In a recent webinar, hosted by the American Academy of Matrimonial Lawyers (AAML), high-caliber presenters examined provisions in the mammoth COVID-19 federal legislation that are of particular significance to family law practitioners (attorneys and business valuators).
The discussion took place on April 9, and the speakers were Michelle F. Gallagher (Adamy Valuations), a nationally recognized BV expert, and Brian C. Vertz (Pollock Begg), a divorce attorney specializing in complex child support issues, business valuations, and other divorce-related issues.
No double dipping: In broad strokes, the Families First Coronavirus Response Act (FFCRA) provides emergency paid-leave benefits for employees who work for an employer that has fewer than 500 employees and who are unable to work because they are sick with the virus, care for someone with COVID-19, are in quarantine or self-isolation, or have children who cannot go to school because of mandatory school closures.
Employers affected by the employee’s absence may apply for refundable tax credits (from payroll taxes) to offset the cost of this extra paid leave. The FFCRA provisions apply to wages paid beginning April 1, 2020, and ending on Dec. 31, 2020.
Specifically, if an employee cannot work because he or she has COVID-19, the employer may get a refundable credit at the employee’s regular pay, up to $511 per day, for a total of 10 days. For other employees, including those caring for someone with the disease, an employer can claim up to $200 per day for up to 10 days. Gallagher notes that the IRS is still working on the forms an employer has to submit to get reimbursed.
The CARES Act includes an employee retention credit provision that says an employer may qualify for a refundable tax credit of up to $5,000 for each employee’s wages paid from March 13, 2020, through Dec. 31, 2020. To be eligible, an employer’s operations must have been fully or partially suspended because of the crisis by a shutdown order from a governmental entity or because gross receipts dropped by more than 50% in comparison to the same quarter in 2019.
Michelle Gallagher points out that there is no double dipping in the sense that, if an employer uses wages to qualify under the FFCRA, it cannot also use the same wages to secure benefits under another provision, i.e., the employee retention credit.
Employers struggling to pay employees and stay in business may be eligible for SBA loans that may be forgiven in part or even entirely. Under the paycheck protection program (PPP), smaller businesses (those with less than 500 employees), sole proprietors, independent contractors, and self-employed workers may apply. The SBA will forgive loans if the employer keeps the same headcount of workers and wages for eight weeks after disbursement of the loan. For full forgiveness, only about 25% of operating costs may go to nonpayroll costs, including rent. Under recent SBA guidance, lenders must disburse the loan proceeds within 10 days of loan approval. The eight-week count for the employer begins with the first disbursement of the loan.
Gallagher notes there is also no double dipping as concerns the PPP loan. An employer who wants to take advantage of the loan cannot also receive an employee retention credit.
Valuation considerations: Both speakers note that it’s important to consider the impact of the various remedies available to business owners and individuals in a business valuation or in calculating income for spousal support purposes for divorce purposes. Find out what the effect of the crisis has been on cash flow and what legal remedies a business has taken advantage of. Consider whether the PPP loan might be a windfall for the business owner. Consider the valuation date, Gallagher says. If, in an ongoing case, the most recent valuation was for Dec. 31, 2019, it may make sense to alert the attorney on the case to explore the possibility of doing an updated valuation. Note that different states have different valuation date requirements (date of separation, date of trial), but that courts, in this extraordinary situation, may allow for an updated valuation (which means more work for the valuator).
Extra: On the PPP loans, the SBA just issued FAQs, which you can access by clicking here. Don’t forget to sign up for the AAML/BVR national divorce conference, September 10-12. Click here for registration information.