If you are the sole provider of your marriage, you may find yourself paying spousal support after your divorce. While the judge will weigh multiple factors into the amount you pay, your income will play a significant role. But when you own your own business, a poor valuation can cause your salary to seem higher than it is.
When you have someone determine the value of your company, you may find yourself subject to “double-dipping.” If the appraiser counts a flow of income for both your salary and the business’ value, you may end up paying more support than is necessary.
The value of your business will be a significant part of your divorce
As a business owner, your company’s valuation is an important part of divorce proceedings. The court will use the assessment when deciding on property division, child support and spousal support.
A valuation will tell the judge the market value of your business. It also includes the amount of salary you should receive. Even if you pay yourself a salary different from what the appraiser determines, the court can use the appraised amount.
An appraiser that double dips counts excess income twice
However, you can run into issues if you pay yourself more than a reasonable salary for someone in your position. An improper valuation can cause excess money to contribute to the value of your business, as well as your salary.
This error happens when the appraiser values your business with a reasonable salary going towards you but values your income based on what you currently pay yourself. The difference between your current income and the reasonable salary is an excess that should only apply to the value of your business. Instead, you end up counting the excess twice, for both your company’s worth and your salary.
A fair valuation avoids double-dipping
To prevent double-dipping, you should always get an appraisal from someone experienced in business valuation for divorce. A proper assessment not only prevents you from paying extra spousal support but also ensures your company has a fair value for property division.