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Jayne and Jed are married to each other. They formed a corporation
for their machine shop two years ago, without using a lawyer. The
business manufactures agricultural parts and has employees, and does
earn some money, but they never became wealthy. They failed to observe
all the corporate formalities over the last two years and tended to pay
all their personal expenses out of the business checking account.
Machine shops rarely need groceries, baby diapers or dinner ware, but
this corporation paid for them! They never held corporate meetings, and
did not sign minutes of the corporation showing actions without a
meeting or formal elections of officers. All they did after filing
papers with the Secretary of State and receiving their Certificate of
Incorporation was to sign forms at their bank that Jed was the Treasurer
and President and authorized signer for checks and for loans.
One year ago, Jayne and Jed divorced, again, doing it themselves
without a lawyer. Jayne received a mortgaged house and Jed got all the
stock in the business corporation that owns the machine shop and all its
contents and all its bank accounts. Jayne has no more ownership in the
corporation, and is not an officer or director.
Jayne has now hired Theodore, your supervising attorney, to collect
past due property settlement money, child support, and alimony in the
amount of $25,000. Jed managed to trick Jayne by making sure the money
and most of his personal goods are owned by the corporation, not
personally. He pays himself no salary and pays himself no dividends from
the corporation, but does pay personal bills from the corporate
checkbook. An attorney named Ray assisted Jed in doing this. The
corporation now owns silver ware, china plates, a baseball card
collection, a boat and trailer, a motor home, and other items not
commonly used by a machine shop that creates parts for agricultural use!
What are Theodore’s options to collect the $25,000 from Jed for
Jayne? A judgment was obtained against Jed, but is it collectible if he
has no money or physical goods in his own name? Which options are best,
in your opinion? Can they realistically get a court to pierce the
corporate veil? Can they get a court to allow seizure and sale of
corporate assets? Is the stock itself vulnerable to seizure and sale for
the debt? Did Ray commit an ethical violation in assisting Jed to hide
assets from is ex-wife?