Find your diamond
Find your jewelry
shape
carat
color
clarity

Any lawyers out there? Husbands partner took money....

Status
Not open for further replies. Please create a new topic or request for this thread to be opened.

eks6426

Ideal_Rock
Joined
Nov 19, 2004
Messages
2,011
My husband owns a company with a partner. They''ve had a rough year financially so we decided to look at the Quickbooks. His partner is the one who is supposed to be the book keeper, pay bills etc. My husband is primarily sales. Well, we couldn''t get into Quickbooks..partner locked a passcode on it and we didn''t know the code (yes I know very bad!) So, my husband and I starting going through his partners desk and found that the partner opened up company credit cards without my husband knowing about it. The partner charged all sorts of personal things....We know of 3 cards so far that total over $25K. We even found a lot of the receipts that he signed for things like restaurants, liquor etc. We found checks that he wrote for personal needs like car repairs (the guy does virtually no driving for the company). We now have the Quickbooks and all the paperwork in the hands of an accountant who is going through to figure out what exactly happend...receipt by receipt/statement by statement. We expect the amount the partner spent on personal expenses to go up.

The company is an S corporation. We''re trying to figure out a way to get the partner out but with him taking the debt he created. Any suggestions?
 

asscherisme

Ideal_Rock
Joined
Mar 6, 2006
Messages
2,734
Oh my gosh, that is awful!! I ''m not a lawyer I just wanted to say I''m sorry. That really stinks. I would hire a lawyer if you can.

I remember that when I had braces I started going to a team of 2 orthodontists and by the time my braces were off, it was just one and the other had moved. Turns out he was stealing from the practice (my stepfather was friendly with the one who stayed) and asked what had happened. I bet this sort of thing happens more that people know.

I wish you a quick resolution.
 

gailrmv

Ideal_Rock
Joined
Nov 8, 2005
Messages
3,136
Not a lawyer, so no professional advice, just wanted to say sorry. That stinks. It is probably worth it to retain your own attorney and learn of your rights and the best course of action. I suppose you might have to sue him but it sounds like you have a good case (in my non educated opinion).
 

strmrdr

Super_Ideal_Rock
Joined
Nov 1, 2003
Messages
23,295
hire a lawyer asap
 

Kaleigh

Super_Ideal_Rock
Joined
Nov 18, 2004
Messages
29,570
That sucks. Make sure everything is documented, copied, etc... Get a good lawyer asap!!!! Good luck!!!
 

RockDoc

Ideal_Rock
Joined
Aug 15, 2000
Messages
2,509
Island

A lot depends on what state you live in and the laws locally that would apply.

As the others above have suggested, you need proper professional legal representation, however that depends on how much expense you want to sink into going after him CIVILLY. While you might win in Court, if he is "judgment proof" or has no assets you could get, that may be a waste of time and expense.

If you aren''t sure about his assets, a private investigator is a lot less expensive than having an attorney do it. Commonly called an "Asset check". They can also check into whether he has a history of this in his past too. ( The cops can do this too).

A visit to the county courthouse where he lives to see if there were any previous suits, is a good suggestion to do too, and this you can do yourself, as all of this is public record, and access to the county''s databases are open and free, sometimes even available on the internet.


Another decision you may have to make is consider is whether to persue the matter CRIMINALLY. Perhaps contact the economic crimes unit of your local police department, state attorney, or attorney generals office in your state. In most states a corporate office who pockets corporate money in an inentionally fraudulent fashion is CRIMINAL. If what he did is deemed to be criminal your state attorney, district attorney, or if the actions he did cross state lines, possibly US Attorneys office.


Needless to say, this isn''t something that is pleasant, and I feel for you. Hope this helps, even though it may not be what you''d prefer hearing.

Rockdoc
 

Madam Bijoux

Ideal_Rock
Premium
Joined
Jul 15, 2005
Messages
5,111
I suggest that you call your local bar association and explain the situation. They''ll refer you to lawyers who handle this sort of thing.
 

eks6426

Ideal_Rock
Joined
Nov 19, 2004
Messages
2,011
Thank you everyone for the advice. We have now talked to a lawyer who doesn't seem to be giving really firm answers yet. Rock doc--you bought up very important points on the civil vs. criminal issues. We don't think he has any assets that are worth much if we sue him civilally to get the money back. I'd really like for the debt to just go with him so the creditors can chase him rather than my husband's company. Not sure if this is possible right now. I'm pretty sure doing a civil lawsuit to get the money he owes back will just wind up costing us more money in the end.

