While most business people and professionals maintain monthly and annual books of account, including profit and loss statements and balance sheets, these are not nearly adequate for divorce purposes.
For example, most accountants will carry assets “on the books” at cost value, less accumulated depreciation. While this is perfectly acceptable for tax and other purposes, fair market values need to be determined and accounts adjusted for family law purposes. In addition, the California courts have determined that the depreciation expense commonly included in most profit and loss statements will be disallowed in most instances when calculating income for support purposes.
The fair market value of a closely held business has taken on a meaning of its own in the family law courts. While many closely held businesses depend on the principal owner for their value, and would not be worth much more than their fixed assets if the business had to be sold, this is not the approach taken by California’s appellate courts.
These are just a few examples of why a business owner or professional needs the assistance of an experienced forensic accountant, and an attorney who specializes in high-end business and professional cases, to guide them through the divorce process. The middle of a case is the wrong time to learn that you have not prepared your case by hiring a forensic accountant, or that your attorney does not understand the issues involved in representing the business owner or professional.
Often the judge hearing your case is used to hearing the typical divorce and will also need educating about the complex family law rules dealing with business owners and professionals. The judge may have obtained their legal experience working for the District Attorney or the Public Defender’s office, with little business experience or background. Many times the spouse of the owner or professional will have unrealistic expectations about values and incomes, which can only be overcome, if ever, with facts effectively presented to the other side and, if necessary, to the court.
Being prepared with a forensic accountant, and having an attorney experienced in representing the business owner or professional, is your best weapon for successfully navigating this difficult area of the law.