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How do family-owned business finances impact a divorce?

| Jan 16, 2020 | Uncategorized

Owning a business with your spouse is one road to financial freedom, but you need to ensure that you are taking an active role in the business so you are aware of the revenue trends. Having a basic understanding of this can benefit you if the marriage goes sour and you end up going through a divorce.

When only one spouse is aware of the revenue and other financial aspects of the company, there is a chance that the other spouse will be at a disadvantage during the divorce. They may encounter sudden income deficit syndrome, or SIDS, once the divorce is filed.

What is sudden income deficit syndrome?

SIDS occurs when the spouse who is aware of the financial state of the business finagles the books to make it look like it isn’t making as much revenue as it really is. They do this in an effort to get a better outcome of the property division phase since the other spouse won’t be able to ask for revenue they don’t know is present.

How does SIDS occur?

There are many ways that the person can hide revenue. Often, it is through payouts to nonexistent companies, fraudulent payroll entries and using hidden receipt books for payments to companies. There are other possibilities, too, so the records must be scrutinized when a divorce is initiated.

What are signs of SIDS?

One of the most common signals that SIDS is a factor in a divorce is that the person who has knowledge of the business finances claims that the company isn’t doing well, but their lifestyle and spending habits don’t reflect that statement. Sometimes, they will claim they obtained a loan or line of credit but this isn’t likely the case if the business, their source of income, is faltering.

How is SIDS found?

You may need a forensic accountant on your divorce team to help you find out what’s going on with the company. They can look at the historic revenue to try to find out the trends. They may check to see if the reported decrease in revenue happened around the same time as the end of the marriage. Checking public records and scrutinizing payroll and other facets of the business can also be revealing.

If you own a family business and are going through a divorce, protect your interests while determining what’s going on with the company. This is on top of other divorce matters that must be handled for a clean and successful extraction from your marriage.

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