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Your Relationship to Money…

Your Relationship to MoneyAt a recent presentation for the Bergen County Professional Women’s Network, psychotherapist Loren Gelberg-Goff, LCSW, posed an interesting question:

If money was a person, how would you describe your relationship? Is it a friendly relationship, or one marked with tension and anxiety?

The concept arises constantly in family law litigation, concerning alimony, child support, equitable distribution of assets and debts. Every family has its own method of managing assets, debts, expenses. When spouses divorce, it frequently comes to light that they had dramatically different ideas about money that were not properly addressed during the marriage. Money might have been the issue causing strife, even if there was enough to go around. Discussions about dividing assets and debts, and making appropriate arrangements for the support of the whole family, forces husbands and wives, mothers and fathers, to consider how they have spent and saved their money, and how they think they should be entitled to spend or save it in the future.

That’s where we come in. Educating every client about his/her economic rights and responsibilities in a family law case takes time and careful attention to the financial details surrounding that client. When one party owns his/her own business, the details matter a great deal because it is not always simple to determine the value of that business, or the full economic benefit that the family unit obtained from the business income.

Laws differ from state to state but in New Jersey (where this author practices family law), all assets and liabilities acquired during the marriage can be divided as part of the divorce process. There are some limited exceptions, including gifts received by one party from someone other than the spouse. Businesses owned or operated during the marriage, however, are joint assets regardless of which spouse is actually named as an owner or worked at the business. This frequently baffles the business owner, whether she is a professional, an entrepreneur, a franchise owner or self-employed in any capacity. We often hear an objection that the business does not have value, because “without me” it is “worthless.” Business owners often produce an income tax return as proof of his/her income, usually without realizing that in Family Court we look far beyond the first page declaration of “adjusted gross income” when the taxpayer is self-employed.
What this tells us about the speaker’s own relationship with money, is that we as lawyers have some work to do to teach the client about how the divorce court views businesses and business income.

In some instances, a business owner might be right, that his/her operation lacks any value independent of personal efforts and the revenue that he/she produces by those efforts. More likely, from the perspective of the divorce court, the business operation has a value that someone else might pay to acquire, based upon the market value of that business (e.g. a franchise), the value of the future income stream (e.g. a professional services company like a law firm or medical practice) or the value of the assets held by the business (e.g. a real estate holding company). If a business is profitable for the owner, and/or holds assets, then it probably also has a value that can be calculated by a valuation expert and that value becomes another asset on the marital balance sheet. How to divide that value, or compensate the non-titled/non-owner spouse for his/her share of the value, is a topic for a future post.

For anyone who seeks, or might have to pay, alimony or child support, we consider income “from all sources” pursuant to the New Jersey Rules of Court and related case law. Many other states have similarly broad ways of calculating income. There can be a drastic but legitimate difference between the amount of a business owner’s income that is taxable and the amount of total income that the court will consider for purposes of alimony and child support. For example, business owners frequently and reasonably deduct automobile, cell phone, some meals/entertainment paid through the business. To the extent that these payments defray personal costs, the value of the benefit to the business owner can be added into taxable income when calculating support payments. More technically, some perfectly acceptable tax deductions, like depreciation on assets, do not actually reduce a business owner’s cash flow, and might also be added into taxable income. Then, in more complicated cases, there may be issues of whether all receipts were actually reported to the taxation authorities, which I will address in a future blog post.

Earning, spending and sharing money can be complicated. If you own your own business, and have questions about how it will be discussed in your New Jersey divorce, alimony or child support case, please do call us at Lesnevich & Marzano-Lesnevich, LLC: (201) 488-1161.

If you have questions about your rights in other states, we can help you find a qualified attorney to assist you too.

This blog is adapted and reprinted with permission from Lesnevich & Marzano-Lesnevich, LLC. The original version appeared on on July 21, 2014.

Like this post? Please follow Amanda S. Trigg, Esq. on Twitter @AmandaFamilyLaw.

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