Simon and Sherry divorce during the current year. As part of their property settlement, Simon gives Sherry 25% of the stock in his 100%-owned corporation, Hobday, Inc.

The stock has a fair market value of $80,000. Rather than pay Sherry any alimony, Simon agrees to make her a vice president of Hobday with an annual salary of $70,000. In her position, Sherry has no responsibilities or involvement with the company.