Course blog for American University PERF-570, Fall 2014
I’ve been saving several cool articles to share on this blog, but in light of our conversation yesterday about who owns a non-profit, I’d like to share this article from Nonprofit Quarterly.
In class, we talked about the example of an arts organization, such as a Mark Morris, Alvin Ailey, or Martha Graham that’s started by a founder with a vision, and usually has a large group of supporters. What I think is a more interesting aspect of this, and much more convoluted is family foundations. I previously worked for a family who had a family foundation. They earned a substantial income, and wanted to do good in the world in a tax-efficient manner, so set up a foundation, asked a couple friends to be on the board, and set about supporting causes they cared about. And then the husband and wife got divorced.
As we discussed, the IRS only requires that a nonprofit have 3 members of the board, and that the money doesn’t “inure” to the benefit of the directors. This foundation was well within those parameters. However, when it came time to divide assets, there was a serious question posed: Even though “nobody” owns the foundation, it was made up of money that otherwise would have been part of their marital estate, and thus – potentially subject to distribution. The legal teams on both sides knew we didn’t want to spend a decade appealing this, so we came up with a creative alternative.
However, this sort of thing happens fairly often. In fact, here’s a quick review of an interesting case that I’m familiar with that lasted for over a decade.
Photo credit: journeybeyonddivorce.com