When a couple is divorcing, one type of asset that the couple might own jointly is a privately owned business. If this is the case, you'll have to watch out for an issue known as double-dipping. This problem arises when attempting to value a business and can make the process much more complicated.
How Double-Dipping Works
Double-dipping is a situation in which an asset is counted twice. It is counted once for the division of property and is counted a second time as an income stream, which is used to determine spousal support and child support.
Business Valuation
One of the most common valuation methods that leads to double-dipping is income approach. Income approach involves two inputs: the future earnings of the business and rate of return that the investor requires for compensation, which is risk-adjusted. The sustainable earnings stream is divided by the rate of return to determine the value estimate.
Because the income approach is the most likely to lead to double-dipping, using one of the other three valuation approaches can reduce the odds of double-dipping. The cost approach of valuation doesn't usually lead to double-dipping unless intangible assets are valued under a derivative. The market approach is also less likely to lead to double-dipping.
Retirement Assets
If you own retirement assets, double-dipping can also become a factor. The retirement assets are divided during the divorce. Then, the retirement asset may begin paying out and this would be considered an income source for the purpose of spousal support.
Double-dipping exists because you may have two separate obligations. Assets are divided because a marriage is considered an economic partnership, and both partners have equal rights to the property. Alimony and child support are a separate obligation that is based entirely on income.
Child Support
In some cases, the courts may rule against the double-dipping practice. However, they are more likely to allow a double-dip when you have child support obligations. In this case, the courts are more concerned with whether or not the double-dip is in the best interests of the child. The goal is to maintain the child's previous standard of living before the divorce.
Because the decisions you make can affect how much money you'll have after a divorce, it is important to speak with a divorce lawyer regarding the best approaches you can take. A business or professional practice is often the most valuable asset.
To learn more, contact a family divorce attorney.
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