The Perils of Constructive Dividends in Divorce Cases

Business litigation and family law partner Drew Soshnick authored an article for Indiana Lawyer titled “The Perils of Constructive Dividends in Divorce Cases,” which discusses potential unintended tax consequences when dividing a family-owned corporation at divorce.

Soshnick explains that in divorce cases, most attorneys rely on § 1041 of the Internal Revenue Code for tax-free transfers of marital property incident to a divorce decree. He notes that a review of case history and clarifying input from taxing authorities can help to avoid issues such as “cashing out” one spouse from a business owned by both divorcing spouses.

Soshnick adds that a firm understanding of prior precedent and current Treasury Regulations is essential to properly understanding and allocating tax consequences and avoiding unintended tax consequences.