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Full transcript by James Nolletti below.
I would not recommend that a business owner pay additional spousal maintenance in lieu of buying out their spouse's interest in a family business. And essence, it disguises the distribution of an asset as spousal support, or what is now called spousal maintenance or maintenance in New York. Although it's still called alimony on federal income tax returns. Sometimes divorcing couples can consider doing an income tax rate arbitrage to have the IRS pay some of the maintenance disguised as equitable distribution. Tax rate arbitrage is the practice of profiting from the differences in the way transactions are treated for tax purposes. The complexity of tax codes often allows for many incentives, which drives individuals to restructure their transactions in the most advantageous way in order to pay the least amount of tax.
Some forms of tax arbitrage are legal, while others are not. That's where a good tax attorney comes in. Although we always look to structure our client's transactions in the most advantageous way in order to pay the least amount of tax, we work with highly experienced tax attorneys to make certain that the structure is legal. In this example, I did not recommend the divorcing spouses continued joint ownership in a family business, because of the likelihood for future disputes. This can bring them back into court, but this time in the commercial part.
There are many ways to buy out a spouse's interest in a business that should be considered instead of paying additional maintenance.
