One of the best things a business owner can do when confronting a personal divorce is to maintain great records. Same as with an IRS audit, your books can be your best friend or your worst enemy in a divorce. You must do everything you can to no commingle your business and personal lives. Maintaining accurate records can help show, for instance, that although you own six phones, only two of them are used for business purposes, which is totally legitimate.
Maintaining Proper Business Records in a Divorce
I have seen many an incongruent record in my career, particularly when it comes to business owners. I have even seen individuals pay alimony or child support from business accounts. Forget the family court system, can you imagine how that would look to an auditor with the IRS?
Although I am not a tax attorney, a CPA, or otherwise a tax expert, there can be no doubt that tax implications and tax records make up a large portion of my work week. Although you will want to obtain the advice of a tax attorney or CPA, for your specific business, here are a few basic principles to keep in mind when separating mine/ours/and business expenses.
- What is generally acceptable for your business, shall remain so even with a divorce pending. For instance, keeping all your records separate, with designated business and personal bank accounts, and paid in a timely manner should provide no issues as your divorce progresses.
- Conversely, what is generally not acceptable from a tax perspective, will likely not be acceptable in a divorce law setting either. For instance, paying your new girlfriend an inflated salary, to reduce your business expenses (and potential alimony and tax obligations) will only lead to problems later on, perhaps even of a criminal nature should someone raise a racketeering allegation, which are becoming increasingly common in a divorce. Likewise, do not pay for your daughter’s braces out of a work fund. No good can come from commingling, strictly legal or illegal.
- Be careful with payroll, particularly when paying friends, family, or significant others (currently known or unknown). (See above.)
- Retain experts such as tax attorneys and CPA’s to help you through the process and add legitimacy to your records.
- Anticipate that the other side will question your expenses, the timing of large capital improvements, etc. Use common sense when making decisions and maintain records of why certain business decisions were made to help avoid allegations of impropriety.
- Store your records in a safe place.
- Do not destroy records, even with the best of intentions.
- When feasible, attempt to keep your significant other informed of any major changes to your industry, your company, etc.
Conclusion
The above is by no means an exhaustive list, though it will provide you with a good starting point for these types of issues. Remember that you are operating in an arena of eroded trust, which will only make the scrutiny of your records, decisions, and business habits all the greater. By utilizing experts, doing the right thing, and maintaining proper records, you can help assuage any concerns the court may have and move forward with your divorce in a more efficient manner.
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