While it is standard practice that an asset will be valued and divided in a divorce, what happens when the same asset that was divided between spouses is also used to generate income for support? In such divorce cases, a seemingly unfair situation known as “double-dipping” may occur. Double dipping is a concept that addresses double-counting marital property as both an asset, and as a source of income from which to pay support. As noted in Wasson v. Wasson, double dipping “is not easily defined, and whether it is improper in a particular case must be carefully assessed.” (See here.)
The notion of double dipping commonly arises in the division of a business interest in a divorce, but also other instances involving income structures such as the division of stock awards, and, as seen in the recent case of Trethewey v. Trethewey, a transitional bonus payment. Because the practice of double-dipping is not prohibited, and may be permissible in some circumstances, strategies to avoid it are crucial. (See here.)
The recent case of Trethewey v. Trethewey is an example double-dipping. Here, husband received a $5 Million “transitional bonus” payment as part of his compensation package. The transitional bonus was treated as an advance payment of husband’s anticipated income, “earned” at the rate of $51,550.04 per month. In return, husband executed a promissory note to the new employer for the entire amount. Each month the husband remained in his new job the new employer issued a $51,550.04 credit against the promissory note. At the end of the specified period, the promissory note would reach zero. While this may have been a creative way to ensure husband remained with his new employment, the payment structure proved problematic when husband divorced. After trial, the judge divided the remaining $3.2 Million balance of husband’s bonus payment with the wife, but also ordered husband to pay wife alimony based upon the $51,550.04 credit he was receiving each month. To add insult to injury, husband was assigned responsibility for the entire balance of the promissory note to his employer. On Appeal, the Appeals Court corrected this double-dip: the Court reversed the award to wife of a share of the remaining $3.2 Million. But it preserved the alimony award derived from the monthly credit earned by husband.
The fact is the courts do sometimes make errors. That is why appeals courts exist, and that is why some decisions are indeed reversed on appeal. The configuration of husband’s income structure in Trethewey was unique, but the decision will be helpful in guiding future divisions of assets and income. While double-dipping is sometimes permissible, parties in a divorce should work closely with their attorney to delineate clearly between the value of assets and the income potential (if any) of those assets. The more clearly that assets and income are enumerated for the court, the less likely an unfair division will arise and, as a consequence, costly appeals may
be averted.
