Closely Held Corporation, LLC’s, and Sole Proprietorships
A lot of people have made a lot of money creating and running their own businesses. Likewise a lot of people have lost a lot of money trying to do the same thing. In most small businesses where there is only one owner (usually as a closely held corporation, a sole member LLC, or a sole proprietorship), it is difficult to determine how much money was made by that spouse. Often times small business owners use their business to make purchases that are not entirely business-related. Thus, such purchases are considered a business expense on the company’s books and reduces the owner’s personal income, but it produces a personal benefit.
Judicial Determinations of Small Business Income
Utah appellate courts have set forth some guiding principles for determining the income of a sole proprietor to make sure the small business owner cannot artificially deplete his personal income in a way that would negatively impact his ex spouse’s entitlement to alimony. Utah courts do not want to allow a spouse “to divert income into the business at the expense of his ex-spouse’s support” because doing so “would allow him to enrich himself at her expense.” Jones v. Jones, 700 P.2d 1072 (Utah 1985). Thus, in Utah a trial court may consider, in addition to a spouse’s stated income, “travel and auto allowances, auto and life insurance, tax deferred benefits including pension contributions, whether a new wife or children draw a salary from the corporation.” Muir v. Muir, 841 P.2d 736, 741 (Utah Ct. App. 1992). Thus, a small business owner’s income would be increased by these amounts for purposes of determining alimony.
In divorce cases in which one or both spouses has a small business and the parties are relatively wealthy, it usually makes sense to get an accountant involved who can serve as a neutral expert witness to determine what the cash flow of the business is, income, assets, and liabilities.
Our family law attorneys have vast experience in divorce cases dealing with closely held corporations. We have experience with everything from multi-million dollar businesses to smaller income businesses and we have the know-how and resources to make sure a fair and equitable allocation of alimony is ordered. Give us a call for more information.
