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Attribution Ends at the Courthouse
(Posted December 8, 2004)
Question 273: Husband and wife work for same company; husband owns 100%. They have a minor child. They obtain a divorce. Wife continues working for the company. Is she still an HCE for future plan years?
Answer: Not through stock ownership. I'll explain, including references to my book, Who's the Employer?. (Subscribers can click to view online the text of references to sections in the book.)
IRC 318 has the attribution rules for HCEs. (See WTE Chapter 14.) There is always attribution between husband and wife, but that attribution ends when the parties are divorced or legally separated. (See WTE 14:07.)
There is, of course, attribution between parent and child for HCE purposes, regardless of the age of the child. So, if the child works in the business, the child would be deemed to be an HCE by attribution of the husband's stock.
Can we re-attribute the stock from child to the ex-wife? No. You can use the family attribution rules only once. (See WTE 14:04.)
Of course, the ex-wife might be an HCE due to her compensation, but she is not deemed to own her former husband's stock.
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