Key Financial Legal Issues Women Need to Know

I have been practicing Bankruptcy, Debt/Wealth Management, Wills, Trusts and Estates, Real Estate and Taxation Law for many years now, representing both men and women, and while I have not seen it all, I have seen quite a bit; and some of what I have seen with regards the disparate treatment of men and women dealing with their financial legal issues, has not been very pretty.

As the result of my personal observations and my own personal experiences about how some never married and/or unmarried women and/or widows are treated by their former spouses, lovers, or partners, their financial institutions, their fiduciaries, fraudsters, and/or some of the men who make financial decisions about them - including their employers, both inside and outside the courts -, I have come to a place where in the next iteration of my legal work, I want to create a resource for women in my next venture, which will in essence be: ‘Selwyn’s Law Digital Platform’ including related material and a book that I am writing on the above subject, Ask Selwyn Whitehead, Esquire: What You Need to Know About Financial and Legal Issues as a Woman-Headed Household!

Just like the ongoing effects of climate change is finally coming into stark relief and getting right up into the faces of many who have ignored the obvious for years, many in our society are also just waking up to the fact that the American familial culture is in the midst of a paradigm shift.  The heretofore-historic breadwinner-homemaker emotional, physical and financial partnership relationship between men and women has and continues to undergo substantial change; necessitating that women understand that there is a new financial and legal reality that women of all stripes in the world, especially women in the West and American women in particular and even more so for American women of color, must come to understand and deal with each and every day.

So, as more women of all ages, classes, races and other circumstances find themselves heading their own households and leading their own small businesses, these women must educate themselves about how to deal with the financial and legal issues associated with this management and control

For example, statistics reveal the following facts:

1. Many younger women (Millennials ages 21-36 and later) are remaining single longer and some will in fact never marry by choice[1];
2. Most older women (Baby Boomers ages 53-71 and Gen Xers ages 37-52) are ending up single in their middle age either through divorce[2] or through as the result of widowhood[3];
3. Some divorced women are finding that their former spouses will not willingly share the fruits of the marital estate unless and until they are compelled by the Family Court, if at all[4];
4. A record 40 percent of all households with children under the age of 18 include mothers who are either the sole or primary source of income for the family, according to the Pew Research Center analysis of data from the U.S. Census Bureau. The share was just 11 percent in 1960.
5. Most women to varying degrees are finding that the men who control their incomes in the workplace, either directly or indirectly, do not see these women as their intellectual or competence-related peers and therefore will readily discount the value of these women’s “women’s work”, as compared to the men’s “men’s work”, even in high paying high skilled industries such as STEM or the law; and,
6. In order to combat gender discrimination in the employment marketplace, more and more women are starting their own businesses and as a result taking on more and more debt, including the concomitant tax complexities.

So, as more women of all ages, classes, races and other circumstances find themselves heading their own households and leading their own small businesses, these women must educate themselves about how to deal with the financial and legal issues associated with this management and control, including how to manage their assets, liabilities, incomes, expenses and taxes.  These women, especially if they are seniors, must also be on the lookout for signals given off by those both within and outside their extended families who are attempting to take financial advantage of them and learn how to combat the various kinds of financial abuse.

When starting a business, women need to consider their options for structuring the business.

This new cohort of women also needs to know what to do when things do no go as planned, including the fact that they may need to unashamedly consider seeking the protection of the bankruptcy court to either reorganize or eliminate some or all of their debt in order to keep themselves, their families and their businesses moving forward.

Here are some of the key financial issues women will need to address in this new financial environment we all find ourselves facing:

1. Business Formation and Insurance Issues
2. Budgeting for Households and Business Ventures, Obtaining Credit and Raising Capital
3. Federal, State and Local Taxation Issues
4. Retirement Funding Issues
5. Estate Planning and Administration Issues
6. Identifying and Steering Clear of Financial Elder Abuse Scams

Let’s start with the basics: what we need to consider when starting a woman-owned business.  When starting a business, women need to consider their options for structuring the business.

Why Selecting the Proper Business Structure is So Important for Success. 

The business structure affects the owner’s personal liability for business debts, her ability to raise capital and credit, the formation paperwork the owner will need to file initially, the ongoing records and books the owner will need to keep, the governmental reports the owner will need to file periodically, and how much the owner will pay in taxes.

