For many divorcing couples, particularly those who own or have an interest in a closely held family business, cash very often reigns supreme. Often times access to cash, particularly by way of a business, serves to supplement, or enhance a couple’s marital lifestyle far beyond that which may be classified as reported income for income tax purposes. While having “cash” during the marriage often connotes luxury goods, lower tax brackets and the like, “cash” during a divorce often connotes mandatory reporting issues and the retention of forensic accountants. This is particularly so in litigated divorce cases where there is a clear discrepancy between a parties’ marital lifestyle (how a couple operated and paid their basic monthly recurring expenses), versus what a couple reported on their tax returns.
In matters involving alimony and/or child support components, the retention of a forensic accountant is essential for determining the actual cash flow utilized by the parties to maintain their lifestyle, as same is critical for determining the appropriate amount of both alimony and child support to be paid. While undoubtedly cash is difficult if not impossible to recapture, a cash flow analysis can allow accountants and attorneys to effectively “back into” the total marital income by seeing the net monthly recurring expenses paid by the parties.
There are unique and case-specific challenges associated with businesses with cash components. The importance of structuring a legal and accounting team to address these issues cannot be underscored whether you are the obligor or obligee spouse as not only may couples face serious IRS issues, there are also particularized marital rights and privileges that might be effected whether the case is settled or tried.