Defective Corporation

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?

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