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Family-owned business can pose a challenge in divorce

| Aug 26, 2020 | Complex Property Division |

A family-owned business is the financial support for many households, but that same business can cause considerable challenges during a divorce. In the absence of a prenuptial agreement, the fate of the business has to be determined as part of the divorce. Because the business likely provides a household income and has a profit, it’s considered an asset for the divorce.

Unfortunately, there are some situations in which one spouse knows about the financial matters related to the business while the other spouse is clueless about the ins and outs of the finances. Even if it didn’t matter before, it will matter in the divorce.

There’s a chance that the spouse who knows about the company’s money matters might try to use the business to hide money. Sudden income deficit syndrome is possible in these cases. This occurs when that spouse takes steps to make it appear as though the company isn’t as profitable as it truly is. This is accomplished by using fraudulent bookkeeping methods.

  • Paying money into fake payroll accounts that go into accounts they control
  • Creating vendor invoices that are paid into the accounts they control
  • Using a separate system for cash transactions that isn’t included in bookkeeping
  • Accepting payments “under the table”

If there is a family business included in the divorce, make sure that you consider this possibility. Adding a forensic accountant to your divorce team might be beneficial since they know where to look to find out what’s really going on with a business. Once the divorce is started, you have to work to protect your own interests.

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