Transfer of S Corporation Stock in a Divorce

To retain S status, there can be only one class of stock. The IRS said that the transfer of stock to a trust for the benefit of a spouse under the terms of a divorce decree did not create a second class of stock. The trust agreement is disregarded in determining whether outstanding shares confer identical rights to distributions and liquidation proceeds (i.e., one class of stock). And the trust in this case can be an electing small business trust (ESBT) and remain a permissible shareholder.