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UPDATE ON DOUBLE DIPPING
© 1997 National Legal Research Group, Inc.
"Double dipping" is a term used to describe the supposed unfairness that results when property is awarded to a spouse in equitable distribution but is also treated as a source of income for purposes of calculating maintenance or alimony.
Opponents of double dipping, also known as "double counting," claim that it allows the alimony or support recipient to dip twice into the same asset. Those who take the opposite view argue that alimony and equitable distribution are two distinct concepts, and that income produced by marital assets should not be ignored when gauging the financial position of divorced spouses for purposes of awarding alimony or support.
The question of whether one spouse is double dipping may come up at the time of the initial maintenance award, or it may arise when one spouse retires and files a motion to reduce his or her maintenance obligation. Double-dipping disputes usually center on pensions. In recent years, the debate over double dipping has spilled over into other contexts, such as assets other than pensions and child support.
Part I of this article examines case law that has condemned treating an asset as both a marital asset and as a source of income. Part II discusses the majority view, which permits consideration of a marital asset as a source of income in determining alimony or support.
I. Dual Consideration Prohibited
A rule against impermissible double counting was set forth by the Wisconsin Supreme Court more than 30 years ago in Kronforst v. Kronforst, 21 Wis. 2d 54, 123 N.W.2d 528 (1963). In Kronforst, the trial court divided the cash value of the husband's retirement trust nearly equally between the husband and the wife. The trial court also directed the husband to pay permanent alimony from his income, which was limited to disability payments and proceeds of the retirement trust. The Wisconsin Supreme Court held that it was proper for the trial court to divide the trust but error to include the husband's share of the trust in calculating his permanent alimony obligation. The court stated: "Such an asset cannot be included as a principal asset in making division of the estate and then also as an income item to be considered in awarding alimony." 123 N.W.2d at 534.
Another influential case was D'Oro v. D'Oro, 187 N.J. Super. 377, 454 A.2d 915 (Ch. Div. 1982), aff'd, 193 N.J. Super. 385, 474 A.2d 1070 (App. Div. 1984). In D'Oro, the court held that in a postdivorce proceeding, the husband's pension could not be considered "income" for the purpose of determining alimony. The court suggested that it would be unfair if the wife were able to assert what amounts to a double claim on the husband's pension. According to the court, "it would be inequitable for [her] to be able to include his pension income twice for her benefit, first for a share of equitable distribution, and second for inclusion in his cash flow determination of an alimony base." 454 A.2d at 916. The holding of D'Oro was subsequently codified by the New Jersey Legislature in a statute providing that once a retirement benefit "is treated as an asset for purposes of equitable distribution, the court shall not consider income generated thereafter by that share for purposes of determining alimony." N.J. Stat. Ann. 2A:34-23 (West Supp. 1997); see also Innes v. Innes, 117 N.J. 496, 569 A.2d 770 (1990) (payments generated by pension benefits that had previously been equitably distributed were not income for purposes of alimony modification).
The Florida Supreme Court likewise announced a prohibition against dual treatment of a pension as a marital asset and as a source of income for alimony. Diffenderfer v. Diffenderfer, 491 So. 2d 265, 267 (Fla. 1986); see also Bain v. Bain, 687 So. 2d 79 (Fla. Dist. Ct. App. 1997); Rogers v. Rogers, 622 So. 2d 96 (Fla. Dist. Ct. App. 1993).
A number of other courts likewise have disapproved dual consideration of a pension as both a marital asset and as a source of income. Walker v. Walker, 155 Mich. App. 405, 399 N.W.2d 541 (1986); Kruschel v. Kruschel, 419 N.W.2d 119 (Minn. Ct. App. 1988); Brown v. Brown, 574 So. 2d 688 (Miss. 1990); Colling v. Colling, 139 Or. App. 16, 910 P.2d 1165 (1996); Stemper v. Stemper, 403 N.W.2d 405 (S.D.), modified on other grounds, 415 N.W.2d 159 (S.D. 1987). For example, in Kruschel v. Kruschel, the Minnesota Court of Appeals condemned the dual consideration of pension benefits, arguing that such a double counting would allow the nonpensioned spouse to obtain more than was contemplated in the original property distribution.
The Colorado Court of Appeals stated that absent extraordinary circumstances a trial court may not order the use of property awarded to one party in a dissolution proceeding in order to pay maintenance awarded to the other party. The court went on to hold, however, that a trial court may consider a spouse's total resources, including those assets awarded in the property division, when setting the amount of maintenance. The decision thus appears to permit the consideration of previously awarded assets when determining maintenance as long as other income or assets are available to satisfy the award. In re Marriage of Gray, 813 P.2d 819 (Colo. Ct. App. 1991).
