Lease Purchase... Incorporate??

[Mystikal]

I realize nobody here is an attorney, nor do I expect that anyone stayed in a Holiday Inn Express last night.. but I figure maybe someone ran across this at one point and can provide a direction for us to head. We plan on contacting an attorney this week to seek their advice, we just have to find the time.

Anyways, my wife and I are team drivers and will be getting into a lease-purchase agreement next week on a brand new truck. This program actually proves to be lucrative for us and, if done right, will work out great. However, we have a unique circumstance that I doubt few have run into not related to the L/P program.

Obviously in a L/P program the company takes out the expenses (truck, insurance, maintenance, etc…) and pays net to the truck… which right now will go into our joint account.

Now, the problem herein lies with my wife’s ex. She currently pays child support to him (long depressing story I prefer not to get into) and he’s a cutthroat greedy SOB with a wealthy family background and high power lawyers that LOVES to and TRIES to take every dime from her… and attempts this by taking her to court every 8 to 10 months (if not less) moreso as a verification to see if her income has increased by more than 10% so he can get more. My concern is with the net amount being deposited into our account and a settlement being sent… he will be able to get the percentage factored out of the net pay being deposited. Is there a way to protect us in this regard so this amount is not being scrutinized… just her pay and not the to the truck net pay?

And, before I get flamed I want it to be known that we’re not trying to reduce what we pay by any means nor avoid paying what she is ordered now… child support is that and we both believe the kids deserve to be taken well care of… we just don’t plan to use all the net pay deposited as our actual driver pay… we plan to pay what we’re making now as company drivers (.40cpm split) and use the rest as our backup maintenance fund for the “company” and other incidentals that might come up to run the business.

We’ve considered incorporating and having me as the owner and her being an employee so our business assets (business savings, truck, etc…) are separate from our personal income and savings…. but from what I’ve read it seems like so much hassle for only one truck and a waste of money.. so we’re open to some suggestions and ideas we can bounce off an attorney.

Please keep this thread on topic if we can... the debate isn't about the L/P program but rather how to best protect our assets. I have done my research about this program and talked to other drivers that have done this program successfully so we're aware of what we're getting into there. Thanks guys...

[no_worries]

It ultimately comes down to your state and what its laws are regarding income/assets subject to child support calculations. You will certainly have some options, especially if she isn't worried about not being named as an owner/shareholder. Your example is a good option depending on your state's rules regarding spousal income. If they only take your wife's wages into consideration then it will work. Of course, you don't even have to go as far as incorporation. Simply having you as a sole proprietor and employing her would fit the bill too. This won't fly in many states though. Some community property states will consider anything that's yours hers. Some also use household income in making child support determinations rather than individual income. You also have to be aware that most states will not allow such an arrangement if they determine that it was set up specifically to avoid paying more support. If her ex is as you describe, it wouldn't take much for a lawyer to make the argument. However, it can be countered fairly easily provided that she is being paid a normal industry wage and does not have anything to do with the operation of the company. This is all just some food for thought. You're making the right move in talking to an attorney BEFORE getting set up.

[Fredog]

Form an LLC, it is cheaper and will offer you the same protection, it makes your business a separate entity

[solo379]

I don't know, what you mean by "NET". Normally, it's what your schedule C will show, not your company issued settlement. As far as i'm concerned, most "L/P" deals, didn't yelled even decent driver wages. But consulting an attorney is defiantly a good idea anyway. And while at that, make him review your lease agreement as well.

[Mystikal]

no_worries.. thanks for the thorough response. We would be paying ourselves the same wage we are getting now, which is what the child support is based on, and the .40cpm split between us is more than i've seen alot of companies pay so hopefully that isn't an issue. In the past few monetary reviews the State of Colorado paperwork hasn't asked for household or my income.. just what was in the checking and savings account at the time she filled them out so that shouldn't be an issue either.. but we'll see once we talk to an attorney. I'll post what i hear back in case this question comes up again.

Fredog, thanks for the recommendation... my wife suggested the LLC route as well.. not a full out corp but still keeps the company assets separate from our personal assets. If thats whats recommended by the attorney thats most likely the way we'll go.

