child support v. new business

[RCBricker]

What is the name of your state? NY & TN

Not to steal this thread...but I have a similar question.

First lets lay the ground work so everyone understands the question.

****Also please link any research that is used to answer this question I am giving myself a headache trying to find this stuff on the internet*****

Residency of Child - NY
My state of residency - TN
Business state - TN

I recently graduated from college and a friend and I are looking to start a buisness. I have a child with my ex-wife. I am looking to protect the company from her. It is not fair to my future partner nor to the existence of the company if she is able to come by and snatch up 17% of the company simply because I own part of it.

Now before anyone starts sweating in the anticipated chance to flame me, let me make this clear.

The company will pay me a salary greater than I currently make. Any and all paychecks, bonuses, profitsharing, dividends, etc. will have the 17% garnished out and sent to the NY State collection agency.

My concern is not getting out of paying child support. My concern is that she will try and get 17% of the company profits even if they are used for reinvestments, expansions, R&D etc.

Here come the questions:

Does anyone know the rulings that NY may have on situations like this?
Has there been cases ruled on in other states?
Is there a business structure that I can use that would forestall her ability to try and take CS out of the company?

PS

One last point...I cannot take my name off the company charter as it would be obvious that this would simply be to forestall her attempts at CS. I have a dual MBA and my partner has over 10 years practical experience. There is no way that I would be able to prove that this company was not started by the two of us together and as such that I am anything but a partner.

Thanks for the help.

 

[LdiJ]

What is the name of your state? NY & TN

Not to steal this thread...but I have a similar question.

First lets lay the ground work so everyone understands the question.

****Also please link any research that is used to answer this question I am giving myself a headache trying to find this stuff on the internet*****

Residency of Child - NY
My state of residency - TN
Business state - TN

I recently graduated from college and a friend and I are looking to start a buisness. I have a child with my ex-wife. I am looking to protect the company from her. It is not fair to my future partner nor to the existence of the company if she is able to come by and snatch up 17% of the company simply because I own part of it.

Now before anyone starts sweating in the anticipated chance to flame me, let me make this clear.

The company will pay me a salary greater than I currently make. Any and all paychecks, bonuses, profitsharing, dividends, etc. will have the 17% garnished out and sent to the NY State collection agency.

My concern is not getting out of paying child support. My concern is that she will try and get 17% of the company profits even if they are used for reinvestments, expansions, R&D etc.

Here come the questions:

Does anyone know the rulings that NY may have on situations like this?
Has there been cases ruled on in other states?
Is there a business structure that I can use that would forestall her ability to try and take CS out of the company?

PS

One last point...I cannot take my name off the company charter as it would be obvious that this would simply be to forestall her attempts at CS. I have a dual MBA and my partner has over 10 years practical experience. There is no way that I would be able to prove that this company was not started by the two of us together and as such that I am anything but a partner.

Thanks for the help.

ok....here is your danger.

If you set the company up as a pass through entity (S corp, Partnership, LLC choosing to be taxed as an S-corp or Partnership) then your share of the company profits, whether they are distributed or not will appear on your tax return, and therefore be at risk for being included in your child support calculation, whether they were distributed to you or not.

You may be able to argue to the judge that any undistributed funds should not count...but its a toss up whether or not you would prevail.

Therefore, in that scenario 17% of your share of the undistributed company profits would be at risk.

If you set the company up as a C-corp or LLC choosing to be taxed as a C corp, then you do not have that risk.

However....you would be facing another problem, and that is double taxation.
Any future funds distributed, not as salary, would have already had corporate income taxes paid against them, and of course corporate taxes are much higher than the 17% you might be assessed as child support.

You can get around that by distributing all funds as salary and never any as dividends (at least as long as the salary does not become unreasonably high)
However that means that you will be paying FICA and medicare taxes on funds that would normally be distributed as dividends.

So....you are in kind of a catch 22.

As an accountant...I think your potential added tax costs of being a C-corp would outweigh the potential risks of having to pay 17% of the profits of undistributed pass through income. At least in the long term.

However, in the short term that could be financially painful for you. The C-corp route would defer the personal pain.

 

[RCBricker]

Thank you for your reply. One last question. If I decide that the C corp/LLC taxed as a C Corp is not the best way to go, When the company is reported on my taxes would I only report my share of the company or would my partner and I have to decide who files the company on their taxes?