A family-owned business is often the pride and joy of the owners. If the marriage begins to deteriorate, there’s a chance that the business will become a focal point of the divorce. While some might think that this is because the company’s fate has to be determined, there is another reason this occurs.
It’s possible that the spouse who’s familiar with the company’s finances might alter the books for it to make it seem like it’s not as profitable as it really is. This is informally known as sudden income deficit syndrome.
Why is sudden income deficit syndrome a problem?
One of the aspects of divorce that couples have to work through is property division. A company’s profitability has a role in this process, so it’s imperative that both parties have an accurate representation of this. When assets or profits are hidden, it puts the spouse who’s not familiar with the company’s financial matters at a disadvantage during the divorce.
How can a person hide a business’ profits?
There are several ways that sudden income deficit syndrome can occur. One such way this may occur is if there are fraudulent payroll or vendor accounts that filter money back into the owner’s personal one. Cash payments might not be reported appropriately. Expenses can be inflated. Assets may be titled to other parties. The possibilities are seemingly endless.
Anyone who’s going through a divorce that involves a family business should ensure that they understand the company’s finances. If you think that there’s a chance your ex is hiding income or assets through the business, then you should take steps to find out what’s going on. Your divorce team may need to include a forensic accountant who can look for signs of this.