Discussion:Tax Consequenses of Corp purchase of Stock in a divorce
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No regrets (talk|edits) said: | 2 July 2008 |
| I have a client who is going through a divorce. He owns a C-Corp and his future ex is going to receive half of the shares in the company. What are the tax consequences of him buying the shares back from his wife. | |
| 2 July 2008 | |
| Depends on 2 factors. How soon after the divorce will the purchase occur? Will the buy-out be pursuant to a divorce instrument? | |
No regrets (talk|edits) said: | 2 July 2008 |
| Let's assume that the purchase will be directly after the divorce. I'm not exactly sure what the second question means but I think the reason he's buying her out of the company is because he wants to keep the company and she wants cash. If that's not the answer than I don't know what is. | |
| 3 July 2008 | |
| Since the buyout will occur within one-year of the divorce, there is no tax consequence to buying the shares from the wife. This means no gain or loss will be recognized. This also means that the basis in the stock will not change. Example, if the husband's basis in the shares given to his wife is $100, his basis in those shares will also be $100 when he purchases the shares back from his wife.
Since the buy-out will occur within one-year of the divorce, we don't really need to address the issue of whether the buy-out was pursuant to a divorce instrument. For more information on this, see IRC Sec. 1041. | |
| 3 July 2008 | |
| I've done my homework and don't do it for others. However, If the divorce says the wife is entitled to 1/2 the corp stock, he apparently does not want her as a partner, thus the buy-out.
Will the buy-out be by him or the corp. If the corp makes the purchase, you will have treasury stock. | |
No regrets (talk|edits) said: | 3 July 2008 |
| Thank you Riley you were very helpful. | |
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