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Beware a sudden downturn in the family business during divorce

On Behalf of | Jan 30, 2020 | Family Law |

Some couples opt to open a business together in the hopes that it will become successful. Unfortunately, the business might outlast the marriage. This means that the co-owners have to determine how to handle the business. This may involve selling the company, closing it, having one spouse buy out the other or continuing to run it together. 

If you aren’t familiar with the company’s finances, you may need to be extra cautious because there is a chance that sudden income deficit syndrome might occur. This happens when the person who handles the finances for the business takes steps to hide income so it appears the business isn’t really that profitable. This is done to purposefully skew the property division process. 

There are many ways that the person might do this, even though it is illegal to hide income or assets during the divorce process. For example, some spouses have made use of false payroll or vendor accounts that route the money to a hidden bank account. Another common tactic is using an unreported receipt book for cash payments.

A clue that SIDS is happening is that the spouse with knowledge of the company’s money will continue to live the same lifestyle they always did — all while asserting that the business income has dropped. The dip in visible income doesn’t necessarily happen all at once, especially if that spouse has been considering divorce for a while. 

Anyone who is concerned with having to deal with SIDS can have a forensic accountant work on their divorce and the division of assets. These professionals are skilled in unearthing problematic financial records so you can walk away from the divorce with a settlement that’s based on accurate facts.