When we get done with the accountants totals we'll figure out the criminal issues. I wonder if we can hold the criminal charges over his head enough to get him to pay up the debt he owes...or at least a substantial part of it? Maybe he could borrow from friends or family. I really don't care...just want him to pay his debt.
 

strmrdr

Super_Ideal_Rock
Joined
Nov 1, 2003
Messages
23,295
Is your lawyer an expert in corporate law?
If not you may want to get a different one.
Make sure and ask your accountant about any tax issues.
Getting the taxes right in this situation can be tricky and can ruin everyone involved.

Don''t be too nice if it is at a criminal level press charges and it goes a long way towards covering you and your husband.

This is one situation where quickbooks is a bad idea, it does not keep a proper audit chain and allows changes to be made instead of corrective entries.
 

fire&ice

Ideal_Rock
Joined
Jul 22, 2002
Messages
7,828
Consult a business attorney ASAP. My husband is a partner in an S corp. He is NOT personally libel for company debt; but, the corp (he being part of) is libel for the debt unless you disolve the corp in a legal way. Also, the books should never be locked. It has to be an open book. Does this person have check signing ability?

Talk to the accountant & see what they say.
 

RockDoc

Ideal_Rock
Joined
Aug 15, 2000
Messages
2,509
Date: 1/10/2007 8:59:43 AM
Author: IslandDreams
Thank you everyone for the advice. We have now talked to a lawyer who doesn''t seem to be giving really firm answers yet. Rock doc--you bought up very important points on the civil vs. criminal issues. We don''t think he has any assets that are worth much if we sue him civilally to get the money back. I''d really like for the debt to just go with him so the creditors can chase him rather than my husband''s company. Not sure if this is possible right now. I''m pretty sure doing a civil lawsuit to get the money he owes back will just wind up costing us more money in the end.

When we get done with the accountants totals we''ll figure out the criminal issues. I wonder if we can hold the criminal charges over his head enough to get him to pay up the debt he owes...or at least a substantial part of it? Maybe he could borrow from friends or family. I really don''t care...just want him to pay his debt.
RE: Holding criminal charges over his head. This can be rather "touchy". Trying to get someone to do something, under the threat of bringing a criminal case by you, if done the "wrong way" can backfire. In some states, you could get charged with extortion. So in this area it is best to let the attorney handle that ( whether it is the criminal one or civil one).

As to using the debt, as a credit towards a buy out of his shares, a lot depends on if this was arranged for when either the corporation was formed or when he became a partner (buy out agreement), and what the terms of it are. Under certain circumstances, it may be in your best interest to let him buy you out, and start over with a new, fresh, clean corporation, but terms about contacting the existing customer base will have to be negotiated in that agreement as well. Same goes if you buy him out, as to his contacting the customers you already have.

Somewhere along the line you will probably need an appraiser. (This type of appraising is called "biz val", and those who practice in this way usually need a CPA credential, along with appraisal credentials is Biz Val). The American Society of Appraisers (ASA) have Biz Val members. Go to their websites to find local ones to you.

As to the charges on the credit cards..... Most credit card companies make whoever made application for the card, personally guarantee any debt. If both partners signed the credit card agreement, both could be personally liable, even if the corporation is disolved, but if only one signed, then the credit card company would most likely look to that person for payment in the event, for whatever reason they didn''t get paid.

Storm makes an excellent point of the consideration of any tax implications arising from any of this. If he used company funds to pay for personal things, you probably need to "charge" that to his personal earnings.

Good luck.....


