Marital Disputes - Navigating Divorce and Taxes
A divorce between high net worth individuals with business and financial ties can significantly alter the financial positions and tax situations for everyone involved.
Cendrowski Corporate Advisors focuses on sensitive client needs by providing a comprehensive analysis of the financial aspects of each case, supporting law firms and their clients with business valuations, tax implications, and lifestyle analyses for cases that involve child support and alimony. Our divorce dispute valuation services also include:
- Income analysis
- Net worth determinations
- Advice on economic and tax issues
- Trial testimony
Client Success: Business and Income Valuation for Divorce Dispute
During a valuation engagement for a divorce case, the opposing spouse and his brother were the majority owners of several fast food operations of a small franchise chain. We were engaged to determine the value of the businesses and the cash flow received by the opposing spouse.
Through discovery, income tax returns with depreciation schedules were obtained along with franchise agreements and depositions of the franchisor and a minority owner. The tax returns reflected a lack of proper accounting procedures spanning over two decades. The gross value of each operation’s property and equipment (depreciable) assets never changed from the original tax return on any franchise operations.
More importantly, the franchise fee per the franchise agreement was a flat 2% of sales. However, the franchise fee paid per the tax return usually exceeded 3% of sales every year. By recomputing income based on a 2% franchise fee, revenue was calculated to be understated by millions of dollars a year, exceeding eight figures over five years. The opposing spouse’s share of the unreported income was a high six figures annually and mid-seven figures over the five years of tax returns. Based on the implied income of the opposing spouse and under-reported taxable income, a substantial settlement was provided to the opposing spouse within ten days.