Guest Blogger - “Double Dipping” in Divorce Matters
When a privately owned business is a factor determining the marital estate to be divided in a divorce, the value of that business needs to be determined. One of the more common approaches to valuing a business is an income approach. When an income approach is used, a business’s income is adjusted or normalized to determine the true economic benefit generated by the business. One of the more common adjustments to income relates to the owner’s compensation. For example, if an owner takes a salary much higher than a market rate for the job he or she performs, the amount of salary in excess of the market rate is added back to the business’s income to determine its value.
In this situation, if the owner’s entire salary from the business is used as a basis to determine maintenance or child support, the amount of “excess” salary used in determining the value of the business has been effectively counted twice. It has been counted once in the value of the business and once in the value or amount of maintenance or child support. This double counting is often referred to as “double dipping” in divorce matters.
Paul N. Wonch, MBA, CPA/ABV, CVA
Mr. Wonch is the business valuation specialist at K. B. Parrish & Co. LLP, an Indianapolis, Indiana CPA firm. He is an expert in the valuation of privately owned businesses and has testified as an expert in federal court. Mr. Wonch has completed 100’s of valuations for a wide variety of businesses. His business valuation experience includes valuations for estate and gift taxes, divorce, shareholder disputes, buy-sell, ESOP’s, etc. He can be reached via email at pwonch@kbparrish.com. For more information about K. B. Parrish & Co. LLP go to www.kbparrish.com.
