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Self Employment and Divorce

A growing number of couples contemplating a Pasadena divorce are finding that divorce and self employment make for an interesting combination.

The Internet has made it easier than ever for aspiring entrepreneurs to realize their dreams of self employment. Even people with regular full-time day jobs often have a source of secondary income from selling goods or services online. When a couple divorces, however, this self employment income adds special challenges to negotiating a fair settlement.

Self employment income is by definition very erratic. An entrepreneur might make thousands of dollars some months and have very little income during other months. If your spouse has been self employed for a long period of time, it may be possible to determine an average income based upon previous tax returns. If the business is new, however, an expert consultant may be needed to determine a good figure to use when calculating the amount of child support and/or alimony that is owed.

Self employment also presents opportunity for fraud in a divorce settlement. Listing personal expenses as business expenses, petty cash and inventory abuses are all common ways of hiding assets during a divorce. Large purchases, phony bad debt write-offs, or unrealistic salary levels may also be used to make a business look less profitable than it is. Sometimes, only an experienced forensic accountant can find these types of unscrupulous practices.

A "lifestyle analysis" is a good tool for making sure a settlement that involves self employment income is fair to all parties involved. This looks at the ways in which the couple was spending money throughout the course of the marriage to provide an accurate assessment of their current standard of living and what the expected standard of living post-divorce should look like. If self employment income represents a significant portion of the assets in your divorce settlement, your Pasadena divorce attorney will likely ask you to consider the added cost of performing a lifestyle analysis to be an investment in your financial future.

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