It is not uncommon for self-employed parties or parties with ownership interests in a business to have some expenses paid for by the business. Examples may include paying their cell phone bill, car payments or repairs, travel expenses, entertainment costs, membership dues, etc. Many of these expenses can subsequently be deducted as legitimate business expenses in terms of preparing a business tax return however, they are treated differently in the context of family law. The issue of how personal perks are being paid often arises when trying to identify income available for child or spousal support. The value of some of these “business expenses” can be added back to a party’s income for purposes of a support calculation.
Business perks are also relevant in the context of a business valuation. An income based approach is most popular for small businesses. This method of valuation focuses on the cash flow of the business. The reasonable compensation of the party owner should be deducted from the cash flow of the business in doing a valuation however, the personal perks paid by the business on the owner’s behalf would need to be accounted for and subsequently, necessary adjustments would need to be made. Removing all expenses representing personal perks paid to the owner will increase the total income of the business and in turn, increase the value. If there is more than one owner a similar review of what business expenses are actually personal perks should be done for the other owners as well.