Instructor Blog - Financial Analysis

Q: How to look joint tax returns (and financial statements) when the spouse is not a guarantor?

A: The only thing that changes is the assessment of guarantee support if a spouse were not a guarantor for a loan to a company in which he or she is an owner. For example, in the case of a husband/wife partnership, the husband guarantees the loan and the wife does not. In such an instance, the key issue would be the husbands access to all the family assets in case he were compelled to honor the guarantee, and that is a legal issue that varies with local legal jurisdictions. Even if the husband had access to all family assets, he could be limited in their use by a nuptial agreement or some other agreement between the two parties about access to and use of family assets.

With respect to analysis, an analysis of business tax returns to identify the risk profile of the borrower would not be affected or impeded by the lack of a guarantee for the proposed loan.

With respect to an analysis of the personal tax returns to assess personal cash flow available to support company debt, nothing changes either. If the guarantor has limited access to family assets, he would presumably have limited use of any personal cash flow surplus to support company debt in a crisis.

Which points back to a legal issue, i.e., whether local law or personal legal agreements limit the guarantor's access to some percentage of family assets.