Retained Earnings Law and Legal Definition

Retained earnings means a corporation’s collected income after distributing the dividends. Retained earnings are usually reinvested in the core business or they are used to pay off corporation’s debt. Retained earnings are reported in the shareholders' equity section of the balance sheet. Further, a complete report of the retained earnings will be stated in the statement of retained earnings. It is also called as earned surplus, accumulated earnings, accumulated profit, accumulated income, accumulated surplus, undistributed earning, undistributed profit, or undivided profits.

In In re Marriage of Lundahl, 396 Ill. App. 3d 495 (Ill. App. Ct. 2009), the court observed that “States have generally held that retained earnings are nonmarital by evaluating two primary factors: (1) the nature and extent of the stock holdings, i.e., is a majority of the stock held by a single shareholder spouse with the power to distribute the retained earnings; and (2) to what extent are retained earnings considered in the value of the corporation.”