When one party is either self employed or has an ownership interest in a business, there are two issues that typically arise in a divorce case. The first is the parties actual income for child support and spousal maintenance purposes, and the second is the value of the business interest for property division purposes.
Frequently it is critical to determine the income issue first, as it is not uncommon to go to court within a few weeks of filing to set a motion for temporary orders to determine temporary child support and maintenance pending trial. division of assets does not normally happen until months later, so valuing property can wait. Support is primarily based upon the need versus ability to pay of the parties, and their income is a critical component of their ability to pay.
It is not uncommon for a self employed person to understate their income. This can be done in a number of ways, including:
- Payment of personal expenses from the business (such as auto expenses, phone and other utility bills, insurances, entertainment, meals, etc.)
- Unreported income like cash payments
- Money paid from the business to someone else (like parents, children, friends, etc.) for services never rendered, that will eventually be given back
It is critical to get as much information and documentation as soon as possible. If the client has access to business and financial records, this is the quickest and least expensive method of getting them. If not, the information can be subpoenaed (income statements, balance sheets, statement of accounts, tax returns, check registers, bank statements, etc.), but this takes longer and is more expensive. Also the personal bank records can show unaccounted for deposits (presumably unreported income). Loan and credit card applications are also useful, as applicants state under oath what income is (and for loan purposes, they tend to overstate their income while for court purposes they will often understate their income).
Determining the income of a self employed person can be difficult, because they frequently have a lifetime pattern of hiding their income. There is a wealth of information contained within the financial documents that an experience business and financial mind can help organize and assess. If your spouse is self employed and has potentially hidden income, you should consider discussing your case with an experienced family law attorney.