Rockdoc
 

Cehrabehra

Super_Ideal_Rock
Joined
Jun 29, 2006
Messages
11,071
no advice.... just lots of best wishes or a positive solution!!
 

eks6426

Ideal_Rock
Joined
Nov 19, 2004
Messages
2,011
Thanks for the warning on the taxes. I asked the accountant who is going through the books...and the charges he made for personal items are indeed being put as his income and he will have to pay taxes on them. My husband did not sign on the credit cards so hopefully that means the cc companies will go after the partner and not us personally.

thanks for the tip on the Biz Val too. I didn''t know about that one.

My main concern is that the companies don''t go after our personal assets. All of the assets are in my name. We just got married in 2005 and the house is in my name only along with some investments I had. My husband''s money is in the company. The company owes him $40,000 that he put in to start it. That at least is on the books.

Someone told me that another name for Quickbooks is "Cookbooks." I definitely agree. If my husband stays in this business whether a new corp or the same I''ll insist that the books be done by an outside accountant with CPA.
 

Gypsy

Super_Ideal_Rock
Joined
Aug 8, 2005
Messages
40,198
Roc Doc is giving you great advice... just wanted to say one thing though... Lawyers generally will not give you ''firm'' answers. Ones that do... I''d be wary of. Most lawyers, and some of the best, will give you some version of "it depends" this isn''t meant to avoid giving you a straight answer... it IS a straight answer in and of itself.
 

Shay37

Ideal_Rock
Joined
Mar 1, 2004
Messages
3,343
Date: 1/10/2007 1:43:29 PM
Author: Gypsy
Roc Doc is giving you great advice... just wanted to say one thing though... Lawyers generally will not give you ''firm'' answers. Ones that do... I''d be wary of. Most lawyers, and some of the best, will give you some version of ''it depends'' this isn''t meant to avoid giving you a straight answer... it IS a straight answer in and of itself.
I ditto this.

I was thinking the same thing when I read that he wasn''t willing to give a firm answer. There are many variables in law that can affect the outcome of a case. A good attorney knows this and can only give probables and possible percentages. Sorry if that''s not what you want to hear.

shay
 

:)

Brilliant_Rock
Joined
Jul 25, 2006
Messages
1,864

How horrible - I have nothing to offer as far as advice, but I wanted to offer support, I know this must be terribly stressful.
 

AGSHF

Shiny_Rock
Joined
May 7, 2004
Messages
147
IslandDreams:

I''m sorry to hear about the situation with your husband''s business. While I''m obviously not giving you legal advice here, here are the issues/concerns that come to mind:

(1) You state that your husband and this "partner" own the S corporation together. I assume that you and your husband''s tax returns reflect the activities that have taken place in the "S" corporation. You need to contact your CPA immediately to inform him/her about what has happened and to see what, if anything, needs to be done regarding tax returns, etc.

(2) The business had a "rough year." You have to worry about whether the partner was actually paying all of the 3rd-party bills the corporation owes. If he has been embezzling corporate funds for personal use, you have to worry about whether he has been paying the corporation''s creditors. The corporation owes those bills and while your husband should have the benefit of the "corporate shield" in that the corporation''s creditors can''t come after him directly for unpaid bills (unless there was a personal guaranty signed by him), it''s a concern for the business, obviously.

(3) The partner opened "company cards." Your husband needs to get a handle on the number of "company" cards this guy opened. I assume that he used the corporation''s name but it''s very unlikely that there wouldn''t be a personal co-signor or guarantor required, especially for such large credit lines. Request ASAP credit reports to see what''s out there. Did he use your husband''s social security number when opening these company credit cards? Could your husband be deemed liable for these outstanding debts?

(4) The corporation "owes" your husband $40,000. Is there a note signed by the corporation reflecting a loan from your husband or was this the capital contributed by your husband? Given the financial situation, your husband may very well never see this $40,000 repaid even if there was a note signed. If it was capital contributed by your husband, it is very likely gone.

(5) Get advice from your lawyer on the proper procedure to dissolve the S corporation. If not done properly, because of its status as an S corporation, the shareholders may be held liable for any outstanding debt.

(6) Whatever the "business" was that the corporation conducted, your husband may want to start thinking about starting his own separate business as soon as possible. It may require a clean break or clearly notifying his clients/customers that he is now acting on his own behalf and that the old corporation is no longer conducting business.

