Beware of inconsistent business income in divorce

On Behalf of | Mar 10, 2020 | Property Division |

The finances of a family business might be handled primarily by one spouse, but this leaves the other spouse fairly clueless about what’s going on with the company. This isn’t much of an issue for some people as long as the household bills are getting taken care of, so they might live blissfully unaware of what’s happening. The complacency with the way finances are handled for the company might come back to haunt the uniformed spouse if there is ever a divorce.

Sometimes, family businesses will suffer from sudden income deficit syndrome when the owners go through a divorce. This phenomenon, which is sometimes termed SIDS, occurs when the person who is familiar with the finances finds ways to make it look like the income from the business has dipped. Even though the name says “sudden,” it is possible that they’ve slowly been lowering the reported income.

There are many ways that a business owner might do this, and they are all illegal. These include methods like paying out payroll to false employees or making payments to fraudulent vendors. It might also include using special receipt books for cash payments so that they can be hidden.

Property division settlements are based on all involved parties having accurate information. SIDS thwarts that information and skews the settlement so that the party hiding the assets walks away with more than they should.

If you have a family run business with the person you’re divorcing, adding a forensic accountant to your divorce team might help you to remain protected. This person can work to find hidden assets, including business income so that you can get what’s due to you in the divorce.