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Retained Corporate Earnings in a Dissolution of Marriage Proceeding

By Eric Schulman

Your new client, after 25 years of marriage, retains you to represent her in the dissolution of her marriage. During the course of discovery you learn that her husband's business, which he formed and incorporated before the marriage, has built up millions of dollars in corporate retained earnings during the marriage. The company is a “subchapter S” business entity, from which he has received a modest salary throughout the marriage, coupled with corporate distributions.

As president and sole shareholder, the husband has operated the company and devoted substantial efforts to its success, and his hard work has helped to develop the company into the profitable and valuable business it remains today. The other marital assets in the estate are modest, and your client believes she is entitled to “something” from this business after 25 years of marriage, irrespective of the fact that it is “non-marital” under state law (in this case, Illinois). How do you advise her under these circumstances? Can she assert any claim over the company's retained earnings or over its increase in value attributable to her husband's efforts? Is she entitled to any of the corporate retained earnings? How do you proceed?

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