Should S Corp retained earnings be attributable to a minority owner’s income for child support determinations?
When the Wright’s marriage went wrong, the central issue in their divorce was whether the husband’s 25% interest in a Subchapter S corporation was sufficient to permit the court to consider the company’s retained earnings for purposes of determining child support. The court had met this issue before, when the parent/spouse was a sole or majority owner of an S corporation. Under those circumstances, it followed the majority rule: The overwhelming majority of states…have held that when the parent is a minority shareholder in a closely held or subchapter S corporation, and therefore does not control the decision on the distribution of earnings, then the retained earnings of the corporation cannot be attributed to him/her as income. In this case, the husband wanted the court to focus exclusively on his minority status, ignoring that he owned the business with his brother and another (unnamed) individual. He also wanted the court to use the $84,000 that he reported as adjusted income on his
