Ask a Lawyer - Archive

I have a an S-Corp which is in process of acquiring real estate. I used my parents' money to purchase this property. I put that money in a joint account with my spouse who currently has no shares in my S-corp. I want to transfer the ownership to my parents since its their money and they were not present in US at the time of purchasing real estate. Also, if I end up with a divorce, will the property be considered separate for marital status?

You are in California, which is a community property state. So, unless you have an enforceable written agreement with your spouse to the contrary, or you clearly used your separate property to form the S-corp, your spouse would presumably have a community property interest therein. At the time of forming the corporation, you also presumably filed a Form 2553 (Election by a Small Business Corporation) with the IRS. This form requires a spouse to sign it if he or she has a community property interest in the corporation's stock. Thus, if you and your spouse both signed the form, it would be pretty hard to argue at this point that the corporate stock is not community property - even if it is held in your name only.

With regard to the real property, title is presumably held in the name of the corporation. If so, a first question to ask is how you and your accountant treated the money advanced by your parents. A good guess would be that it was treated as a loan to the corporation. You may be able to cause the corporation to deed the property to them as consideration to repay the loan. However, it should be properly documented, authorized and approved by the corporation. You should go hire an attorney to make sure this is done properly. The safest thing to do may be to have a written agreement between the corporation and your parents to convey to them the property in full satisfaction of amounts they loaned to the corporation, and have both you and your spouse consent to it in writing.