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Business owners: Paying yourself a good salary helps in divorce

You own a business. You know that a chief executive officer (CEO) in your position would be paid about $100,000 per year. Your company makes enough, but you don't want to pay yourself so much. You'd rather make $40,000 and put the other $60,000 back into your company.

From a business perspective, this might make sense. If you can still pay the bills and make ends meet, why waste money? Putting that extra cash back into the company helps it grow.

When you get divorced, though, you may start wishing you'd paid yourself more.

The problem is that your spouse could claim your company deprived the household of money that should have gone to him or her. When splitting up assets, your spouse will want compensation for that perceived loss. Essentially, your spouse may claim that you "earned" $100,000 per year and then took $60,000 every year for your company. Splitting up the assets your family controls, even at 50-50, wouldn't be fair since you kept the majority of the earnings for yourself.

This can also play a role when trying to determine spousal support or child support. You may consider your income to be $40,000 per year, but your spouse may disagree. He or she may say that support should be based on what you actually earned, claiming your income would be far higher if you didn't keep sending it back to the company. Basically, your spouse is saying you're using the company to hide some of your true income.

As you can see, dividing assets may not be as straightforward as you assumed it was going to be. While moving through a divorce, be sure you really understand your legal rights and obligations, especially if you're worried that the divorce could be detrimental to your company.

Source: National Federation of Independent Business, "A Small Business Owner’s Guide to Divorce," accessed Aug. 25, 2017

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