Business Income in Divorce

When navigating family law cases involving small business owners, one of the key challenges is determining income available for child and spousal support. In this blog post, we'll delve into the specific considerations that come into play when calculating and using income available for support in such situations.

Small Business Income Inclusion

When a party in a family law case owns a small business, their income from the business is generally included in the calculation of gross income for child and spousal support purposes.

Gross Income Calculation for Small Business Owners

Gross income, in the context of small business ownership, is calculated by considering the income generated by the business. Specifically, this includes gross receipts. However, this is just the starting point.

Required Expenditures

Required expenditures refer to the legitimate and necessary expenses incurred in the operation of the small business. These expenses are subtracted from gross receipts to arrive at the gross income figure. It's important to carefully scrutinize these claimed business expenses.

Depreciation Consideration

Depreciation deductions related to business assets, such as equipment or rental property, are generally not allowed as an expenditure when calculating gross income for child and spousal support. Instead, depreciation deductions should be added back to the adjusted gross income to determine the actual cash flow amount available for support.

Scrutiny of Business Expenses

One of the critical aspects of this process is carefully scrutinizing the claimed business expenses of the small business owner. This scrutiny ensures that only legitimate expenses required for the operation of the business are deducted from gross receipts.

Disclosure and Cooperation

Small business owners involved in family law cases must provide complete and accurate financial disclosure. This includes profit and loss statements, income tax returns, and other relevant financial documents related to the business. Cooperation in the discovery process is essential to ensure that all relevant financial information is available for determining income available for support.

Evidence of Income

In cases where there is a lack of cooperation in providing financial information or suspicion of perjury in income declarations, the court may rely on other evidence. This can include mortgage applications or financial records to establish the party's income.

Fair and Accurate Determination

The ultimate goal in these cases is to arrive at a fair and accurate determination of income available for support. This is achieved by considering the actual financial situation of the small business owner and ensuring that all income sources and expenses are properly accounted for.

Conclusion:

Calculating income available for support in family law cases involving small business ownership is a complex process that requires a thorough examination of both income sources and legitimate expenses. By following these guidelines, attorneys can ensure that support obligations are determined fairly and equitably, based on the actual financial circumstances of the small business owner.