Experience You
Can Rely On

Family businesses can lead to trouble during divorce

On Behalf of | Jun 20, 2024 | Business Owner Divorce |

If you own a family business, it may be a source of pride and might be the primary source of income for your household. While this is a good thing for your family, the business may become a source of trouble if you and your ex decide to divorce.

In some family businesses, only one party handles financial matters. If that person is your ex in your situation, you might not know exactly what’s going on with the company. Unfortunately, this may put you in a difficult spot during the property division process.

Sudden income deficit disorder

One phenomenon that sometimes occurs in these situations is sudden income deficit syndrome. This may occur in your divorce if your ex hides the company’s actual income from you in an effort to make it seem like the business isn’t as profitable as it actually is. In many cases, there’s a sudden dip in a company’s income that coincides with a divorce filing.

There are several ways that your ex might hide income, some of which are complex. They may include using false vendor invoices that are paid into an account that your ex alone can access. They may not record cash transactions as they should. Fraudulent payroll records are another possibility for hiding income.

Protecting yourself

Unless you know for certain that your ex is being completely forthcoming about the state of the family business, you may need to take steps to protect yourself. For example, you can hire a forensic accountant who can review the financial records of the business to determine if there’s anything amiss.

When all of the income for the business isn’t reported during the divorce, it can tilt the property division in your ex’s favor because they’re able to access the hidden funds and you’re left with only part of what you should have.

Additionally, it’s important to keep in mind that dealing with the family business is only part of the divorce process. You also have to divide other assets and debts that were amassed during the marriage. Other matters, including child custody, might also have to be decided during this process. Having a legal representative who can assist with learning the options and determining how to move forward can, therefore, be beneficial.

FindLaw Network