Can Husband Use Wife's Plan?

[DP]

Dr. Jane Doe is 100% owner of her medical practice. She has a prototype Safe Harbor PS/401k for her six employees. Her husband, Dr. John Doe, is setting up his own medical practice in his wife's office and will share her staff. Dr. John Doe will be the only employee in his practice.

Dan Dr. John Doe adopt his wife's PS/401k plan?

[Kimberly S]

Dr. Jane Doe is 100% owner of her medical practice. She has a prototype Safe Harbor PS/401k for her six employees. Her husband, Dr. John Doe, is setting up his own medical practice in his wife's office and will share her staff. Dr. John Doe will be the only employee in his practice.

Dan Dr. John Doe adopt his wife's PS/401k plan?

Yes, and he probably should since it sounds like they are likely a controlled group.

[DP]

Do we keep separate records for Dr. John Doe's plan assets or are they commingled with Dr. Jane Doe's plan assets?

Would Dr. John Doe file his own Form 5500, or would his plan assets be included in Dr. Jane Doe's 5500?

Thanks.

[JanetM]

If he adopts her plan then there is still just one plan. The assets would be in a single trust, you file one 5500.

[Guest Pensions in Paradise]

You should consult with an ERISA attorney or a TPA regarding this matter. There are at least two issues you need to address. First, possible controlled group. Second, a shared employee arrangement. Both can significantly impact how the plan(s) are operated.

[austin3515]

Husband and wife with shared employees is without question a controlled group. Each are treated as owning the "stock" of the other, unless there is NO involvement in the others business. Such is nto the case when they share office space and employees. So you've got yourself one controlled group, one employer, one plan, and NO shared employees to worry about (i.e., because there is just one employer).

[Guest Pensions in Paradise]

Just because they share employees doesn't mean they participate in each others business.

For the spousal attribution rule to apply, Dr. John must be a director or employee and must participate in the management of his wife's corporation.

[Belgarath]

Is it a community property state? Depending upon which legal argument you accept, (whether or not this creates direct ownership and therefore negates the spousal noninvolvement exception) this could create attribution and throw you back into controlled group status. I'd take PIP's original recommendation and seek the advice of counsel.

[austin3515]

If they "share" employees, I just can't imagine you would meet the "no involvement" standard. But that's just my opinion. It is also my opinion that assuming one employer in this situation would be the most conservative, and I like to be conservative - i.e., I don't like to gamble with other people's money...

[Guest Stuartt]

If they have a minor child together the child will cause ownership attribution to each of the doctors. This will occur even if they have no involvement with the others business.

[Belgarath]

I respectfully disagree. If all of the requirements of the spousal noninvolvement exception apply, then attributed ownership from a minor does not cause a controlled group. It requires DIRECT ownership to negate the "no ownership" portion of the noninvolvement exception. See 1563(e)(5).

[austin3515]

Stuart is right about that, but everyone agrees that that is a totally unintended outcome. Take a look in the ERISA Outline Book, because it be!! I think the IRS pursues a don't ask don't tell policy on this - has anyone ever been asked if the spouse owns his/her own busines on an audit?

[Guest mjb]

S: Your are stating that having a minor child creates a controlled group between H/w which would not exist if there was no child. You really think IRS will enforce attribution against married couples who have a minor child? I am not aware of any IRS ruling that comes to this conclusion.

[Belgarath]

This is interesting. I went back and looked at this again, and I stand corrected on my previous statement. I forgot that a strict reading of the statute would cause the 100% ownership attributed to the minor child to create a CG, overriding the spousal noninvolvement clause.

However, it does seem nonsensical for the exception to have been created in the first place, if it could be defeated merely by the accident of having a child, 'cause the exception clearly refers to no DIRECT ownership. If this isn't a community property state, then I'd be interested in anyone's best guess as to how many practicing attorneys would tell their clients that they had to treat this as a CG if all the exceptions in 1563(e)(5) are otherwise met. I'd tend to agree with MJB, but then, I'm not an attorney, and therefore wouldn't be putting my neck, or my client's neck, on the line, so it's easy for me to have a casual attitude about it. Any attorneys out there care to unoficially opine? Thanks!