A spouse’s ownership interest in a business is often the most valuable asset in a divorce. In most cases, the owning spouse retains ownership of the business. The non-owning spouse does not obtain ownership. Instead, he or she receives compensation through other assets for the business value. The central question then, is properly valuing the business. This requires detailed review of historical financial statements, income tax returns, and governing documents, along with application of accepted accounting principles.
It is never enough simply to review the business tax returns, or the owner’s personal returns. First, tax returns depend on the information the owner uses to complete them. If the owner did not disclose all income, or inaccurately listed expenses, the tax returns are useless. Second, tax returns only show income and expenses for tax purposes. Tax returns do not show the actual income that goes into the owner’s pockets. The returns also do not show the actual income available to the owner, even if it is not paid. The tax returns are a good start, but mainly serve to raise questions that a deeper review of business documents should answer.
We have extensive experience in determining the true income and value of a business, and have successfully represented both the business owner and non-owner spouses to ensure a fair outcome. Attorney Kowalski also served as the program chair for the Wisconsin State Bar presentation entitled: Determining Business Income and Valuation at Divorce.