The Phantom Loan: Writing Off the Owner's Draw

01How a draw becomes a loan

An owner takes cash out. Recorded as a distribution, it is income and visible in a divorce. Recorded as a shareholder loan receivable, it becomes an asset of the company and a debt of the owner — invisible on the income statement, buried on the balance sheet, and never repaid. The account grows every year and nobody asks.

• "Due from shareholder" or "officer loan" balances that only increase.
• No promissory note, no stated interest, no repayment schedule.
• Year-end journal entries reclassifying personal expenses to loans or to consulting fees.
• Payroll suppressed to an unrealistically low salary while the lifestyle continues.

02Related-party fog

Watch for a second entity that exists mainly to receive money: a management company, a licensing entity, an equipment lessor owned by a relative. Rent above market, management fees with no deliverable, and consulting payments to a spouse's sibling all move value out of the marital estate while looking like ordinary operations.