Discussion:Paid business loan as divorce settlement
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Discussion Forum Index --> Advanced Tax Questions --> Paid business loan as divorce settlement
Discussion Forum Index --> Tax Questions --> Paid business loan as divorce settlement
| 14 May 2008 | |
| Husband and wife getting a divorce. Husband is 100% shareholder of an S-Corp business, started 20 years ago. Wife is threatening to sue for the business interest since she has been involved in it for the last 15 years, so a monetary settlement is agreed from both sides. Husband took out business loan and a portion of it pays her directly, is her payment portion considered business expense (he said had to do that or will be out of business) or personal (in which case it's a distribution?) I would say it's the latter, anyone disagree? | |
| 15 May 2008 | |
| The interest portion of the payment is deductible as interest. | |
| 15 May 2008 | |
| Sorry Riley2...when I mentioned business interest above I didn't mean interest vs. principal but interest as in a right or titlement to the business share. He took out $250k BUSINESS loan and paid her off $50k, could that $50k be considered business expense (not sure yet what category) or personal (distribution)? | |
| 15 May 2008 | |
| Incident to divorce there can be no tax consequence to wife. You might get away with issuing $50K worth of stock and redeeming. Otherwise you are stuck with husband taking a distribution in order to make the settlement. | |
| 15 May 2008 | |
| Bean, I understood your original post. What I am trying to say is that Sec. 1041 prohibits a deduction for interspousal payments of this sort. However, the courts have generally held that interest on a deferred payment is generally exempt from the Sec. 1041 rules.
The short answer to your question is that if no part of the $50,000 payment is properly allocable to interest, then no deduction is allowed for any part of the $50,000 payment. | |
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