The business will also need one or more insurance policies to protect the assets needed to run the business and to provide the owner with access to legal counsel when the owner or her employees harm third parties through an act of negligence.

The owner will also need to choose a business structure before she can register the business with any state or municipal agency. Also, most businesses will also need to obtain a taxpayer ID number and apply for the appropriate business licenses and permits in the city and/or county where it is located.  As such, an owner should choose her structure carefully. Even though an owner may convert to a different business structure in the future, there may be restrictions based on the location of the business. This could also result in unintended tax consequences or even the unintended dissolution of the business.

The business will also need one or more insurance policies to protect the assets needed to run the business and to provide the owner with access to legal counsel when the owner or her employees harm third parties through an act of negligence.

What 10 Factors Should a Woman Consider in Forming Her Business?

1. First, the owner must determine how much control she requires over the business. Said another way: the owner must determine how much control she is willing to give up to others.
2. Second, the owner must determine her initial and reoccurring structuring costs and what ongoing administrative formalities are associated with her selected structure.
3. Next, the owner must consider which structure will best serve to limit her personal liability from the debts of the business.
4. The owner must then determine which structure will provide her with the most advantageous tax treatment.
5. Next, the owner must decide which structure will best help her reach the desired level of potential business growth and expansion.
6. The owner must establish what is the best structure for meeting her industry’s regulatory compliance requirements.
7. The best structure for raising capital and obtaining credit must then be determined.
8. Then she will need to analyze and select the best structure for attracting the “partners” and/or employees desired.
9. Second to last, the owner must determine what is the best structure for obtaining the appropriate kinds and amount of insurance required to protect the business’s assets and shield the owner from as must liability as possible.
10. And finally, she must conclude what is the best structure for her desired exit strategy, including succession planning.

What Are the Major Business Structures Available to the New Business Owner?

i.  A sole proprietorship: A sole proprietor is someone who owns an unincorporated business by herself.  In effect, the new business is an extension of the existing person legally and for taxation purposes.

 

A partnership is the relationship existing between two or more persons who join together to carry on a trade or business.

A sole proprietor should consider obtaining the following insurance:  1. General Liability insurance; 2. Property Insurance; 3. Business Owner’s Policy (BOP); 4. Commercial Auto Insurance Rider; 5. Worker’s Compensation Insurance; 6. Professional Liability Insurance; 7. Data Breach Insurance; 8. Homeowner’s Insurance; 9. Renter’s Insurance; 10. Life Insurance (Key Person Insurance); 11. Personal Automobile Insurance; 12. Personal Umbrella Insurance; 13. Family Health Insurance (via the Affordable Health Care Act).

ii.  A partnership: A partnership is the relationship existing between two or more persons who join together to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.  There are two common kinds of partnerships: limited partnerships (LP) and limited liability partnerships (LLP). Limited partnerships have only one general partner with unlimited liability, and all other partners have limited liability. The partners with limited liability also tend to have limited control over the company, which is documented in a partnership agreement.  Limited liability partnerships are similar to limited partnerships, but give limited liability to every owner. An LLP protects each partner from debts against the partnership; they won't be responsible for the actions of other partners. 

An LLC is a business structure allowed by state statute that lets its owners take advantage of the benefits of both the corporation and partnership business structures.

A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes their share of the partnership's income or loss on their individual tax return.  Partners are not employees and should not be issued a Form W-2. The partnership must furnish copies of Schedule K-1 (Form 1065) to the partners by the date Form 1065 is required to be filed, including extensions.

A partnership should consider obtaining the following insurance: 

1. General Liability insurance; 2. Commercial Property Insurance; 3. Business Owner’s Policy (BOP); 4. Commercial Auto Insurance; 5. Worker’s Compensation Insurance; 6. Professional Liability Insurance; 7. Data Breach Insurance; 8.Commercial Renter’s Insurance; 9. Life Insurance (Key Person Insurance); 10. Family Health Insurance (via the Affordable Health Care Act).

iii. A Limited Liability Company (LLC): An LLC is a business structure allowed by state statute that lets its owners take advantage of the benefits of both the corporation and partnership business structures.  Owners of an LLC are called members. Most states do not restrict ownership, and so members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single-member” LLCs, those having only one owner.  LLCs protect you from personal liability in most instances; your personal assets — like your vehicle, house, and savings accounts — won't be at risk in case your LLC faces bankruptcy or lawsuits.

