known for being one of the largest home furnishing manufacturing areas in the country.  Business and industry have been drawn to the area for years, and a growing population provides ample opportunity for entrepreneurs of all sizes to flourish.  Some of the area’s most vital businesses are ones defined as “closely-held,” or more commonly referred to as, “Mom and Pop” businesses.  Unfortunately, sometimes, Mom and Pop do not see eye-to-eye, which may jeopardize the future of these businesses. Continue reading →

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Dear Carolyn,

I am involved in an equitable distribution case and I have a closely-held business in the Triad, which was started by my father. He still owns the majority of the business.  Eight years ago, my father gave me twenty-five percent of the business. I separated from my husband eight months ago. What can I expect in my divorce case related to my closely held business?  How do we go about getting a appraiser to appraise the business?  Can he get any of my stock in the family business?

 

Carolyn Answers:

 You ask a complex, but very interesting, question.  Rest assured that he cannot get any of the actual stock in your family’s business.  The stock itself is separate property because it was given to you by your father.

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Belot v. Comm’r, T.C. Memo. 2016-113, 2016 WL 3248031 (2016)

Facts: During their marriage, the parties operated a dance studio. The business consisted of an S corporation which was the actual studio, an LLC which operated a boutique selling dance clothing, and another LLC which owned the real estate on which the studio operated. The parties owned each of these entities in different percentages.

The parties were divorced in New Jersey in 2007. The decree incorporated an agreement signed by the parties, in which they agreed to convey interests in the entities so that each of them owned 50% of all three entities. The decree therefore left the divorcing parties as joint owners of the business.

Later in 2007, the wife filed a complaint against the husband, alleging that he had mismanaged the studio, and seeking to remove him as director and employee. This action was settled in 2008 by an agreement, in which the wife agreed to buy the husband’s interest in the business for $900,000 to be paid at closing, and $680,000 to be paid over 10 years.

The husband filed tax returns which claimed that the sale of the business under the 2008 agreement was a § 1041 exchange. When the IRS assessed a deficiency, the husband then appealed to the Tax Court.

Issue: Was the transfer required by the 2008 agreement a 1041 exchange?

Answer to Issue: Yes

Summary of Rationale: The IRS relied upon Reg. § 1.1041-1T(b), Q&A-7, which provides:

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13062458_1042739802458603_2436945721037467362_nBy: Dana M. Horlick, Attorney, Woodruff Family Law Group

 

Now let’s change the hypothetical of our Greensboro couple – Petunia and Rocky – in one respect. Recall that Petunia’s parents wanted her to have a premarital agreement regarding Home Grown Lawn Care, but Petunia and Rocky did not sign one. Maybe a few years into her marriage, Petunia realizes that she wants to keep Home Grown Lawn Care in the family and that Rocky and her parents just do not get along. So Petunia executes a will, leaving her shares of Home Grown Lawn Care to her parents and the remainder of her estate to Rocky.

Under this scenario, Petunia’s parents would receive her shares of Home Grown Lawn Care, valued at $125,000.00. Rocky would receive the 401(k) worth $15,000.00. Rocky may decide that he is entitled to a larger share of Petunia’s estate. He can then exercise the right to elective share, which is a two-step calculation. First, you have to determine what percentage of the total net assets the surviving spouse receives. Second, you have to determine the amount of the elective share, based on the percentage calculated in step one.

Let’s take this step-by-step. The North Carolina legislature has determined that the percentage of the total net assets should vary based on the length of the marriage. Thus, the longer the marriage, the higher the percentage of the total net assets. The below chart shows the percentages, based on the statutory language in N.C.G.S. §30-3.1:

 

Number of Years Married Share of the Total Net Assets
Less than five years 15%
At least five years, but less than ten years 25%
At least ten years, but less than 15 years 33%
15 years or more 50%

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13062458_1042739802458603_2436945721037467362_nBy: Dana M. Horlick, Attorney, Woodruff Family Law Group

 

Now that we have the details and definitions out of the way, we can return to our Greensboro couple Rocky and Petunia and take a look at what happens to Petunia’s estate. Recall that Petunia died without a premarital agreement, without children, and without a will. Since Petunia died without a will, this means that she has died intestate, and her property will pass via intestacy, with Rocky as the administrator of her estate. Also recall that Petunia died with an interest in Home Grown Lawn Care worth $125,000.00 and a 401(k) worth $15,000.00, of which Rocky is the beneficiary. Also, Petunia died in a car accident five years into the marriage – this will be important later on.

