Transfer pricing analysis applied to divorce and marital dissolution litigation: methodology, deliverables, and case-specific considerations.
In a divorce the transfer pricing question arises when a spouse's business trades with affiliates, often abroad, that the same owner controls: the prices it pays to or charges those affiliates decide how much profit the business reports, and with it both the income available for support and the value of the business in the marital estate. The economist identifies each related-party transaction from the ledger and the intercompany agreements, establishes the functions, assets, and risks on each side, measures the prices against comparable transactions or the returns of comparable independent companies, and restates the business's earnings by year. The restated earnings then feed the income determination and the valuation together, so the same profit is counted once, and the report presents the arm's length result as evidence of what unrelated parties would have agreed, for either spouse or the court to apply under the governing framework.
Economic analysis and expert testimony on whether the prices charged between companies under common control, for goods, services, the use of intangibles, and intercompany loans, meet the arm's length standard: the result unrelated parties would have reached in the same transaction under the same circumstances. The work delineates the transactions from the intercompany agreements and the companies' actual conduct, selects the most reliable method, documents the comparables and the arm's length range, and quantifies what the price moved, for tax examinations and appeals, Tax Court and refund litigation, state tax disputes, and commercial, shareholder, and divorce cases.
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.
We issue the final report in the form the forum requires and provide deposition and trial testimony, critique of the opposing transfer pricing analysis, and updated calculations as the record develops.
Each state page adds the courts, the expert standard, and the legal framework the report is built around in that venue.
When the business a spouse controls buys from, sells to, or licenses from affiliates the same owner holds, the prices set between them decide where the group's profit is reported. A price above or below what an unrelated party would have agreed moves profit out of, or into, the business whose income is at issue. The economist measures the prices against comparable transactions or companies and restates the business's earnings, so the support calculation rests on an arm's length figure, with each restatement shown line by line.
It can, because the valuation capitalizes the same earnings the restatement corrects. The economist carries the restated earnings into the income approach and reconciles them with the income determination, so the profit an intercompany price moved is counted once, and shows the value with and without the restatement so either spouse or the court can see what it contributes and whether the governing framework adopts it.
Request a consultation on Transfer Pricing or call (201) 343-0700. Plaintiff and defense counsel.