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Lucy, Esq.
Lucy, Esq., Lawyer
Category: Family Law
Satisfied Customers: 27198
Experience:  Attorney with experience in family law.
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I have an s corp, I am divorcing, it is my separate

Customer Question

I have an s corp , I am divorcing, it is my separate property .
JA: Thanks. Can you give me any more details about your issue?
Customer: How much if any of the K1 profit could be construed as community , if I pay myself a reasonable sal;early?
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Submitted: 7 months ago.
Category: Family Law
Expert:  Lucy, Esq. replied 7 months ago.


I'm Lucy, and I'd be happy to answer your questions today.

All income earned during the marriage is community property, and that includes the full salary you pay yourself (just as it includes your spouse's full wages, if your spouse works). If the S Corp pays for things like your personal cell phone, car, car insurance, and other expenses, the amount of those payments is ALSO community property, because those are amounts you'd have to pay yourself if the company wasn't paying them. That means your spouse unfortunately has a right to half of the salary you've been paying yourself - but keep in mind that it would look suspicious to the judge if you suddenly stopped paying yourself a salary or drastically reduced it during the divorce. That could open the door to your spouse nosing around in the S Corporation's finances.

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Customer: replied 7 months ago.
What if you earn a salary? How does profit get distributed to the shareholder ? Is it considered wages?Thx
Expert:  Lucy, Esq. replied 7 months ago.

Salary is wages, and that's community property. Shareholder dividends are community property if they are deposited into a joint bank account, because then they've been commingled with marital assets. Dividends that are kept 100% separate are your separate property, as long as you're not using shareholder dividends to get around paying yourself wages and therefore deprive your spouse of money he or she would have been entitled to.

I have to sign off for a bit for an appointment. This unfortunately happens sometimes because experts have no way of knowing when customers will return to ask follow-ups. If you have any more questions, I'm happy to answer them when I return. I apologize for the inconvenience.

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