(7) Make sure that your CPA checks into tax deposits (federal income, FICA and Medicare and sales tax) that the partner may not have made when required.

I hope that you have a good CPA who can give you a good forensic examination of what took place. If your lawyer isn''t giving you good, prompt and direct advice, get another one. Ask your CPA for a referral.

I know that this is clear with hindsight, but in any business, no individual should be given sole access to the funds/checkbook/books/bank statements. This may turn out to be an expensive lesson for your husband but I hope that your assets are kept separately.

I wish you and your husband the best of luck in dealing with this situation. Your husband will need your support.
 

eks6426

Ideal_Rock
Joined
Nov 19, 2004
Messages
2,011
Date: 1/11/2007 1:51:26 AM
Author: AGSHF
IslandDreams:

I''m sorry to hear about the situation with your husband''s business. While I''m obviously not giving you legal advice here, here are the issues/concerns that come to mind:

(1) You state that your husband and this ''partner'' own the S corporation together. I assume that you and your husband''s tax returns reflect the activities that have taken place in the ''S'' corporation. You need to contact your CPA immediately to inform him/her about what has happened and to see what, if anything, needs to be done regarding tax returns, etc.

We know that the partner did not pay any Federal Withholding taxes for the employees including my husband in 2005. They weren''t even filed. There was a stack of unopened mail about 18" high of government tax issues. It is now all opened and we have called the state & Federal tax offices to find out how much is owed.

(2) The business had a ''rough year.'' You have to worry about whether the partner was actually paying all of the 3rd-party bills the corporation owes. If he has been embezzling corporate funds for personal use, you have to worry about whether he has been paying the corporation''s creditors. The corporation owes those bills and while your husband should have the benefit of the ''corporate shield'' in that the corporation''s creditors can''t come after him directly for unpaid bills (unless there was a personal guaranty signed by him), it''s a concern for the business, obviously.
There are some outstanding debts to creditors that are truly the company''s but he has been mostly making the payments. For the credit cards, he did not make some of the payments and one got canceled.

(3) The partner opened ''company cards.'' Your husband needs to get a handle on the number of ''company'' cards this guy opened. I assume that he used the corporation''s name but it''s very unlikely that there wouldn''t be a personal co-signor or guarantor required, especially for such large credit lines. Request ASAP credit reports to see what''s out there. Did he use your husband''s social security number when opening these company credit cards? Could your husband be deemed liable for these outstanding debts?
One credit card company told us that the partner was the guarantor on the card...not my husband. We are still researching these. If the "company credit card" has only the partner''s name on it, is my husband liable at all?

(4) The corporation ''owes'' your husband $40,000. Is there a note signed by the corporation reflecting a loan from your husband or was this the capital contributed by your husband? Given the financial situation, your husband may very well never see this $40,000 repaid even if there was a note signed. If it was capital contributed by your husband, it is very likely gone. Yes, we agree that it is likely gone. There would be a tax advantage to my husband not dissolving this corporation because then the corporation could pay back the $40,000 rather than my husband taking the money as income. But if the debt is high enough we''ll need to dissolve this corporation in order to have the protection from debt.

(5) Get advice from your lawyer on the proper procedure to dissolve the S corporation. If not done properly, because of its status as an S corporation, the shareholders may be held liable for any outstanding debt. Yes, we have done this. We know that the taxes owed are the partner''s personal responsiblity. S corp does not protect on this.

(6) Whatever the ''business'' was that the corporation conducted, your husband may want to start thinking about starting his own separate business as soon as possible. It may require a clean break or clearly notifying his clients/customers that he is now acting on his own behalf and that the old corporation is no longer conducting business. It is likely that if the current corp needs to be dissolved my husband will start a new one with the same "business." My husband is the customer''s contact so they really only know him anyway. To the customer''s it would merely be a change of name on the business card.

(7) Make sure that your CPA checks into tax deposits (federal income, FICA and Medicare and sales tax) that the partner may not have made when required. Yep, we definitely have issues on this.

I hope that you have a good CPA who can give you a good forensic examination of what took place. If your lawyer isn''t giving you good, prompt and direct advice, get another one. Ask your CPA for a referral. We do have a CPA involved. He''ll be helping us deal with the tax liablilties and negotiating payment plan etc. Good idea on the referral.

