Understanding Beneficial Ownership Disclosure in Community Property States
What Married Business Owners Need to Know
When it comes to business ownership in community property states like California, married individuals often share ownership rights over assets acquired during the marriage. This can complicate the requirements for beneficial ownership disclosure. Under the Corporate Transparency Act (CTA), over 32 million businesses must report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) to improve corporate transparency and combat illicit financial activities.
What is Beneficial Ownership?
The CTA defines a “beneficial owner” as an individual who:
1.
Owns or controls at least 25% of a company’s ownership interests, or
2.
Exercises substantial control over the company.
Both criteria are essential for determining who must be disclosed as a beneficial owner. Community property laws, however, can add complexity by recognizing that both spouses may have a claim to assets acquired during the marriage.
Do Community Property Rights Affect Direct Beneficial Ownership Disclosure?
In community property states like California, any ownership stake acquired during marriage is typically split equally between spouses. But for beneficial ownership reporting purposes, community property laws do not change direct ownership percentages.
For example:
- If one spouse directly holds a 25% ownership interest, they meet the CTA’s threshold independently, regardless of whether community property principles might imply shared ownership.
- Thus, the spouse with the direct 25% ownership must be disclosed as a beneficial owner, even if they lack substantial control or are married. Marital status alone does not negate the reporting requirement.
What About the Non-Owner Spouse?
On October 3, 2024, FinCEN issued a statement indicating that both spouses may need to be reported as beneficial owners if, under community property state laws, each spouse’s effective ownership or control meets the 25% threshold. This means that even if one spouse is the sole owner on paper, the non-owning spouse could be considered to have a beneficial interest due to community property laws. As a result, their inclusion in ownership disclosures under the CTA is required.
Key Takeaway
In community property states, married individuals who indirectly hold 25% interest or more in a business may be required to be disclosed as beneficial owners under the CTA, regardless of their level of involvement in the company’s operation.
Act Now Before Time Runs Out!
Act Now!
If you have already submitted your report, you may need to file an amendment to adhere to this new update. You will have 30 days from today to file your amendment. So don’t delay! For assistance with the amendment process or further inquiries about compliance, please reach out to Jackellyn Davis at Jackellyn@DossLaw.com.
Current Doss Law Clients
*If you are a current Doss Law client utilizing our CTA BOI reporting service, we will automatically initiate a review of previously filed reports to determine if an amendment is necessary.
