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June 2016

Lifestyle vs Profits

In many marriages it is still common for one spouse to assume the money management role during the life of the marriage and seldom do both spouses have equal knowledge of the couple's financial affairs.

We are often instructed in the early stages of matrimonial proceedings in matters where one party, used to a very good lifestyle, cannot reconcile this with the financial picture their spouse's business appears to show.  Very often what we see is that the lifestyle a business has managed to support does not always equate to a valuable business or income stream.

In these cases careful enquiries are needed and the explanations tend to be one or more of the following:

  • Cash drawings have been high but are not supported by underlying profits.  This can often occur when the business has been building up debts at the expense of its creditors, including HMRC.
  • There are under-declared takings in the business:  Care is needed in this situation as in addition to any Money Laundering considerations, the potential impact of tax liabilities arising on the family may significantly deduct from the amounts available to fund any settlement.
  • The effect of economic or market changes on the business that impact on the success and profitability of the business.
  • Benefits for a party or indeed both parties that have not historically been properly recorded or declared, for example a motor vehicle that was a pool car not being recorded as a director's benefit on P11D's.

In our experience there is invariably an explanation, and that enables us or our instructing solicitors to explain the circumstances to the client so avoiding incurring unnecessary costs or building unrealistic expectations.

To discuss this further please contact us on 0121 711 2468.