I know that this is clear with hindsight, but in any business, no individual should be given sole access to the funds/checkbook/books/bank statements. This may turn out to be an expensive lesson for your husband but I hope that your assets are kept separately. Oh, believe me I knew this. I started asking to get copies of the books shortly after we got married. I was the one who went through the partner''s desk because my intuition told me something was up. If I think about this much, I could get really mad at my husband and that''s not what he or WE need right now.

I wish you and your husband the best of luck in dealing with this situation. Your husband will need your support.
Thanks for your ideas. We do have a CPA and a lawyer involved. We need to decide whether to keep the current corporation or dissolve it and start a new one. There are pros and cons each way. The main reason for keeping the current one would be paying us back my husband''s original loan tax free but it we''ll deal with the loss to protect our family from the liablities.
 

perry

Ideal_Rock
Premium
Joined
Sep 19, 2004
Messages
2,541
You seem to be doing the right things now. Unfortunately, this situation is all to common. At least you caught it at this stage - and before more damage was done.

When setting up any business with anyone there are a few basic principles that need to occure to ensure these kinds of problems - and others - are prevented.

Rule 1: Trust - but Verify. All books are to be done by an outside agency - or audited by an outside agency on a routine basis. The report, or periodic reports, are to be made to all partners and to all oficers of the company by the outside agency. The agency hired should be able to do more than just accounting and taxes, or should be able to recommend a separate business consultant who would keep your business on its toes concerning goals and effective straties as well as looking for various landmines between partners.

This may seem expensive up front.... But it will detect problems and head off issues - as well as keeping your company headed down the path you all want it to - and will overall be a very good value.


Rule 2: See Rule 1



Anyone who is serious about business - and honest will not have a problem with those rules. If they hesitate or argue against them.... Don''t do business with them at a partnership level.

Perry
 

strmrdr

Super_Ideal_Rock
Joined
Nov 1, 2003
Messages
23,295
Date: 1/13/2007 6:03:17 PM
Author: perry
You seem to be doing the right things now. Unfortunately, this situation is all to common. At least you caught it at this stage - and before more damage was done.

When setting up any business with anyone there are a few basic principles that need to occure to ensure these kinds of problems - and others - are prevented.

Rule 1: Trust - but Verify. All books are to be done by an outside agency - or audited by an outside agency on a routine basis. The report, or periodic reports, are to be made to all partners and to all oficers of the company by the outside agency. The agency hired should be able to do more than just accounting and taxes, or should be able to recommend a separate business consultant who would keep your business on its toes concerning goals and effective straties as well as looking for various landmines between partners.

This may seem expensive up front.... But it will detect problems and head off issues - as well as keeping your company headed down the path you all want it to - and will overall be a very good value.


Rule 2: See Rule 1



Anyone who is serious about business - and honest will not have a problem with those rules. If they hesitate or argue against them.... Don''t do business with them at a partnership level.

Perry
well said
 

Skippy123

Super_Ideal_Rock
Joined
Nov 24, 2006
Messages
24,299
Okay, these are my FEELINGS as an accountant and this is just an opinion. I look for this sort of thing EVERY day and I look to make sure the numbers are reasonable as to what the controller or bookkeeper shows per their trial balance at a specific period in time.

You might consider hiring an accounting firm to do your bookkeeping. Audits are pricey and they only provide reasonable assurance and sometimes it is really hard to detect fraud. I hope this may help you in the future. I am very sorry that happened to you;
since most people work really hard to build a business. I will cross my fingers everything works out for the best.
 
Status
Not open for further replies. Please create a new topic or request for this thread to be opened.
Be a part of the community It's free, join today!
    5 Diamond Misconceptions: Part 1
    5 Diamond Misconceptions: Part 1
    Three-stone engagement ring upgrade
    Three-stone engagement ring upgrade
    Vintage OEC Bracelet
    Vintage OEC Bracelet

Need Something Special?

Get a quote from multiple trusted and vetted jewelers.

Holloway Cut Advisor



Diamond Eye Candy

Click to view full-size image.
Top