LLCs can be a good choice for medium- or higher-risk businesses, owners with significant personal assets they want to protect, and owners who want to pay a lower tax rate than they would with a corporation.

Profits and losses can get passed through to your personal income without facing corporate taxes. However, members of an LLC are considered self-employed and must pay self-employment tax contributions towards Medicare and Social Security.

LLCs can have a limited life in many states. When a member joins or leaves an LLC, some states may require the LLC to be dissolved and re-formed with new membership — unless there's already an agreement in place within the LLC for buying, selling, and transferring ownership. LLCs can be a good choice for medium- or higher-risk businesses, owners with significant personal assets they want to protect, and owners who want to pay a lower tax rate than they would with a corporation.

An LLC should consider obtaining the following insurance: 

1. General Liability insurance; 2. Commercial Property Insurance; 3. Business Owner’s Policy (BOP); 4. Commercial Auto Insurance; 5. Worker’s Compensation Insurance; 6. Professional liability Insurance; 7. Data Breach Insurance; 8.Commercial Renter’s Insurance; 9. Life Insurance (Key Person Insurance); 10. Family Health Insurance (via the Affordable Health Care Act).

Corporations also require more extensive record-keeping, operational processes, and reporting.

iv. A C-Corporation: A regular corporation, sometimes called a C Corp, is a legal entity that's separate from its owners. By forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. For federal income tax purposes, a C-corporation is recognized as a separate taxpaying entity. A corporation conducts business, realizes net income or loss, pays taxes and distributes profits to shareholders. Corporations can make a profit, be taxed, and can be held legally liable. Corporations offer the strongest protection to its owners from personal liability, but the cost to form a corporation is higher than other structures.

Corporations also require more extensive record-keeping, operational processes, and reporting. Unlike sole proprietors, partnerships, and LLCs, corporations pay income tax on their profits. In some cases, corporate profits are taxed twice — first, when the company makes a profit, and again when dividends are paid to shareholders on their personal tax returns.

A C-Corporation should consider obtaining the following insurance: 

1. General Liability insurance; 2. Commercial Property Insurance; 3. Commercial Auto Insurance; 4. Worker’s Compensation Insurance 5. Data Breach Insurance; 6. Life Insurance (Key Person); 7. Small Group Health Insurance.

S corps can be a good choice for a business that would otherwise be a C corp, but meet the criteria to file as an S corp.

v. An S-Corporation: According to the Small Business Administration (SBA), an S-corporation, sometimes called a “Subchapter S corp”, is a special type of corporation that's designed to avoid the double taxation drawback of regular C corps. S corps allow profits, and some losses, to be passed through directly to owners' personal income without ever being subject to corporate tax rates. Not all states tax S corps equally, but most recognize them the same way the federal government does and taxes the shareholders accordingly. Some states tax S corps on profits above a specified limit and other states don't recognize the S corp election at all, simply treating the business as a C corp. S corps must file with the IRS to get S corp status, a different process from registering with their state. There are special limits on S corps. S corps can't have more than 100 shareholders, and all shareholders must be U.S. citizens. You'll still have to follow strict filing and operational processes of a C corp. S corps can be a good choice for a business that would otherwise be a C corp, but meet the criteria to file as an S corp.

An S-Corporation should consider obtaining the following insurance: 

1. General Liability insurance; 2. Commercial Property Insurance; 3. Business Owner’s Policy (BOP); 4. Commercial Auto Insurance; 5. Worker’s Compensation Insurance; 6. Data Breach Insurance; 7. Life Insurance (Key Person); 8. Family Health Insurance (via the Affordable Health Care Act).

 Some states require B corps to submit annual benefit reports that demonstrate their contribution to the public good.

 vi. A B-Corporation: According to the Small Business Administration (SBA), a benefit corporation, sometimes called a B corp, is a for-profit corporation recognized in a majority of U.S. states. B corps are different from C corps in purpose, accountability, and transparency, but aren't different in how they're taxed.  B corps are driven by both a defined mission and profit. Shareholders hold the company accountable to produce some sort of public benefit in addition to a financial profit. Some states require B corps to submit annual benefit reports that demonstrate their contribution to the public good.