Without a will, the share of the surviving spouse is governed by statute. There are other factors to consider, though, namely is the decedent (Petunia) survived by any children or her parents? The presence of either surviving children or parents reduces the share of the surviving spouse under the statute. In this case, there are no children, but her parents survive Petunia.

N.C.G.S. §29-14 (a)(3), provides for the surviving spouse’s share of   the real property as follows: “If the intestate is not survived by a child, children or any lineal descendant of a deceased child or children, but is survived by one or more parents, a one-half undivided interest in the real property.” Based on those facts, and the statute, Rocky gets ½ undivided interest in the real property. Under the facts of our hypothetical, there is no real property, meaning that Rocky gets ½ of nothing. If for example, Petunia owned a parcel of land, Rocky would get ½ of that parcel, and her parents would get the remaining half.

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13062458_1042739802458603_2436945721037467362_nBy: Dana M. Horlick, Attorney, Woodruff Family Law Group

 

Have you wondered how much of your estate is your spouse entitled? What happens to all of your assets when you die? Do you have much control over the disposition of your estate? Does having a will make a difference? To demonstrate the nuances involved in determining how much your surviving spouse is entitled to, I am going to set up a hypothetical, with a Greensboro couple – Rocky and Petunia.

Petunia owns 40% of a closely-held business started by her family, Home Grown Lawn Care, and will likely inherit another 11%. Petunia’s brother will inherit the other 49%. Petunia is engaged to Rocky, an engineer with a promising future, who has joined an engineering firm. To set up the financials, Harry makes $70,000.00 per year. Petunia, as a Vice President for Home Grown Lawn Care, has a salary of $60,000.00 per year and typical K-1 dividends of another $25,000.00 per year. Petunia also gets a tax distribution to pay the federal and state income tax on the K-1 distribution.

Neither Petunia nor Rocky have been married before, have any children, or have any college debt. They do, however, have the following assets: there are Petunia’s shares in Home Grown Lawn Care valued at $100,000.00; a 401(k) with $10,000.00 for Petunia; and a 401(k) with $10,000.00 for Rocky.

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By: Dana M. Horlick, Attorney, Woodruff Family Law Group

 

Demeter v. Comm’r, T.C. Memo. 2014-238, 2014 WL 6645592 (2014)

(a) Facts: A husband and wife were  married. During the marriage, the husband started a business, Sunshine Framing and Finishing (“Sunshine”). The wife was added as a vice president in 2008. She ran errands for the company and helped with its bookkeeping, but did not receive a salary. Sunshine’s bank account was used for personal expenses as well as business expenses; the parties had no individual bank accounts.

The husband retained an attorney to file the parties’ joint tax returns for 2004, 2005, and 2006, which were filed late in 2008. The wife never met the attorney, and signed the returns without reading them.

The returns reported tax due, which the husband did not pay. The wife was not aware that tax was due until the IRS began collection proceedings. She confronted the husband about the tax debts, and he promised to pay them. The parties eventually filed bankruptcy.

Shortly before the end of the bankruptcy case, the parties were divorced in Florida. The divorce decree incorporated a separation agreement, in which the husband agreed to pay all outstanding tax debt.

The husband failed to comply with the agreement, and was held in contempt by a Florida court. As part of the contempt proceedings, he signed an Affidavit For IRS Innocent Spouse Determination, reaffirming that he was responsible for all back taxes.

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