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.

Tips for getting divorced

Here are some helpful tips for working with my office.

ATTENTION REQUIRED: Carefully review everything received from this office and thoroughly go over every document that needs your completion. Many required forms come with fine details that need documentation. It's much more expensive and time-consuming to redo them, so it's better to complete them as thoroughly as possible from the start.

ASSIGNMENT: Treat your divorce case as a part-time job or a homework assignment. Though it might be difficult to face, it's crucial to your case. The more prepared you are in the beginning, the less work will be required later on. You don't want to miss a favorable settlement opportunity due to lack of necessary information or documentation to resolve all issues.

NO LAST-MINUTE RUSH: Remember, "your lack of preparation does not constitute an emergency on my part". Don't postpone addressing potential issues, whether it's selling the house or arranging vacations with the children. Courts aren't available 24/7, and it's impossible for me to hastily put together a motion for court consideration at 4:45 p.m. on a Friday.

DOCUMENT EVERYTHING: From the day of separation onward, it's crucial to keep all records, such as credit card statements, investment/retirement account statements, tax returns, earnings statements, and documents regarding property purchases (homes, vehicles), and gift notes from a spouse or relatives. Also keep health and other insurance information (life, vehicle). If unsure about what to keep, just ask – it might be important.

AVOID RUMOR MILL: You may come across hearsay about someone who managed to dodge spousal support or secured a house at a steal. Remember, every case is unique, and there's usually more to the story. Take these anecdotes with a grain of salt.

EX-PARTNER ADVICE: Don't expect your soon-to-be-ex's behavior to improve during the divorce proceedings. While it's natural to hope for the best, be wary of their claims, especially if they seem designed to pressure you into settling. Major threats often involve children and/or support payments. Rely on the advice of your legal counsel, not your ex.

COMPLY WITH RULINGS: Court orders aren't suggestions; they must be adhered to. Regardless of your opinion on the judge's decision, it's important to abide by all rulings. The judge overseeing your case will likely be involved until its conclusion, including any post-divorce modifications. Your history of compliance will significantly influence the judge's willingness to listen to you and potentially decide in your favor.

How should we manage our money during marriage?

Here are some tips on how couples can combine their finances and navigate wage inequity in their relationships.:

1. Acknowledge wage inequity: Recognize that most couples, regardless of their sexual orientation or gender, tend to have wage inequity. Factors like the gender pay gap contribute to this disparity. It's important to consider non-monetary contributions, such as childcare or health insurance, which may offset the imbalance.

2. Finance management models:

   a. Combine both incomes into one pot: This traditional approach involves pooling all income into a joint account and managing expenses together. Communication about finances is crucial. This model is commonly used by couples.

   b. Combine some part of your income: Couples can choose to allocate a fixed sum or a percentage of their income to a joint account for shared expenses. They also maintain personal accounts for individual financial independence.

   c. Selectively choose to cover certain expenses: Some couples prefer to manage money separately and selectively decide which expenses they cover individually. This approach suits those valuing financial control or independence.

3. Consider a prenup: Understanding the legal aspects related to shared assets and liabilities is important, especially in the event of separation or divorce.

4. Open communication and agreement: Discussing financial approaches with your partner is crucial to determine what works best for your relationship. Once you agree on a strategy, establish a system to simplify money management and reduce stress.

5. Be aware of economic inequality and wage gaps: Stay informed about economic inequality issues and gender wage gaps. This awareness can contribute to healthier financial discussions and decision-making within your relationship.

What was Marriage of Marvin?

In a pivotal California Supreme Court case called Marvin v Marvin [1976) 18 C3d 660], the court recognized the increasing trend of couples living together without getting married. This groundbreaking ruling set a precedent allowing partners in non-marital relationships to pursue division of property and spousal support upon separation. The case involved Ms. Marvin, an aspiring Hollywood actress, and Mr. Marvin, an established Academy Award-winning actor.

Over the course of their six-years of living together, Ms. Marvin had changed her last name to match her partner's, forsaking her budding acting career to focus on their household (though they had no children). She contended that Mr. Marvin had verbally agreed to provide for her financially and share his earnings.

However, once their relationship ended and the case reached the California Supreme Court, Ms. Marvin was unable to provide sufficient evidence of this oral contract that could have entitled her to a share of the property that would have been considered communal if they had been married. The court ruled that the benefits accorded to married individuals couldn't be extended to those who had chosen not to marry.

Nonetheless, the ruling left room for future cohabiting couples to claim their rights. The court suggested that if cohabiting individuals could demonstrate an explicit or implicit agreement, they might be able to claim the financial security that Ms. Marvin could not.

Is your premarital agreement enforceable?

Premarital agreements often get a bad rap, but the agreements are not about planning for divorce, but rather about proactive planning for various circumstances that may arise during your marriage. By understanding the rules and regulations surrounding prenups, you can approach the process with confidence. Here are some tips:

Understanding Enforceability: It's natural to question the enforceability of prenups. However, in California properly drawn premarital agreements are binding and enforceable. They are very rarely set aside or voided. The California Legislature has recognized the importance of these agreements by enacting the Uniform Premarital Agreement Act (CC§5200 et seq). This

statute outlines the basic requirements for a valid premarital agreement and states the specific circumstances under which an agreement is unenforceable.  An may be set aside if shown to be unfair at the time it was executed. An agreement also may be set aside if assets and liabilities were not fully disclosed, unless the parties expressly waived disclosure or knew apart from the agreement the full extent of the other’s economic circumstances. properly drafted agreements are binding and enforceable if they meet the legal requirements of your jurisdiction.

Full Disclosure is Key: Honesty and transparency about money play a pivotal role in premarital agreements. Complete disclosure of assets, debts, and financial information is required to ensure fairness and avoid potential challenges in the future.

Tailoring the Agreement to Your Needs: Each couple's circumstances are unique, so it's important to customize your prenup to align with your specific goals and concerns. Whether it's safeguarding pre-marital assets, addressing spousal support, or determining property division, work with a qualified attorney to create an agreement that reflects your needs.

Legal Representation:  Each spouse should have independent legal counsel to ensure their rights and interests are protected. Not having counsel is one of the reasons a prenup can be held unenforceable and thus having compete counsel is necessary.

Communicating Openly: Discussing your desire for prenup can be challenging, but open communication is key. Approach the topic with empathy and understanding, emphasizing that a prenup is a practical decision that doesn't diminish the love and commitment you share. Encourage open dialogue to address any concerns or misunderstandings.