The Double Dip Case and Business Valuations

Video Transcript 

My name's Robert Bonavito, New Jersey forensic accountant. This video is a part of a series of videos where I discuss forensic accounting topics for educational purposes only. If this was a litigated matter, I would take a different approach, have different conclusions based on different facts and circumstances.

Today I'm going to discuss Steneken v. Steneken, which is widely known as a double dip case. I talked with the attorney who tried this case and the reason it's important is because many small business owners feel that they're being taxed twice, once with alimony and once when they sell half their business. That's why you get the double dip issue in this case because what this case did was they tried, the husband tried to challenge the case and say, "Listen, I'm paying...I have a business and let's say I'm making $1,000 a year from my business and I have to pay alimony. And I pay $300 alimony and that money's coming from my business and then you value my business using that $1,000. Well, that's double dipping because she's getting the alimony and she's getting a percentage of the business based on the same cash flow." It makes sense, too, when you hear it that way, but if you really understand how a business valuation's done, that's not how it's done. When you value a business, you deduct compensation and then you get the cash flow. So the alimony in Steneken is being paid from that salary and the net cash flow is used to calculate the business.

You know, no one is in agreement on this case 100% but I do think that Steneken v. Steneken is proper law because I do think that the spouse involved is entitled to alimony from the business that's paid from the business owner from income he earned from the business. And she's also entitled, or he's also entitled, to a percentage of the business in most cases, under the facts and circumstances of Steneken. My name's Robert Bonavito. If you have any questions on this video, feel free to call me or email me.