DIVISION OF ASSETS
This is a common river to navigate where a business exists.
There is a house with equity of approximately $200,000, IRA accounts totaling $80,000, and a stock portfolio worth (depending on the day) approximately $400,000. Each spouse has a leased vehicle (Bob a rather stodgy Buick) and Nancy the usual family van. The monthly payments for each vehicle are roughly the same.
Bob has an S corporation for the business. He has a stickler for an accountant who will allow no nonsense with any perks. Bob has a salary of $125,000.00 a year – because his accountant informs him it is “reasonable” when all is considered. The Profit – after all expenses and Bob’s Salary – is $100,000 a year. They acknowledge they have lived well on the Bob’s Salary and the Corporate Profits.
They decide the house is too expensive once they are divorced. It will be sold and the assets split – or otherwise used to equalize the division of property. The IRA’s will be split. The stock portfolio will also be split – or used to equalize the division of property.
The Jointly Appointed Business Valuator Values the Insurance Business at $400,000.
The attorneys and clients then assume a common position.
Nancy’s Attorney proclaims that once the division of assets is agreed to they can work on spousal support and child support – using the combined salary and profit of $225,000 a year.
Bob’s Attorney looks scornfully at Nancy’s attorney muttering something about forests and trees. Bob’s Attorney then stands ramrod straight (all 5 foot 7) as he shouts out “THIS IS NOTHING LESS THAN THE CLASSIC DOUBLE DIP!”
He calls in the business valuator and asks the following:
Bob’s Attorney (BA) “You considered that Bob made $125,000 a year as salary and $100,000 a year as profit and came up with a value of $400,000 for the business?”
The valuator nods affirmatively.
Valuator (V) “He has a salary, which is quite appropriate at $125,000, and profit of $100,000. We used black box 1 which said the value of the business was $400,000.”
BA “That’s it?”
V “Oh no. We added the salary of $125,000 to the profit of $100,000, coming up with a total of $225,000. We used black box 2 which said the value of the business was $401,000. We rounded down to $400,000 to be conservative”.
BA “Wouldn’t you call that a double dip?”
V “Not in my job description. We just crunch the numbers. You can do what you want after that.”
Next Edition – The Answer