Spousal support can be difficult to establish when one or both of the spouses own a business. The parties receive income from that business and also use the business as a means to reduce their taxable income. Each party will be required to produce their income tax returns and the income listed on those returns will generally be used to calculate spousal support orders unless the Court is provided with more accurate information about the business cash flow.
There are legitimate expenses for purposes of taxes that may be excluded when establishing spousal support orders. Those expenses are added back into the gross income of the business owner. The non-operating spouse is entitled to receive access to the finances of the company during the divorce process so that their attorney can determine what income is available for support. In most cases involving a business, we are going to use a forensic accountant to determine the income of the business.
How to determine the cash flow of a business for spousal support
During the discovery process, the non-owner spouse will want to obtain a copy of the business bank records, as well as any business credit card statements. If the spouse is attempting to argue against the release of the records or they allege that the business owner put significant expenses through the business, they may want to consider whether or not they filed a joint income tax return. However, in cases where there has been a dramatic increase in business income, a fair picture of what income is available for support will be needed. It is possible for the business owner to testify that the funds must remain in the business in order to operate and cannot be used for Spousal Support.
Those funds needed for business operations can be considered the retained earnings of the business and used in calculating the division of the business, but they may not be included in any support calculations.
In one case, the spouse of my client claimed that she was not getting any income from her business and therefore needed ongoing support for an extended time. After reviewing the financial statements, we determined that her business was supporting trips to Europe and Las Vegas, and all her personal expenses were coming out of the business. We were able to establish that she had sufficient funds to be self-supporting and did not need spousal support from our client.
If you have any questions about your business and its impact on spousal support, shoot us an email or give us a call.