Double Counting

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It Need Not Be Rocket Science
It Need Not Be Rocket Science

A business, professional practice, or (until recent statutory amendments) license may be valued as a asset for divorce purposes based upon the amount of income it generates for the owner/holder. That asset may then be equitably distributed by granting the non-owner a monetary award equal to some percentage of the value.

Double-dipping, or double-counting, is the term for using the same stream of income both to value the business/practice, and then, after distributing an award to the non-owner based on the asset’s value, using the stream of income generated by the business/practice to base an award of spousal support (or child support, for that matter). If the non-owner spouse receives a “piece” of the income stream as an asset award, should the spouse get another piece as spousal support (maintenance)?

The “law” is yes, no and maybe. There is a rule against double-dipping, except when there’s not.

For the most part, if the business/practice is recognized as a “tangible asset,” just as the court would characterize a piece of real property, or publicly-traded stock, or a privately-held company whose income is a result of the work of many people, then it is generally held that the rule against double-dipping does not apply. The non-owner would get a distributive award based on the asset. Maintenance may also be awarded based upon the income generated by the tangible asset business. The rule against double-dipping rule does not apply.

If however, the business value is recognized as an “intangible asset,” then the rule against double-dipping applies, and the same stream of income may not be twice used.Continue Reading Double Dipping and the Distinction Without a Difference

For the second time in six weeks the Appellate Division, Third Department, reduced an award of spousal maintenance for the failure to adjust for the distributive award based on the husband’s business. In its October 22, 2015 decision in Gifford v. Gifford, the Appellate Division, Third Department, modified a maintenance award because of the trial court’s failure to adjust the husband’s income for computation purposes to account for the distributive award to the wife based on the husband’s business. In September, in Mula v. Mula, the Third Department held that once valued, the income attributable to ownership of a professional practice may not also be the basis on which to award spousal maintenance (see, the September 14, 2015 blog post).

In Gifford, the parties in this divorce had stipulated a resolution of Equitable Distribution issues, including a $210,000 award to the wife based on the value of the husband’s geotechnical engineer business. After a trial on maintenance on counsel fees, Supreme Court Justice Vincent J. Reilly awarded the wife nondurational maintenance of $6,000 per month from January 1, 2014 through January 31, 2020, $3,000 per month from February 1, 2020 through June 1, 2022, and $800 per month thereafter, terminating upon either party’s death or the wife’s remarriage.

The Third Department held that Justice Reilley erred in utilizing the husband’s total average annual income of $332,431 for purposes of calculating a maintenance award, without making an adjustment for the distributive award of the company.Continue Reading Double-Dipping: The Interrelationship of Business-Based Distributive Awards and Spousal Support

Rocket launch child.jpgIn its November 14, 2012 decision in Shah v. Shah, the Appellate Division, Second Department, held that Suffolk County Supreme Court Justice Mark D. Cohen did not improperly “double count” the income generated by the husband’s business when he awarded the wife four years of maintenance.

That business was started by the husband and a partner during the marriage, and was purportedly transferred by the husband for no consideration to his partner shortly before commencement of the divorce action. Justice Cohen awarded the wife 30% of the value of the husband’s interest in the business and additionally awarded the wife $4,000 per month for four years.

Among the issues presented on the appeal was whether the income generated by the business should have been considered when making that maintenance award.

Put differently, the question is (or should be) if the income generated by assets has already been “divided,” should that income again be “divided” through a maintenance award.

That issue became focused when the Court of Appeals in Grunfeld v. Grunfeld (94 N.Y.2d 696 [2000]) recognized the inequity of double-counting income, at least when awarding maintenance after the asset value of a license or degree has been divided. In 1985, in O’Brien v. O’Brien (66 N.Y.2d 576), the Court of Appeals had determined that New York would be unique and recognize the enhanced earnings attributable to attaining a license or degree as property to be divided upon a divorce. Earnings enhanced during the marriage through some achievement are an intangible asset capable of being divided.Continue Reading Income Generated by Tangible Assets Divided in Divorce Is Considered on Maintenance Award