## Facts

- Steve and Penny Neibaur married in 1982 and later divorced.
- Before the marriage, Steve formed and solely owned Steve Neibaur Farms, Inc.; all shares remained titled only to Steve throughout the marriage.
- Steve controlled corporate operations and made all corporate decisions; Penny primarily worked as a schoolteacher and provided little to no labor for the farm corporation.
- The corporation’s value increased substantially during the marriage.
- In the divorce, Penny sought to treat the corporation’s assets as community property by arguing Steve used the corporation as his alter ego; alternatively, she sought community reimbursement for the increase in value attributable to Steve’s marital labor.
- The trial court treated the stock as Steve’s separate property but awarded the community $750,000 (secured by a lien on Steve’s shares), reasoning the increase in value was largely due to Steve’s marital labor and the community had not been adequately compensated.
- The intermediate appellate court affirmed; the court of appeals reversed the reimbursement award and lien; review was granted.

## Issues

1. Whether a divorce court may pierce the corporate veil of a spouse’s separate-property corporation to treat corporate assets as community property for distribution.
2. When the community may obtain reimbursement tied to a spouse’s labor for a separate-property corporation, and what proof is required to support such a claim.

## Decision

- The court held that veil piercing is not an available remedy merely to recharacterize a spouse’s separate-property corporation or its assets as community property in a divorce.
- The court reaffirmed that corporate earnings belong to the corporation until distributed; once distributed during marriage (e.g., dividends), they become community property.
- The court limited community reimbursement related to a separate-property corporation to two situations: (1) the community was not adequately compensated for the spouse’s labor, or (2) the corporation unreasonably or fraudulently retained earnings that should have been distributed.
- The court concluded the $750,000 reimbursement award and lien were not supported because the record did not establish inadequate compensation or unreasonable/fraudulent retention of earnings, and the trial court’s approach effectively treated corporate appreciation as directly divisible community property.
- The case was remanded for a new property distribution consistent with these rules.

## Legal Principles

- A corporation is a separate legal entity; a shareholder-spouse’s stock may be separate property while corporate assets remain corporate property.
- Piercing the corporate veil is a limited corporate-law remedy aimed at preventing fraud or similar injustice; it is not a general divorce tool to convert separate corporate assets into community property.
- Corporate earnings remain corporate property until distributed; distributed dividends received during marriage are community property.
- Community reimbursement claims tied to a spouse’s labor for a separate-property corporation require proof that compensation was inadequate, or that earnings were unreasonably or fraudulently retained to defeat community rights.
- The party asserting a community claim bears the burden to prove the factual basis for inadequacy of compensation or improper retention, not merely that the corporation appreciated during marriage.

## Conclusion

The court refused to allow veil piercing to transform a spouse’s separately owned corporation into community property in divorce and held that community recovery linked to such a corporation is confined to proven inadequate compensation for marital labor or proven unreasonable/fraudulent retention of earnings; lacking that proof, the reimbursement award and lien were set aside and the matter remanded for redistribution.


Neibaur v. Neibaur, 142 Idaho 196, 125 P.3d 1072 (Idaho 2005)