When parties get divorced, it must be determined what contribution is to be made towards the costs of caring for and bringing up the children and whether, in addition, a contribution is to be made towards the ex-partner's living expenses. The income of the parties is important for this. But how is the income of an IB entrepreneur assessed?
The determination of alimony is based on the needs of the entitled party. The net disposable family income plays a role in this. In addition, the financial capability of the obligated party is taken into account. In other words: what can someone spare to contribute to the costs? The income of the obligated party is taken into account.
In case of an employee, the amount of income is fairly easy to determine, but it becomes more complicated when someone has his own company. In the case of an IB entrepreneur, the average operating result over the last three years is often taken into account.
Judges are increasingly aware that this is not always realistic because annual documents provide information about the past and not about the present and future.
Especially in uncertain times, such as during the current coronapandemic, it is good to take a critical look at what a business owner can actually withdraw from the company. The development of his profit and operating cash flow is considered important in this respect.
A downward trend in the operating result, for example, has already given cause in case law to decide otherwise and to take the most recent result as a starting point instead of the average result over the past three years.
Recently, the Court of Appeal of The Hague looked critically at what an entrepreneur could actually withdraw from the company. Earlier, this Court already ruled that taking the average result of the past three years as a starting point only fits the situation that the company of the obligated party has a buffer capital, which can be used to bridge a period when the financial situation is less favourable and sufficient financial means are available to make economically sound investments.
This case concerned a self-employed worker who provided IT services to companies on an interim basis. The entrepreneur wanted to set aside an annual sum of €15,000 to bridge uncertain times. In 2020, the entrepreneur had had no orders for more than seven months due to the coronapandemic, so he had to fall back on his financial reserves, which were still very small. The financial data showed that he was a one-man business with limited financial reserves. At the end of 2020, he had business assets of €33,965, including €22,973 in liquid assets. The entrepreneur was financially vulnerable. However, the entrepreneur now had orders again and the prospects were positive.
The Court of Appeal considered (again) that it is economically necessary for entrepreneurs who operate a business in the form of a sole proprietorship to have a buffer capital available to bridge uncertain times. The position of the entrepreneur to annually reserve €15,000 to bridge periods in which he had no assignments was considered reasonable and justified by the Court of Appeal. The Court of Appeal added that this is also in the interest of the maintenance creditor, because it is in his interest that not every drop in income of the entrepreneur has consequences for the amount of maintenance.
As an entrepreneur, make sure that this is invoked in alimony proceedings, so that the court does not automatically assume the average profit over three years.
Calculating the obligation of an entrepreneur to pay alimony remains a custom job. This often requires the assistance of an accountant who has a good view on the company.
Do you need advice in connection with your divorce or help calculating alimony? Then contact one of our lawyers. We will be happy to assist you!