Valuing the interest has its own set of considerations, but when the non-owner spouse is also seeking spousal support payments (or alimony) post-divorce, the complexities compound. After the value of the business interest is determined, the potential for a "double-dip" exists.

 The general concept behind the double-dip argument is that a non-owner spouse cannot attempt to collect spousal support that is calculated by considering the future income stream generated by the business, if the value of that income stream has already been valued and divided as part of the marital asset division portion of the divorce.

This issue may be best observed through a review of the Ohio case of Heller v. Heller. The litigation began in 2004 and involved the couple divorcing after a 30-year marriage. The primary asset was the husband's 39.5% interest in a closely held firm. The husband drew a base salary of $300,000 per year plus an annual bonus because of his ownership interest. The annual bonus provided for the husband's total earnings to range from $356,000 to $872,000 over a five-year historical period.

Experts retained by both parties valued the interest by considering the normalized income it produced, after first deducting $300,000 of reasonable compensation for the husband's labor efforts. After determining the value of the husband's interest, the court divided the value of the asset, awarding the interest to the husband and other assets to the wife. The next step was to determine spousal support.

The Ohio trial court originally awarded spousal support of $8,000 per month, based on Husband's "normalized" compensation (for labor) of $300,000, as that was the amount that both financial experts opined was reasonable during the valuation analysis. Then, the court ordered Husband to pay as spousal support an additional 20% of his annual income (that exceeded $300,000) to account for "the unpredictable nature of the husband's income from the company in excess of his salary."

The husband appealed the decision, arguing against the court's double-dip when awarding the wife with both 1) 50% of the present value of the husband's share in the future profits of the business via the valuation and division of the marital property; and 2) a 20% share (via spousal support) of the future shareholder distributions from the company. The appellate court cited to the Ohio statutory requirement to "equitably divide" marital property "prior to making any award of spousal support... and without regard to any spousal support so awarded". On two subsequent remands and appeals, the trial court again awarded the wife with property and spousal support awards which failed to address the appellate court's concerns and/or direction. The most recent appellate decision was in October 2011.

Court opinions surrounding the double-dipping dilemma have often been ambiguous or non-definitive and can vary state by state. No set formula or rules govern the division of the marital estate, and courts are often in the position to divide property on a "fair and equitable" basis, given the circumstances of the case. Understanding the concepts involved in double-dip situations, as well as the defenses to this type of argument is critical for the business owner to understand. A financial expert well-versed in valuation principles can analyze this potential double-dipping issue and make the most appropriate and logical presentation to the court.

The IRS just recently issued final regulations ("Regulations") that require information reporting for interest on deposits maintained at U.S. offices of certain financial institutions and paid to certain nonresident alien individuals ("NRA"). The Regulations are generally applicable to payments of interest made on or after Jan. 1, 2013.

Generally, NRA's are not subject to U.S. tax for the interest income received from certain U.S. financial institutions if the interest is not effectively connected with the conduct of a U.S. trade or business. Accordingly, such interest income is neither subject to NRA withholding nor reporting requirement. Under the Regulations, such interest income of NRA's are still exempt from U.S. tax but are required to report to IRS by U.S. financial institutions. For reporting purpose, U.S. financial institutions are entitled to rely on Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding) in which NRA's are required to declare their foreign residencies.

The Regulations were issued in response to the latest international tax enforcement developments including enactment by the U.S. of the Foreign Account Tax Compliance Act ("FATCA") and the increase in Treaties and Tax Information Exchange Agreements ("TIEAs") throughout the world. FATCA requires that foreign banks and other financial institutions report to the IRS with regard to their U.S. customers. Treaties and TIEAs allow the U.S. government to exchange tax matter information between countries. Ultimately, the Regulations will enable the U.S. government to clear obstacles of collecting information such as taxpayer's foreign assets and income, and enforce the taxation of world-wide income of U.S. taxpayers.

As U.S. taxpayers, now is a good time for us to prepare to go global with IRS. Consider the following questions:

1)      Do you have any foreign assets or ownership interest?

2)      Do you have any foreign business partners, vendors or lenders?

3)      Did you receive any gift or inheritance from a foreign individual or entity?

If you answered yes to any of these questions you have obligations to report to an U.S. government agency such as IRS and/or Department of State. Have you met all of your reporting requirements?

For more information or questions on this topic, please contact your professional at UHY LLP in Farmington Hills (248) 355-1040 or Sterling Heights (586) 254-1040, or visit us on the Web at uhy-us.com.