Thanks to the Tax Cuts and Jobs Act, signed into law at the end of 2017, businesses will experience dramatic tax cuts. Those tax cuts will not only have a positive impact on a company’s bottom line, but will significantly affect the company’s value. If you’re an attorney and have a matter where a business valuation comes into play, or a business owner who is thinking of selling, it’s essential that you know how business values could change as a result of the new tax law.
Now that the Tax Cuts and Jobs Act has been signed into law, we can start to examine its impact on family law attorneys and their divorce clients. As a result of the sweeping tax reform, family law attorneys will need to reconsider the financial strategies they use for their divorce clients.
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Family law attorneys could see some big changes in the treatment of alimony and business valuation thanks to proposed tax legislation that is making its way to the Senate floor.
Prior to the Tax Reform Act of 1986, a C corporation could sell its appreciated assets, or liquidate, and avoid any tax inside of the company. The shareholder would only pay a single capital gains tax.
In a recent case, Gross Mendelsohn was asked to value a franchisee with three separate locations, including an unused license for a fourth location. During early 2010, there was a disagreement between the four franchise owners regarding the expansion of one of the locations. Since two of the owners (our clients) wanted to move forward with the expansion and two of the owners did not, the state statute required the determination of a buyout price as of the date of dissociation, which was set as March 10, 2010.
When valuing a business as part of a divorce proceeding, it’s critical to understand the distinction between personal and enterprise goodwill. Knowing how to distinguish between the two could have a significant impact on the financial outcome of the case.