Child Support - Partner income

[Ref]

Jurisdiction: Florida

Hi Soc.

I am a 49% owner of an LLC. This is our first year. We have been taking distributions throughout the year at about the rate of how much I might earn in the open market. We have been doing well, but had a couple times of tight cash flow. We decided to limit our distributions so that we can save some money and are not tight on cash in the future.

I filed for a decrease in support last October (when i lost my old job) and will be going to court for it the end of this October.

My K-1 will look like I am making more money than I am actually bringing in, because we have decided to put aside some money for a rainy day.

1. How is income computed in relation to K-1's and distributions?
2. Is there a better way to structure the company so that the calculation will reflect what money I am actually taking in?

Thanks
Ref

[socrateaser]

>
>Jurisdiction: Florida
>
>Hi Soc.
>
>I am a 49% owner of an LLC. This is our first year. We have
>been taking distributions throughout the year at about the
>rate of how much I might earn in the open market. We have been
>doing well, but had a couple times of tight cash flow. We
>decided to limit our distributions so that we can save some
>money and are not tight on cash in the future.
>
>I filed for a decrease in support last October (when i lost my
>old job) and will be going to court for it the end of this
>October.
>
>My K-1 will look like I am making more money than I am
>actually bringing in, because we have decided to put aside
>some money for a rainy day.
>
>1. How is income computed in relation to K-1's and
>distributions?

Fair market value for similar services rendered to a similar employer.

>2. Is there a better way to structure the company so that the
>calculation will reflect what money I am actually taking in?

You're 49% owner. That means that your decisions about how much money to distribute is not dispositive. So, you can argue that you can't control your salary, and you can subpoena the other director(s) of the company to testify to the fact that this is the case.

Ideally, if you were merely paid a salary and you were neither a director or officer of the company, then the state would have to subpoena the corporation to try to prove that you have greater earning capacity than that demonstrated by your W2 and tax return. This is still doable, but it's a lot bigger pain, and the state might choose to not do it (although the other parent might decide to hire an attorney and do it directly).

However, if you are a director, officer or controlling shareholder (greater than 10%) of the company, this indicates that you have managerial control and thus you can manipulate your income to defeat the other parent's right to child support. This will always make your activities suspect.

Also, if your corporation is a "C" corp for tax purposes, this indicates a more hands off relationship, because the corp must pay its own federal taxes. With a Sub-S corp, you are always more suspect, because all of your net income passes through to your 1040.

Finally, if you're really making serious money ($200K net personal income or more), I'd say you might want to reincorporate in Burmuda or Nevis-St. Kitts, and set the company up so that the corporate records are unreachable by a court or by you (assumes you trust the directors/shareholders of the corporation to not screw you).

Then you could just tell the court, that you earn your salary, and you have no knowledge of the corporation's financial status, you have no ownership or control, and the corporate books would be beyond the reach of the FL courts. This is an extremely risky, expensive (and potentially illegal) proposition , so I'm not recommending it.

But, people have done such things in the past to protect their money.