Are you a business owner going through divorce? Are you worried about what might happen to your business in your divorce?
Divorce can be an alarming process for business owners. We are known for giving Santa Barbara business owners and spouses of business owners peace of mind when it comes to the divorce process. During your divorce we will work with outside forensic accountants and other experts to analyze information such as the cash flow available for support from your business, business valuations, and other areas affecting business owners.
The first step in any business valuation is to determine if the business is community property or one spouse’s separate property. A community company’s value will be shared equally between the spouses. A separate property company’s value will typically be given solely to one spouse. As a general rule, a company started during the marriage is community property whereas a company started before marriage or received by gift or inheritance is separate property. There are exceptions to this rule. For example, if the separate property company’s value increased during the marriage, a percentage of that increase maybe community property under the Pereira or Van Camp cases. The law on this subject is complex, and careful financial planning with a lawyer is necessary to ensure that your financial interests and rights are protected.
The next step is valuing the business. This is where your lawyer will gain documents through the discovery process. The lawyer will then work with the forensic accountant to determine what a proper business valuation will be. This will include business assets, liabilities, cash flow, profit, IBITA, and other financial factors.
One issue that commonly arises is the payment of personal expenses and claiming them as business expenses. While common under the tax code, the divorce court can essentially recapture these perquisites, meaning that the income on your tax return maybe a lower figure than what the court uses. A skilled divorce lawyer and forensic accountant can recapture these perquisites hiding in plain sight.
A similar issue is cash flow available for support. As business owners frequently declare personal expenses as business expenses (i.e. vehicle payments, gas, groceries, boats, meals and entertainment, travel, etc.) the income reported on the tax return can be argued to be not an accurate depiction of the “cash flow available for support.” This essentially means that the business owners income will be deemed higher than what is reported on his/her tax return for purposes of determining child support, spousal support and other financial issues.
We can build a strategy to help you get the most when divorce threatens your business, whether that’s retaining control as the sole owner or taking a buyout from your ex-spouse. Business owners are the backbone of our community, which also happens to be a tourist destination, which is why the survival of your business is crucial. A divorce can not only threaten the business that you’ve built, but threaten your way of life. Don’t let it. We can help you make a plan that can increase your chances of keeping ownership over your business when the dust settles.
Contact Morales Law, P.C. so that we can help you make a plan to protect your business. Give us a call at 805-845-5405 for a complimentary consultation.