Marital Balance Sheet What Is It and Why Is It Needed

     In most divorce cases, a marital balance sheet is the focal point and or summation of all community assets, liabilities and credits.  This compilation will also determine the equalization (buyout) that one spouse owes the other. 
     I was assisting an attorney with a settlement offer, which I basically prepared a rudimentary balance sheet on a piece of paper, I stated to the attorney that he should have had us prepare a marital balance sheet before the settlement.  He stated that it wasn't necessary, that it was easy dropping in numbers in the disso program.  However, when his client started to notice certain monies being withdrawn from the accounts by the other spouse that she wasn't aware of, and the attorney couldn't find current investment statements and other important documents, no accounting of the numerous credit card statements were done, it was clear to the attorney that he was way over his head and reluctantly admitted that we should have prepared a marital balance sheet.  Fortunately, in this case no harm was done.  We were able to obtain all of the records needed.  However, in other cases, this could be a real problem.
     The accountant should prepare a marital balance sheet as soon as possible in the case not only to identify what's on the table as far as assets and liabilities but also to trigger the identification of other financial issues such as withdrawals of cash by a spouse made on or near the date of separation, separate and community property issues related to stock options, pension plans, real estate and other investments, identification of separate debt incurred after the date of separation, identification of certain credits the spouse could claim and many other financial issues that the attorney may be aware of but would not be able to calculate and present on his/her own (I'm being nice). 
    If you wait too long in the case to prepare a marital balance sheet, or don't prepare one at all, you could run the risk of not identifying financial issues that may have a favorable material financial impact on the community with respect to the division of assets and liabilities, ultimately shorting yourself on your half of the available community assets.  Also, any delays could effect the ability to obtain vital financial records as you could run up against discovery deadlines or the accountant may not have enough time to analyze and calculate the numbers before the trial. Be smart, be prepared and get us in early in the game.

Dave

Buy Out Spouse's Interest in a Community Business (C-Corp) from the Company's Assets - Does This Trigger a Taxable Event?

I am going to make this format a little less formal.  More fluid.  So don't gig me for my spelling, grammer, punctuation, I plead the fifth.  In this case, the community will have no cash liquidity (not booze) with most of the capital tied in real estate and the community business.  How does one spouse buy out the other's interest in the business (a C-Corp) without liquidating assets?  Do the parties set up  a note payable where the buyer can make payments, using after tax dollars?  However, what if the spouse(buyer) decides to pay the obligation directly through/from the cash of the business (C-Corp)?

Does this transaction trigger a taxable event?  Is there a way to avoid taxes completely on this transaction?  If it is a taxable event, what option would result in the lowest taxes?  Should both parties be liable for the tax?  Should the buyout price be adjusted/discounted for taxes?

This issue comes up often in divorce, and no one seems to have a definitive answer.  Professionals have strong opinions but usually opinions not supported by the tax code/law.  You could apply common sense to this issue.  However, common sense should never be applied to tax issues, because, "it's the tax code". 

You'll have to come back later for the answer.