One issue that tends to come up when preparing a business valuation for family law purposes is the use of company funds to pay personal expenses for one or both spouses. Although this sounds like it can be detrimental to the other spouse, it should not necessarily be cause for great concern if the expenses are recorded appropriately. It is not uncommon for small business owners to have the company pay personal expenses and then charge these items to a shareholder loan account. Essentially the company loans money to the shareholder to pay these personal expenses. The shareholder is then obligated to repay this loan.

However, if the personal expenses are not charged to a shareholder loan account and are expensed in the company’s financial statements (i.e. treated as legitimate business expenses) the value of the business could be impacted especially if the business valuator is not made aware of these transactions.

One thing to keep in mind is that the company’s accountant will likely treat personal expenses appropriately and adjust for them at year-end if necessary (as long as they are aware of the personal expenses). However, if you find yourself in this situation, you may want to discuss with your lawyer whether it is necessary to confirm with the accountant that all personal expenses are in fact charged to the shareholder loan account.