Closely Held Corporations – Alimony Awards Based Upon Actual Income, Regardless of “Normalized” Income

Where one or both parties to a divorce are employed by a closely held corporation, experts are typically retained to determine how much of the corporation each party should receive by way of equitable distribution. The supporting spouse’s income from that closely held corporation is also critical to the Court’s determination of an appropriate alimony award. Last week, the New Jersey Supreme Court held that an alimony award must be based upon the paying spouse’s actual income, even though that income may be different that the “normalized” income used by an expert to value the business for equitable distribution. In Steneken v. Steneken, the Husband owned a closely held corporation and paid himself a $200,000 annual salary. He presented an expert at trial who testified that the Husband was paying himself $50,000 per year over the market value for his services. Therefore, for the purpose of equitably distributing the corporation, the Trial Court relied upon the expert’s “normalized” income of $150,000 per year as part of the business valuation. However, the Court still based the Husband’s alimony obligation upon his actual $200,000 annual income. The matter reached the New Jersey Supreme Court, which held that it is proper to use the Husband’s normalized income of $150,000 for the purposes of equitable distribution, and his actual income of $200,000 for the purpose of determining his alimony obligation. Justice Rivera-Soto, writing for the majority, stated that the “interplay of those two calculations does not constitute double counting.” The holding barely passed by a 4-3 margin, with dissenting Justices concerned that the outcome of future cases under this holding might not recognize that a single income stream is used in both alimony and equitable distribution evaluations. This holding should have a significant impact upon the business valuation process. Experts for the supporting spouse should be guided accordingly in normalizing that person’s income.

• Category: Divorce, Uncategorized
• Tag: Divorce