We’ve all heard of the party faux-pas called double-dipping: using a single, already munched upon chip to scoop into a communal dip multiple times. However, this term is commonly used with divorce litigation as well, and the stakes are a lot higher.
What is double-dipping?
Double-dipping refers to when a single asset that has both “property” and “income” value is used to help create a fair division of assets and also as a source of income that is used to help determine spousal and child support.
Common examples of assets that people “double-dip” into include pensions and other retirement assets, stock options, and closely-held businesses and business interests.
For instance, someone who has stock options may have some of those assets “purchased” by their spouse during the marital property division, but at the same time, they are required to pay support based on the income they are receiving from these same stock options.
In this way, the individual is paying out twice from the same asset. Any time a marital asset is counted twice in the divorce process, during property division and when calculating alimony, it can be considered double dipping.
Double-dipping and case law
Different states view double-dipping in different ways, which can make it difficult to advance through marital asset division and spousal support calculations.
California, for instance, allows an individual’s pension to be considered in both property division and income support, while New Jersey does not and even has specific legislation forbidding this from occurring throughout the divorce process.
Some states distinguish between historic and future earnings when it comes to businesses and business goodwill, arguing that in these instances, double-dipping is not even possible because the property division is based on previous earnings and spousal support is based on future earnings.
When determining child support, the double-dipping argument gets even more complicated. Because the child(ren) involved are not able to purchase or stake a claim to any assets during property division, they are only able to benefit from the child support which is determined by these assets. While this might feel like double-dipping to the spouse who is paying child support, it is not accurate to say that the children themselves are double-dipping.
Ways to avoid double-dipping
When it comes to dividing assets in a divorce, double-dipping, just like reusing the same chip for more dip at a social event, seems unfair to the parties involved. In order to make things as fair and as smooth as possible for both parties, it is important to handle property division and spousal payments in a manner that prevents either individual from feeling like the other is double-dipping.
There are many ways through which courts can help both parties avoid double-dipping when dividing assets in a divorce:
Treating businesses as if they were dissolved
Rather than dividing business interests and business goodwill or figuring out projected business income, courts can treat a business as if it were dissolved when dividing the asset. This way, they can split everything equally between the two couples, and the business’ goodwill is not used to calculate alimony payments.
Divide pensions and stock options to the greatest extent possible
Lawyers can help divide pensions and stock options between both parties in kind to the greatest extent possible in order to make sure that both individuals will receive roughly equal amounts of income from these assets.
This way neither party can accuse the other of double-dipping when it comes to alimony payments.
Use business goodwill for alimony
If all parties agree, another way courts may prevent double-dipping is to use business goodwill and future revenue from the business for alimony. In this way, as long as the business is operational, this income can be used for alimony payments and is not included in the asset division, too.
Dividing assets into “principal” and “income” components
Parties can avoid double-dipping when dividing their assets by separating each asset into two different segments: a principal component and an income component. The principal component would be whichever portion of the marital asset was “purchased” during property division, and the income component would include any additional earnings and appreciation. Like in the option above, where business goodwill is used for alimony, this future income is used for spousal payments.
Working with the right practitioner
Like many aspects of divorce litigation, it can be complicated for individuals to make sure they are following all of their state statutes when dividing assets, calculating alimony, and trying to avoid double-dipping.
When going through a divorce, parties need to make sure their practitioner is able to showcase that they are well-versed in economic theory surrounding their specific case while also making sure they are remaining in accordance with existing case law and statutes.