In litigating many dissolution cases, a material issue is often the determination of the real income of one or both of the parties to the case. The reason? The existence of perquisites and/or fringe benefits.

It is common that a significant portion of the income generated from employment or by a self-employed business owner comes in the form of perquisites or “perks.”

In the case of employees, the perks are considered fringe benefits, which simply are additional compensation granted at the discretion of the employer. This includes such benefits as accrued sick pay, vacation pay, tuition reimbursement and employer-provided parking.

Fringe benefits provided by employers are not considered a gift but are earned by the employee as part of their compensation for services rendered.

Self-employed business owners, on the other hand, control the amount and nature of their perquisites, usually as a result of writing off personal expenses as business expenses for tax purposes. Medical and automobile expenses are common expenses that often fall into the perquisite category.

The proper determination and analysis of perks can affect the property division if one or both of the parties owns a business (i.e. when a business valuation must be performed) and for gross cash flow available for support.

Testing for Perquisites

Some benefits have a significant economic value that should be added into the spouse’s income when valuing a business and for calculation of gross cash flow for support purposes. Others are less significant, but still should be considered to the extent that they reduce the spouses’ living expenses.

Benefits that directly reduce the parties’ living expenses should be considered as additional non-taxable income for purposes of calculating gross cash flow available for support. In the case of employees, this could include such benefits as expense accounts, mileage reimbursements (to the extent they exceed actual business automobile expenses), meals, daycare, and the employer’s portion of pension or profit-sharing contributions.

One must determine which expenses are business and which are personal on an expense-by-expense basis. Reimbursement of expenses that are found to be personal in nature should be considered as possible add-backs to income.

Some expenses, such as medical reimbursements, are inherently personal. Other expenses may need to be allocated. For automobile expenses claimed, for example, it is important to ask such questions as, what is the distance between the party’s home and his or her place of employment? How many business meetings are attended in an average week, and what is the approximate mileage to get to and from those meetings? The goal of such questioning is to determine the actual business mileage incurred and deduct that from the total miles being claimed to determine the personal automobile mileage and therefore, the personal portion of the automobile expenses. (It should be noted that the travel between the home and the business is considered commuting mileage and is normally allocated as personal.)

Common perquisites include but are not limited to:
  • Automobile expenses
  • Entertainment
  • Travel
  • Education (non-professional)
  • Charitable contributions
  • Legal fees (personal/dissolution)
  • Accounting fees (personal tax preparation fees)
  • Life insurance
  • Disability insurance
  • Health insurance
  • Medical reimbursements
  • Pension or profit-sharing plan contributions

A Case Study

In some cases, it can be difficult to determine which expenses should be considered as personal or business. There are business owners who are particularly sophisticated in their understanding of financial accounting methods and who may intentionally conceal personal expenses while claiming them as ordinary and necessary business expenses. For example, in a recent case in which I was the designated expert, in addition to many of the common perquisites described above, I found:

  • Independent Contractors – The business owner coded more than $50,000 of expenses to independent contractors. Upon inspection, however, the expenses were for landscaping his personal residence, installation of cabinets in his personal residence, improvements at his personal residence, pool service for his personal residence, and maintenance of his personal residence.
  • Marketing – A review of the paid bills and general ledgers reflected that the alleged marketing expenses were actually Hallmark purchases and plumbing expenses for the party’s personal residence.
  • Dues & Subscriptions – This category included country club dues, which are no longer deductible as business expenses pursuant to the Internal Revenue Service’s rules.
  • Repairs & Maintenance – The client expensed more than $30,000 as repairs and maintenance, which, again, included costs for landscaping his personal residence, installation of water services at his personal residence, lawn care for the personal residence, installation of over 50 large trees and of windows at his personal residence, and other personal expenses unrelated to the operation of the business under examination.

In this particular case, the perquisites accounted for more than 32 percent of the total gross cash flow available for support. Had a thorough investigation into the nature of those expenses not been performed, that amount would not have been considered in the total gross cash flow available for support, significantly understating it.

Taxable or Non-taxable?

Once perquisites are uncovered, whether they should be treated as taxable or non-taxable depends upon the specific facts and circumstances of the case in question. Although case law exists that holds that the benefits should be included as taxable income, it is this writer’s opinion that the deductions from gross income for Federal and State income taxes should bear an accurate relationship to the tax status of the parties. Unless taxes are actually being paid on the perquisites, they should be considered as non-taxable.

An example of where a perquisite could be considered taxable would be dissolution-related legal fees. Once the dissolution has concluded, the expense would no longer exist and that portion of the business net income would be increased accordingly. The income would then be taxed as wages, or other business taxable income. This should be considered in any case where the category of the expense that is deemed a perquisite is non-recurring.

For most recurring perquisites utilized to reduce business income and provide a personal benefit for the operating spouse, it is appropriate to treat them as non-taxable. There are some benefits that have no specific direct economic benefit to the employee or business owner. Examples of such benefits would include:

  • Accrued sick pay, which cannot be converted to cash
  • Company-provided parking
  • Employer-provided health club
  • Ability to choose a flexible work schedule

To the extent that any of the aforementioned benefits reduce the party’s living expenses, they may be considered at the discretion of the court as additional income.


Perquisite testing is a complex issue, but the existence of perquisites can mean a significant adjustment to cash flow available for support. The practicing family law attorney should be familiar with the common types of perquisites and their affect on business valuation and gross cash flow available for support.


Ron J. Anfuso, CPA, ABV, CFF, CDFA, FABFA is a Forensic Accountant and expert witness in the Los Angeles area. He has over 19 years experience in the valuation, financial, accounting and tax aspects of marital dissolution matters, which includes conducting business valuations, gross cash flow analyses, and tracings, as well as performing Moore/Marsden and other dissolution-related accounting calculations. He is also a founding member of A Better Divorce, and has prepared over 40 collaborative law cases.