Family Law: Income Streams, Valuation, and Divorce

How Divorce Can Affect Business Valuation

Stanley Morganstern at the Ohio Family Law Observer reports that recent case in Ohio illustrates the difficulty of valuing business assets in a divorce. Courts should avoid “double dipping,” or counting a business’ income toward valuation and spousal support. Instead, judges are to separate current and future income from the business’ material assets before making the calculation.

I previously discussed the issue of “double dipping” as it primarily pertained to the property nature and income component of retirement plans. As I mentioned, the issue is also relevant to business interests, particularly small business entities. The marital value of the business is to be divided as property, while the income stream generated by the business is often the source of child and spousal support. When the income stream is used as the basis of the business valuation, the double dipping occurs.

The parties in a recent Franklin County, Ohio case have been to the Court of Appeals three times regarding the double dipping argument. In the latest opinion, Morgenstern argues, the Court of Appeals agreed that the trial court followed its instruction not to double dip when determining the marital value of the business asset, but abused its discretion when determining the amount of reasonable and appropriate spousal support.