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socrateaser, Attorney
Category: Business Law
Satisfied Customers: 39187
Experience:  Retired (mostly)
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First, I am in the process of divorce, my husband and I own

Customer Question

First, I am in the process of divorce, my husband and I own a corporation, he is a national Horse Clinician. He is the Pres, I am the VP, we own a ranch and 16 horses, he walked off and left the ranch, the corp pays the ranch payment and all bills. he has never taken a paycheck, all funds go to our corp account from the horse clinics he does to pay the lease to us personaly on the ranch, Recently his lawyer sent a letter, stating he was resigning from the corp as the Pres and as employee. I am trying to get an emergency hearing to ask the Judge to force him to put all funds, (60,000 in two months) into our corp account to pay the back bills he has not paid for 5 months and future until we have decided on how to split the corp. All buisness he has booked was booked by our corp in the last year. He has no new business since filling 4 mnths ago. He is trying to file personal bankrucpy and walk off with all the corp assets and money. Please advise, my attoney is lost in this.
Submitted: 8 years ago.
Category: Business Law
Expert:  socrateaser replied 8 years ago.

If the corporation was formed during marriage then all of its assets and liabilities are community property. The court has authority to order your husband to account for all of the funds removed from the corporate accounts and the court can make a blanket order freezing all of your husband's bank accounts until he makes that accounting.


Your attorney can require your husband appear at a hearing, which the court can expedite and identify the location of all of the funds, and if he refuses, the court can hold him in contempt and toss him in jail until he reveals the location of the funds.


That's how I'd play it, if I were representing you.


socrateaser and other Business Law Specialists are ready to help you
Customer: replied 8 years ago.
Thank you, XXXXX XXXXX funds this week and the following weeks are the corp funds in question, not previous, also, how can he quit the company when he owns 51%? he will take the money now after resigning and quiting stating he is no longer a part of the corp, the judge ordered previously nothing could be changed until the divorce and all funds were to go into a joint personal account, however, we can not put business funds in a personal account, I am trying to write the motion today and need corp facts to do this, the question is, can he quit and take all the money for business booked prior to divorce filing and is he responsible to pay corp bills even though he resigned as Pres, he is still owner in my eyes, he cannot simply quit as owner and stick me with all the bills that total at least 100,000
Expert:  socrateaser replied 8 years ago.

A person can be a shareholder, director, officer or employee of a corporation -- or, a person can be all of these things. A person can resign from any/all roles except that of a shareholder -- for that, the person must sell or gift their shares to someone else.


A shareholder has the right to vote at shareholder meetings for corporate directors, and on extraordinary matters such as mergers and consolidations.


A director has the right to vote at board meetings so as to effect corporate resolutions which will "direct" the course of the corporation's business dealings.


An officer has authority to run the day-to-day operations of the corporation, including hiring and firing employees.


An employee is person who labors on the corporation's behalf.


If your husband resigns as an officer and employee, then he would have no legal authority to take funds from any corporate bank account unless he held a board meeting and voted to pass a resolution directing him to remove the funds (or, unless such a resolution was already passed).


However, the bank has no way of knowing whether your husband's status has changed, unless someone (like you) informs the bank of your husband's resignation -- which should prevent any further withdrawals from the account -- but, not like a court order would do. Banks have their own rules, so without a court order, you can't really know what the bank may do in response to your husband's attempt to withdraw funds.


As far as the corporate bills are concerned, if you or your husband have personally guaranteed any debts, then each of you is jointly liable for those debts regardless of your actions under the corporation. Otherwise, neither of you are personally liable for corporate debts, but the corporation is liable for its own bills.


You mentioned that the corp pays the ranch payment. The issue is: does the corporation hold title to the ranch? If so, then the ranch could be reached by a creditor to pay corporate debt. If the ranch is held by you and your husband as community property/husband and wife/etc., then it would be safe from creditor attack.


It seems to me that your husband has sort of "lost it" for the moment, because his decisions don't seem to have any particular goal. I can't imagine why he has resigned, except as a show of independence/outrage (or, perhaps simply financial ignorance).


Hope this helps clarify things for you.


Customer: replied 8 years ago.
This point is not our bank account, as I stated, it is that he is about to make 60,000 in clinic funds that he will be paid in his name, however, the funds belong to our corporation since the corporatin booked the buisness and owns his clients in this form of work he does. Therefore, how can he run with the money? yes he resigned on his own accord, I had no say and there is now, no president, and he is 51% shareholder although he turned his stock over to me as well, We still have bills to pay from last year on the corp as well as now, The bank account is overdrawn by him from Jan and he has left it this way, the money will be in his hands for the income he is now making , he turned down all work for the last 4 months to show the court he had no way of paying me or the corp bills until now, he has resigned and is taking all future money somewhere
Expert:  socrateaser replied 8 years ago.

Under Washington law, your husband's earnings are community property, so you're entitled to one half of the funds, even if the corporation were determined to not be entitled to the funds. In the event that the corporation is to be put into liquidation bankruptcy, it actually may be better for your husband to take the money outside of the corporation, assuming that neither you nor your husband have personally guaranteed the corporation's debts to any third party/ies.


However, if a creditor were to get wind of what your husband is doing, then the creditor could force your husband to return the earnings to the corporation as a "fraudulent transfer" intended to "defraud, hinder or delay" the creditor's claim(s).


So, the issue here is whether or not your husband's earnings are corporate revenue or separate. The history of the corporation appears to show that the earnings belonged to the corporation. Your husband can certainly try to argue that the earnings were his and that they were contributions to the corporation, deposited by him to pay bills. This would be a really bad assertion, from the viewpoint of a creditor, because it would make it extremely easy to "pierce the corporate veil" and claim that the corporation was merely a front for your personal activities, therefore you and your husband are personally liable for all corporate debts, regardless of the corporate structure.


In sum, you would simply expand your show cause order to reach all of your husband's personal accounts as well as those of the corporation. You would also need an order that any of your husband's future earnings, pending divorce should be placed in trust so that he can't use them absent furthe orders of the court.


The grounds are that it's clear your husband is attempting to set up circumstances that permit him to treat what has always been corporate revenue as personal, and that this operates to the detriment of the community estate by providing third party creditors with an argument that would permit them to hold the community liable for corporate debt.