Determining the equitable value of a business that is at the center of a divorce case can be a tricky situation, particularly when spouses have differing opinions about what that value should be. No doubt that is why most attorneys turn to a forensic accounting expert who has served as a marital dissolution accountant and a business valuation expert to determine a fair value for the business.
“We’ve all been in situations where we know inherently that circumstances dictate we rely on a professional with experience in the matter at hand. Handling a business valuation in a divorce proceeding is one of those situations,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides marital dissolution and business valuation services in Philadelphia and the Delaware Valley. “The spouses may not agree on the value of the business and their attorneys may have partisan opinions as well. What it boils down to educating everyone involved on how a forensic accounting expert addresses valuation issues in a divorce.”
Anderson, a Certified Valuation Analyst and marital dissolution accountant in Philadelphia and the Delaware Valley, said there are four distinct business valuation issues that surface regularly in marital dissolutions. They are:
- The cost of the in-spouse’s services to the business being valued (the in-spouse is the spouse who owns the business interest being valued as opposed to the out-spouse who does not have ownership in the business);
- Personal goodwill and its impact on the business being valued;
- The presence and impact of unreported cash sales;
- Personal expenses charged to the business.
This article, the last of a four-part series, will explore the issue of personal expenses charged to the business.
Anderson said it is common for in-spouses to charge non-business-related expenditures to a business and just as common for them to become an issue in a divorce case. Anderson, a business valuation expert whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley, said a forensic accountant must analyze the expenditures and deduct them from the business’ expenses.
“I had one extreme case in which an attorney in-spouse charged his business more than $150,000 for shore house renovations that included the addition of a movie-screening room,” said Anderson, a Certified Valuation Analyst forensic accounting expert in Philadelphia and the Delaware Valley. “The attorney claimed he needed a comfortable, presentable place to work when he visited the shore house, and that business-related visitors needed to see an upscale home office that fit his reputation. I reduced the expenses of the business by the entire cost of the renovation.”
In another case, explained Anderson, a divorce accountant and business valuation expert who provides a full range of forensic accounting services in Philadelphia and the Delaware Valley, said the in-spouse was a wholesale distributorship owner who attended semi-annual meetings of a trade association. The in-spouse always brought the out-spouse (because some colleagues also brought their spouses) and their two children (because they did not want to pay a babysitter). The in-spouse charged the business for the cost of travel, hotel rooms, meals and entertainment (including tickets to amusement parks, museums, etc.) for the out-spouse and two children — the same amount that Anderson later deducted from the expenses of the business.
“There is no limit to the creativity some in-spouses will employ in justifying the personal expenses they charged to their businesses,” said Anderson. “Most divorce accountants have heard it all. That is not to say there are no legitimate reasons for charging seemingly personal expenses to the business. There are. And it is the forensic account’s job to figure out which of the expenses are justified and which are not.
This final post concludes the four-part series examining valuation issues forensic accountants consider in divorce cases.
If you are in need of a marital dissolution accountant in Philadelphia, or if you require any other services of a forensic accounting expert in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at firstname.lastname@example.org.
About David Anderson & Associates
David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services. Company principal David Anderson is a forensic accounting expert in Philadelphia with more than 30 years of experience in financial and operational leadership positions. He is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst. Anderson also has served as a divorce accountant or marital dissolution accountant in Philadelphia and the Delaware Valley.