There are several factors one should consider when going through a divorce case involving a business. One would be well advised to retain a forensic accountant to assist them getting business documents together, especially with someone that has a small business. That’s generally one which has 10 to 20 employees or less – even up to 30, 40, or 50 employees. If they’re working hard at their business then they’re not going to have the time to start downloading all the bank statements, credit card statements, and other documents that would need to be produced to the non-titled spouse’s attorney.
For instance, I’m going through a case right now where a person owns a business and he has approximately 20 to 30 employees. I’m representing the non-titled spouse and we’re going after the value of his business. The case has been pending for about a year because he keeps claiming he has trouble getting the all the documents that I’m requesting. It finally got to the point where his own attorney was not having the discussion with him. I said across the table, “why don’t you go out and hire a forensic accountant to help you get all the documents that I really need.” Making that suggestion makes the case proceed because part of what’s needed is a production of invoices or receipts corroborating legitimate business expenses. Those can be immense, particularly with a business where you have 20 to 30 employees or more which generates well into the millions or tens of millions of dollars of gross income. One would have an immense amount of business expenses but all of that has to be documented.
I often analogize to the titled spouses whom I represent that you have to treat this case like you would an IRS audit. If the IRS audited you on your business tax return, your corporate return, or your partnership return then you would have put down all of your business expenses to be able to claim deductions for them. However, at an audit, while you can produce your bank account statements (I.e., that’s some evidence of your business expenses), the IRS is can require you to produce the actual invoices, receipts, and such corroborating those expenses. That means, if you buy supplies for your business at Home Depot, Staples, or something like that then you have to go into your online account and download all of those invoices corroborating every single expense that you’ve paid out for the business for the relevant time periods.
Oftentimes, we’re talking about 3-5 years’ worth of records. One would definitely benefit from having a forensic accountant who would have access to all your records, be able to go in & do that for you. They would know what they’re looking for simply because they have done one or two audits in their time and would know exactly what would need to be produced for an audit and can download those same documents for purposes of the divorce case.
Could My Business Be Protected by An LLC Or Another Form of Business? Would I Have to Establish That Protection Prior To The Marriage?
It would protect it to some degree from outside creditors being able to go after the individual business owner’s personal assets. However, it would not affect any analysis in a divorce case as a general proposition. Whether somebody owns a business as a general or a solo proprietorship, as a partnership, as an LLC, as an S Corp, or any other type of business form, the analysis comes down to what is the value of their ownership interests and what percentage of that value accrued during the marriage itself. The third factor to consider is what percentage to award to the non-titled spouse through either their direct or indirect contributions towards the accrual of that value.
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