If you are getting a divorce and have a family business, hiring a forensic accountant may seem like more than you need. However, there are issues that often arise when valuing and dividing a business, that require an expert to sift through accounting records, and there are many areas in accounting in which neither you nor your attorney are legally qualified to give an opinion.
How to Divide the Family Business
Most people know that a large part of a divorce is dividing up all of the property of the marriage. Some things may be easily divisible—for example, each of you may take one of two generally equal value cars, or a bank account may just be halved between you.
Some things can not be physically divided. Take, for example, a family business. You can not split that down the middle. There are only one of two options.
The first option is to dissolve the business and divide the proceeds or assets of the business between spouses. But if that business is you or your spouse’s income, doing that can have an adverse effect on both parties’ ability to pay alimony or child support.
The other option is for Spouse 1 to keep the entire business, and buy-out Spouse 2 for his or her interest. To accomplish this, the business will have to be valued by an expert. .
Valuing the Business
An agreement on a buy-out can turn into a fight over what the business is worth. Spouse 1, who is keeping the business, wants it to be worth less—that means there is less to pay to Spouse 2. Spouse 2 wants the opposite.
This is a common situation in which a forensic accountant or a business valuation expert comes into play. These experts can review business’ records, and give a determination of the business’ income, the value of its assets, depreciation of assets, and liabilities, to come to a determination of what the business is worth.
In some cases, the accountant may be able to include the value of future receivables, goodwill, the value of intellectual property, and anticipated future income of the business, in providing an opinion on the business’ value.
Experts do More than Just Value
These experts—particularly accountants—can also help identify waste. Waste is purposeful deterioration of the value of a business by one party in order to reduce income (thus reducing that spouse’s alimony or child support obligation) or in order to reduce the amount that has to be paid to the other spouse.
Experts can help identify cash that is not showing up in corporate books, or show commingling of marital or personal funds with business funds. This can be helpful when a spouse says he or she is not making any money from the business, when in fact the business is being used as a personal income to pay one side’s personal bills.
Make sure your divorce attorneys are working with the experts that you need in your New Jersey divorce case. Contact Agnes Rybar LLC for help and guidance so you know what to expect in a family law case.