Legal Question in Business Law in California

quit claim corporate interest

Can an individual quit claim an interest whether in whole or in part to a corporation? Specifically, can a husband quit claim in etirety his interest in a corporation recently formed by he and his wife? Does this provide protection against creditors that may come after his assets?


Asked on 4/20/01, 8:42 pm

2 Answers from Attorneys

Roy Hoffman Law Offices of Roy A. Hoffman

Re: quit claim corporate interest

No. You cannot "quitclaim" your interest in a corporation. You can transfer your interest in the corporation, providing, however, it is done properly.

The problem is, that doing so may or may not "protect" the interest you own from creditors. Further, if the corporation is a California corporation, you live in California, and you used community property assets to capitalize the corporation, your interests are probably community property, meaning that your wife also has an interest in your interest.

If you had an attorney incorporate your business, I suggest you spend a few extra dollars and consult with that attorney about your situation. If an attorney was not involved, I suggest you find an attorney who regularly works in this area. Only after you fully explain what you want to do, and why you want to do it, can anyone give you complete answers to your questions.

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Answered on 6/13/01, 1:49 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: quit claim corporate interest

Quitclaims are usually used to transfer real property, or mixed real and personal property packages. It would be highly unusual to use an instrument styled as a quitclaim to transfer an interest in a corporation. You should evidence the sale by a bill of sale or an assignment, carefully noting that you do not warrant the quality or extent of your interest therein, if any.

In addition, the transfer of the interest in the corporation (presumably stock ownership) must be reported to the corporation and the transfer recorded in its records. Stock transfers may be restricted by securities laws or limitation on transferability imposed by the corporation itself, although if a husband and wife are the sole shareholders there is probably an exemption covering the transfer.

Transferring assets to a spouse will not protect you from creditors. First, the debts in question may be owed equally by husband and wife in the first place. Even if the creditor's claim is only against the spouse who is transferring assets to the other to try to become "judgment proof," the transfer can be attacked by the creditor as fraudulent under the Uniform Fraudulent Transfer Act (Civil Code section 3439 et seq.), made applicable to transfers between spouses by Family Code section 851.

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Answered on 6/13/01, 10:56 pm


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