Partner Stealing

[mba08]

What is the name of your state (only U.S. law)? NY
My brother and wife own a construction business. he does the work, she over-sees the money.They collect equal paychecks from the business. They have been going through a collaborative divorce for the past year and he just started monitoring business accounts. Since she always handled the finances, many credit cards and bank accounts are password protected and he still cant access some. He found over the past 12 months she has used hundreds of thousands of dollars for her personal use. The business can barely make payroll and this successful business is just about bankrupt. They met with the attys and drew up papers all agreed upon she pays restitution with her protion of the divorce settlement. The papers are now ready and she wont sign. How can he stop her from taking any more money immediately. How does he protect himself from the irs for all this personal spending.

[latigo]

If she is paying “restitution” to the husband through the divorce/property settlement, then she had one miserably ineffective attorney!

I would like to see some case law holding that the income to that marital business was not marital property –no matter how they labeled it - and that one spouse can be held liable to the other for “stealing” marital property! *

If that were the case divorce cases would be bogged down for years as the parties squabbled over whom drew more out of the family bank accounts.

I don't even see how the divorce court could order her responsible for a disproportional share of the taxes and penalties if that joint income was not reported to IRS. The government sure as hell isn’t going to draw any lines. To IRS they would be assessed jointly and severally.

Nor do I see any difference how the business was structured - proprietorship, partnership, LLC or corporation. It was wholly family owned and operated and even if LLC or corp it was most likely an alter ego.

[*] Let’s assume a similar hypothetical, but here the husband is the sole operator of the business and the wife stays at home caring for the house and kids.

If the husband were to spend all of the business income on his own pleasures and bankrupt it, would the wife have a claim against him for “restitution”? ABSOLUTELY NOT! And this situation is no different.

[mba08]

The business is a corporation. At the first collaborative meeting, the husband agreed to pay her mortgage as well as his rent, since he had already moved out. They split their savings accounts in half so that each had their own. The money she is using now is from a business account and business credit cards. She literally spent hundreds of thousands from the business account on personal expenses, vacations, put in a pool, new furniture, shopping sprees, jewelry, etc. She hasnt paid business expenses. The employees were out on a job and the gas credit cards were declined purchases. She took business loans to cover payroll and supply expenses, all without his approval. Isnt it embezzlement when one business partner uses money without approval? Its not marital property. Its business money. Are you telling me she had the legal right to spend business money without consulting her partner? The way they dealt with excessive profits in the past is to agree upon bonuses at the end of the year, they never spent business money on personal things except for an occasional dinner. He needs to get her locked out of business accounts and protect himself from any more of her spending. He will be responsible for the tax burden of her spending. Is there a way to stop her?

[tranquility]

The whole thing is too complex with too many issues to do justice on this forum.

A corporation does not have "partners". There are many specifics here unmentined to say if there is a legal problem in relation to both on the removal of funds.

Even the tax issue is not able to be resolved until we know how the amounts were accounted for. And, while latigo is correct the taxes (if any) would be jointly and seperately due from the parties, under very reasonable facts inferred from the OP's post the husband could very well get innocent spouse relief.

An attorney and an accountant need to be contacted (beyond a divorce attorney) for the husband to protect his interests.

[KenGib]

I agree with tranquility. My first thought would be that the divorce proceedings, rather than any form of restitution, would be the recourse, since spending all that money might be marital misconduct.