Divorce and marital dissolution matters turn on financial questions rather than a damages claim: what income each spouse has available for support, what the business interests and other assets in the marital estate are worth for the division of the estate, and which assets are separate property. The economist normalizes the business's cash flow, values the business, determines income from the records rather than the tax return alone, and traces separate and marital funds through the accounts, presenting each analysis so that either spouse or the court can examine it.
In short
The analysis consists of the determination of each spouse's income available for support, including the cash flow a self-employed spouse draws from a business beyond reported compensation; a valuation of any closely held business or professional practice as of the date the governing framework requires; the tracing of separate property contributions and marital funds through accounts, real estate, and investments; a lifestyle analysis where the marital standard of living is at issue; and the present value of pensions, deferred compensation, and other assets that pay out over time. The drivers are personal and business tax returns, financial statements and general ledgers, bank, brokerage, and retirement account statements, compensation and benefit records, and account histories long enough to follow the funds at issue.
The business valuation is usually the largest and most contested figure in the marital estate, and the valuation date, the standard of value, the treatment of personal and enterprise goodwill, and the normalization of owner compensation each move it materially. Income available for support for a self-employed spouse can differ substantially from the reported figure once personal expenses paid by the business and cash flow retained in it are considered, and the owner compensation adjustment has to be carried consistently into the valuation and the income determination, because the same stream of earnings appears in both. Tracing outcomes depend on the completeness of the account records and on how the governing framework, whether equitable distribution or community property, treats commingled funds and the appreciation of separate assets during the marriage.
The economist starts from the business's financial statements and normalizes them for owner compensation, personal expenses paid through the business, related-party dealings, and non-recurring items, listing each adjustment with its source. The business or practice is then valued as of the date the governing framework requires, under the income, market, and asset approaches as the facts support, with personal and enterprise goodwill addressed where the framework distinguishes them. Income available for support is determined from the same normalized statements, adding distributions, perquisites, and cash flow retained in the business beyond reported salary, so the valuation and the income figure reconcile. Separate property is traced through the account statements from the date of contribution to the current holding, with each step documented and commingled funds classified under the framework counsel identifies. Pensions and deferred compensation are reduced to present value with the mortality and discount assumptions stated. Where the question is what a spouse who is not working, or is working below prior earnings, could reasonably earn, employability and attainable occupations are a vocational discipline: the affiliated vocational practice prepares that opinion, and the economist applies it to the support calculation together with published wage data. The report presents the valuation, the income determination, and the tracing as separate sections so each can be examined and used on its own by either spouse or the court.
Stage-by-stage guidance on working with a forensic economist in divorce and marital dissolution litigation.
Because a tax return reports taxable income after the deductions and elections the business took, not the cash flow the owner actually had available. The economist rebuilds the figure from the business's books and bank records: salary, distributions, personal expenses paid through the business, depreciation and other non-cash deductions, and cash retained in the business, and states the income available for support with each element shown so the other side can test it.
Both rest on the same normalized financial statements. The valuation restates owner compensation to a market level and treats the excess as earnings of the business; the income determination counts what the owner actually receives, including that excess. The report shows how the two figures relate so the court can decide how the governing framework treats an income stream that appears both in the value of the business and in the support calculation.
Enterprise goodwill is value that stays with the business regardless of who owns it; personal goodwill is value tied to the individual owner's reputation and relationships. Some frameworks treat only enterprise goodwill as marital property. The economist quantifies each where the distinction matters and explains the basis for the split.
Often, if the account statements are available. The economist follows the separate contribution through each account and transaction and documents the path. Where the records run out, the report states the point at which tracing could not continue rather than assuming a result.
Whether a spouse who is not working, or is working below prior earnings, could reasonably earn more is a question of employability and attainable occupations, which is a vocational discipline rather than an economic one. The affiliated vocational practice prepares that opinion, and the economist applies it to the support calculation with published wage data for the occupations and the area, so the income scenario rests on a stated foundation rather than an assumption.
Yes. The methods and reporting are the same whether the engagement is for one spouse, both, or the court, and the report is written so that either side can examine the assumptions.
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