December 20, 2020

Divorce – Double Counting

            In virtually every divorce case the assets get split up between the spouses.  Frequently, income of one spouse is shared with the other as alimony or child support.  Sometimes it’s easy, a savings account is an asset and a spouse’s salary from an employer is income. 

            What if the wife is the sole owner of an accounting practice?  That is an asset that has value.  The husband might argue that value should be shared. What if the net income from the practice represented almost all of the combined income of the spouses? The husband might also argue that he should get alimony calculated by including the income from the practice.  But, you say, the value of the practice includes some desks and computers but is almost all based on capitalization of the income stream it produces.  Isn’t that double counting?  Can he get both a piece of the value of the practice and some of the income?  The answer is “maybe.”  It would depend on the totality of the couple’s financial situation.

            In a recent case, the trial court ordered the husband, who owned two related consulting businesses, to make an immediate cash payment to his wife of 50% of the  value of the business and, without regard to the property division payment, to pay alimony based upon his income at the time of the divorce.  The appellate court reversed that order because it would have been impossible for the husband to raise the money to pay for the business value and pay the monthly alimony.  So he would likely be in contempt the moment the order was issued.

            This comes up in many other contexts, for example, the value of a rental property and the income that it produces, and the value of a retired spouse’s pension and the monthly benefit payment.  There are different ways to characterize and analyze financial interests as assets, income or both, to address problems of double counting.  Working closely with your lawyer and sometimes a financial professional should enable you to present the facts in the most favorable light, create a smart financial settlement and in doing so avoid negative consequences like double counting.

This article first appeared in the December 16, 2020 edition of The Cheshire Citizen.

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