The family business is likely a source of pride because of the hard work that went into building it. That same business can become one of the most contentious issues if the business owners go through a divorce.
There’s a chance that one business owner is more intimately familiar with the company’s finances than the other owner. That can give the spouse in-the-know an advantage during the divorce.
Business finances are important during a divorce
The business finances are important factors during a divorce because they can directly impact the property division. When one spouse doesn’t know about the finances, there’s a chance that the other spouse may use the business to hide money or other assets.
In some cases, the business starts to report a significant reduction in income that happens to coincide with the divorce. This is known as sudden income deficit syndrome, which is often difficult to unearth.
There are many ways that the spouse who is familiar with the finances may hide income or profits. They may create false vendor accounts to funnel money through or they could keep cash payments off the books so there’s no record of them.
The issue with this phenomenon is that it can lead to the property division settlement being unfair. The spouse who’s hiding assets could walk away with a larger portion of the marital assets, all because they hid business income or assets.
Because of the risk of sudden income deficit syndrome, a small business owner who’s going through a divorce and who isn’t familiar with the finances of the company should work with someone who understands these situations. It may be necessary to have other professionals, such as a forensic accountant, on the divorce team to help find accurate records for the company.