Solo, net is what we get after the company takes out the fuel from comdata, truck payment, and insurance (the incidentals).. but is still pre-tax. Keep in mind that as a team well be running quite a bit more than solos.. i've seen the settlements from others that are involved in the L/P at our company so I have an idea what we'll be bringing home each week. I've actually heard rumors that well over 60% of the company is L/P and most are happy so i'm not too concerned with the program. I'm a stat junkie.. and knowing what our truck will cost and all the incidentals already because of those in the program, and having tracked fuel expense for all our miles over the past 4 to 6 weeks we know full well what we're going into and how much we'll be paying ourselves.. and the .40 split is perfect. Honestly its more than we need since we're debt free but we're keeping it the same just because of this whole court issue. Thanks for posting.

[no_worries]

You have to be careful with the LLC regarding which tax option you choose. The default option is sole proprietor for one member and partnership for two or more. If you intend to set up as a single member LLC, you might as well stick to a sole proprietorship. That is how it would be taxed anyway and you can hire your wife as an employee in either. If both of you are to be members, you will want to elect the corporate taxation option and then, most likely, opt for s-corp status. As I said, the default tax form for an LLC with two or more members is a partnership. Partnerships are pass-through entities. This means that the business itself pays no tax, all profits are passed through to the members and all taxes paid on their returns. So, if the business had $80,000 in profits and you paid yourselves $30,000 each in wages, the remaining $20,000 would still show up as self-employment earnings on your tax returns. Now, it's possible that your state would exempt everything but wages in this situation...but I doubt it. Electing to be taxed as a corporation keeps the business earning separate.

[GMAN]

I prefer a corporate structure for a number of reasons. It is fairly simple to function within a corporate structure. If you file a sub chapter S with the IRS, then it will tax you like a partnership. If you both collect a salary from the corporation and you are the sole stockholder then only her income should enter into any court situation. For a while a lot of people used the llc or llp when setting up a new entity. I looked into them for a company that I started and decided to stick with a standard corporate structure. I have owned a number of corporations over the years. For me, it is the best route to go. Other than some limit of liability there are some tax advantages that you can utilize as a corporation. But in your situation I share others opinion that you are doing the right thing in checking with an attorney before doing anything. And I agree with solo that you should run your lease agreement by him as well. In my state the fees are about the same for an llc or corporation. There is a minimum annual franchise and excise fee of $100 plus a $20 for an annual report. Each state is a little different in how they tax a corporation or llc.

[Mystikal]

Thank you gentlemen. I didn't understand a word but the wife is handling all the business paperwork stuff... I just fix and lift heavy things. Thank god for her business degree! She said she understands and now knows the questions to ask an attorney on Monday.

[Steel Horse Cowboy]

I'm staying at a Holiday Inn Express tonight....... but I doubt I could even begin to answer your question in the morning...... but who knows.

[repete]

Why do you have to do a LLC or INC? If you were running team with some one else you wouldn't have to do that right? (I really don't know) Can't you just split it even and each of you keep seperate accounts? How you leaseing the truck and her be a second seat or assistant driver meaning paid say 40% instead of 50%. I have no idea if this would work but it's worth asking about.

[Mystikal]

Good question Repete and I hope to get an answer on it. I'm worried on that front that because we're tied by marriage they will take the settlements to the truck instead of what she would get paid as the factor... which is why we're considering making all the funds kept to the truck separate from our own pay...but as soon as I have some answers I'll post back for future questions concerning this.

[Steel Horse Cowboy]

My suggestion would be for you to go and get a EIN and a business account at your local bank in your name.

Once that is done, you can run as a sole-proprieter of your business and you can just add your wife as a employee and pay her accordingly to HER OWN checking account. This way, the majority of the money and savings is with you and untouchable, and the only thing they will be able to do is use her income which the two of you can decide.

I would suggest calling ATBS and speaking with them. They are a great company and have helped a friend of mine in the same situation as you. I also suggest using their tax serivces as they have saved me a lot of $$$ over the years compared to the jagg-off I had doing them.

[Steel Horse Cowboy]

Good question Repete and I hope to get an answer on it. I'm worried on that front that because we're tied by marriage they will take the settlements to the truck instead of what she would get paid as the factor... which is why we're considering making all the funds kept to the truck separate from our own pay...but as soon as I have some answers I'll post back for future questions concerning this.