A B-Corporation should consider obtaining the following insurance: 

1. General Liability insurance; 2. Commercial Property Insurance; 3. Commercial Auto Insurance; 4. Worker’s Compensation Insurance; 5. Data Breach Insurance; 6. Life Insurance (Key Person); 7. Small Group Health Insurance.

vii. A nonprofit corporation: According to the Small Business Administration (SBA), nonprofit corporations are organized to do charity, education, religious, literary, or scientific work. Because their work benefits the public, nonprofits can receive tax-exempt status, meaning they don't pay state or federal taxes and income taxes on any profits it makes. Nonprofits must file with the IRS to get tax exemption, a different process for registering with their state. Nonprofit corporations need to follow organizational rules very similar to a regular C corp. They also need to follow special rules about what they do with any profits they earn. For example, they can't distribute profits to members or political campaigns. Nonprofits are often called 501(c)(3) corporations — a reference to the section of the Internal Revenue Code that is most commonly used to grant tax-exempt status.

Once a woman gets her business up and going on a firm foundation, she will have a real opportunity to generate the income needed to fund her female-headed household well into the future.

A Nonprofit Corporation should consider obtaining the following times of insurance: 

1. General Liability insurance; 2. Commercial Property Insurance; 3. Commercial Auto Insurance); 4. Worker’s Compensation Insurance 5. Data Breach Insurance; 6. Small Group Health Insurance.

Conclusion

Although determining the proper business structure takes a lot of time to consider the various options, the thoughtful undertaking will be time well spent.  Once a woman gets her business up and going on a firm foundation, she will have a real opportunity to generate the income needed to fund her female-headed household well into the future.

LAW OFFICES OF SELWYN D. WHITEHEAD

4650 Scotia Avenue, Oakland, California 94605

Phone: 510.632.7444

Fax: 510.856.5180

Email: selwynwhitehead@yahoo.com

Web Site: www.selwynwhitehead.com

Selwyn D. Whitehead Esq. is a San Francisco Bay Area bankruptcy and tax attorney whose practice focuses on helping her clients manage their wealth through effective estate and tax planning and/or manage their debt through debt restructuring or bankruptcy. Selwyn also helps her clients facing foreclosure and represents clients with emotionally and financially “taxing” issues before the Franchise Tax Board, the IRS and the U.S. Tax Court. Selwyn is also a Bankruptcy Law Certified Specialist, whose been Certified by the State Bar of California Board of Legal Specialization.

Prior to going into private practice, Selwyn managed a group of attorneys and paraprofessionals in Fireman’s Fund Insurance Company’s Claims Department, where she was responsible for auditing the claims and case handling practices, performance, fees, and expenses of outside defence counsel. And prior to that assignment, she worked for many years as a financial services industry consumer advocate.

[1] Record Share of Americans Have Never Married As Values, Economics and Gender Patterns Change (https://www.pewsocialtrends.org/2014/09/24/record-share-of-americans-have-never-married/st-2014-09-24-never-married-01/)

[2] According to the Pew Research Center, Among U.S. adults 50 years or older, the divorce rate has doubled since the1990s:  In 2015, for every 1,000 married persons ages 50 and older, 10 divorced – up from five in1990, according to data from the National Center for Health Statistics and U.S. Census Bureau. Among those ages 65 and older, the divorce rate has roughly tripled since 1990, reaching six people per 1,000 married persons in 2015. (https://www.pewsocialtrends.org/2014/09/24/record-share-of-americans-have-never-married/st-2014-09-24-never-married-01/)

[3] There are more than 13.7 million widowed persons in the United States, over 11 million of these being women. (American Association of Retired Persons 2001) Female survivors have been outdistancing their male counterparts by a continually widening margin and now represent approximately 80 percent of the widowed population in the United States. In 1940 there were twice as many widows as widowers; by 1990 the ratio of widows to widowers had climbed to more than 4 to 1. This ratio is expected to widen in the future.

[4] One of the key reasons women get screwed in a divorce proceeding is that they believe their husband will treat them fairly.  Unfortunately it has been generally observed that once the marriage is over, former husbands will look at the divorce as a competition they must win at any cost.