As long as the company pays you as an independant contractor and thru your EIN and not SS# then theu can only take into judgement what you show as your income.

[chris1]

Whatever way you go it will still be a close held corp,llc,company ect. If her income drops and your income goes up they can(more so if the ex fights)average her income as she has a vested interest in the business.

[Steel Horse Cowboy]

Whatever way you go it will still be a close held corp,llc,company ect. If her income drops and your income goes up they can(more so if the ex fights)average her income as she has a vested interest in the business.

Thus why I said for him to file for Sole-Propritership and just have her as an employee..... should work I think.

[chris1]

Thus why I said for him to file for Sole-Propritership and just have her as an employee..... should work I think.

Still has a vested interest through marriage before the truck was/is bought. If he had the company/truck before it would work fine as long as she was paid a comparative wage. I've had quite a few O/O's with the same problem. Mostly it depends on the state and/or the ex's attitude. If the ex has no involvment with the state(state medical,food stamps ect) then he will have to push the issue. Most courts take a dim view of hiding/reducing assets to limit child support.

[Tobytob]

Incorporate and get a business account, Keep everything separate from your wife. Make sure you're paid thru your company, place the money in the business account and pay your wife like she's an employee. She should have a separate account from you. Remove the joint account, Reason being everything you contribute to that account will be factored into her child support as well. So unless your ok with contributing to her support, I would remove myself from the situation.

Just an FYI. I wouldn't dare pay my self the same wage as I'm getting now, as a company driver. As an L/P you will have way more expenses.. Figure out your monthly expense to the house-hold and go from there. The extra money will always be in the business account if you need it. As stated here , your best bet would be talking to a lawyer. But I know from first hand experience, keeping everything separate is your best bet when dealing with Child support system. If they can see all the income from that truck, trust me they will eat you alive.. If i'm not mistaken the court doesn't need to know your self-employed all they need is her yearly wage. So I wouldn't tell them a thing about L/P that truck as long as she can explain her yearly salary and it doesn't look fishy then she will be good.. Keep everything under the company name and you guys will be ok.
Don't and I repeat Don't do anything with-out separating your income from that truck. If you're getting paid under your SS#, then there is no way you can claim this money as company money.. And the Judge will factor that into the child support.. Best of luck to you guys...

[Mystikal]

Great advice guys. Steel Horse, our company is partnered with ATBS for lease/operators and we have the option to use them as our tax/legal service.. which we're going to do. She called them today and got to talk to our advisor but we're still waiting for the attorney to call us back. We've already started looking at business checking accounts and will end up going through our current bank. My wife already has her own checking account at the same bank, we hold a joint account for bills and such, and I hold a separate account at a totally different bank... but we'll most likely close the joint account and just each pay specific bills so she shows shes paying bills. We're planning, no matter the advice, to create paystubs to show our incomes and she plans to track the money heavily... both in our personal incomes and in the "company funds" that is going to remain in the account. I think we're on the right track.. we just need a little more direction and some legal advice to finalize our path. The help here will come in hand when we finally talk to the attorney, and we greatly appreciate it.

Chris1.. if you reread my original post, we're not trying to reduce the amount paid... we're keeping it the same..we just don't want the leech to go after whats left as that is staying to the truck to help us with extra costs and to pay the truck off faster. he isn't involved with the state in that matter but he has money and time to spend .. which is why it feels shes always in court.

official response to come...

[Mystikal]

Ok, we consulted in ATBS both in the financial aspect and legal.. and the concensus is that unless we go full out corp there is no real way to separate the 2 since the tax return will show all of the income. However, the financial guy suggested an LLC (as was recommended above... and because its not really a sole proprietor at this point since we're married) and that they show on the P/L statements pretty well where all the money goes, including our personal pay, and if we got a good lawyer that understands business that we most likely wouldn't have a problem when court time comes... but that we'd have to consult an actual family/business attorney to be sure. So, come tomorrow we'll be setting up the LLC.

It was something to this affect... as I said, I don't understand the business stuff, this was just passed on to me by my wife but i'm sure you guys know what i'm referring to. Thank you everyone for keeping this on topic and all the sound advice. She brought up everything mentioned in this thread and some other stuff she found during research in some way and the attorney was glad we've done our research and knew what we're getting into. Hopefully this will help someone else in the future!