Assets Other Than Pensions. Courts have also guarded against the perceived evil of double dipping in cases involving assets other than pensions. E.g., Ghen v. Ghen, 575 So. 2d 1342 (Fla. Dist. Ct. App. 1991) (court erred by using husband's financial liability both to reduce the net value of his medical practice and to reduce his income for support calculation); Balven v. Balven, 734 S.W.2d 909 (Mo. Ct. App. 1987) (once the trial court determined that the husband's $400-per-month retirement bonus supplement was a marital asset and awarded it to him, the court was committed not to consider the bonus as a basis for determining the award of maintenance); Innes v. Innes (annuity payments purchased with the proceeds of an equitable distribution award were not income for the purpose of alimony modification to the extent that they reflected return of the principal as opposed to income generated by the principal); Overson v. Overson, 125 Wis. 2d 13, 370 N.W.2d 796 (Ct. App. 1985) (decree impermissibly distributed income-producing real estate holdings as both property and source of alimony); Hubert v. Hubert, 159 Wis. 2d 803, 465 N.W.2d 252 (Ct. App. 1990) (trial court properly refused to treat husband's accounts receivable as both a divisible asset and as a source of income for gauging support and maintenance).
The reasoning underlying the prohibition against double dipping logically applies to all equitably distributed assets, a New Jersey court decided. It held, accordingly, that on an alimony modification application all previously equitably distributed assets and all assets acquired with, by, or through equitably distributed assets are not to be deemed to be income for the purpose of determining alimony. Flach v. Flach, 256 N.J. Super. 333, 606 A.2d 1153 (Ch. Div. 1992).
Child Support. Some authorities go so far as to apply the prohibition against double dipping in the context of child support. Harmon v. Harmon, 210 Ill. App. 3d 92, 568 N.E.2d 948 (1991); Mabee v. Mabee, 159 Vt. 282, 617 A.2d 162 (1992); In re Marriage of Maley, 186 Wis. 2d 125, 519 N.W.2d 717 (Ct. App. 1994).
In Mabee v. Mabee, the Vermont Supreme Court held that the term "capital gains" in the state child support statute should be interpreted not to include the gain realized from the sale of an asset awarded to a husband as part of equitable distribution, to the extent that the gain reflected appreciation of the asset before the property division. The gain was really an asset an asset awarded to the husband rather than part of his income, the court decided.
In Harmon v. Harmon, the Illinois Appellate Court agreed with a noncustodial mother's argument that the monthly interest payments she received from the custodial father should not be used to calculate her net income for child support purposes. However, a different district of the appellate court later refused to follow Harmon, holding that Harmon should be limited to its facts rather than applied in a sweeping way. If Harmon does support a sweeping rule against considering a marital asset as income for child support purposes, it should not be followed, the court added. In re Marriage of Klomps, ___ Ill. App. 3d ___, 676 N.E.2d 686 (1997).
In In re Marriage of Maley, the Wisconsin Court of Appeals applied the rule against double counting in the child support context and held that a capital gain from the sale of real property awarded to the noncustodial spouse was not income for purposes of child support. Later, however, the Wisconsin Supreme Court discussed Maley and emphasized that the case did not adopt a rule barring dual consideration in all cases. Instead, the high court said, Maley urged a flexible, case-by-case determination of whether gains from the sale of an asset should be considered as income for child support purposes. Cook v. Cook, ___ Wis. 2d ___, 560 N.W.2d 246, 253 (1997).
Reverse Dipping. The traditional double-dipping scenario involves counting an asset twice, and the claim of double dipping is made by the payor spouse. But in a Florida case, Ghen v. Ghen, the double-counting allegation arose in the context of a business liability, and the double-dipping protest was made by the alimony recipient. The wife claimed, and the appeals court agreed, that it constituted impermissible double dipping for the trial court to use a $112,000 liability owed by the husband to Medicare both to reduce the net value of his medical practice and to reduce his income for support calculations.
Refinements, Exceptions, Modifications. An absolute bar against double counting can create inequities in particular cases, especially where the financial situations of the divorced spouses become drastically different. These inequities have caused some courts to refine their rule and carve out exceptions, persuaded others to modify their rule, and prompted at least one jurisdiction to execute an apparent about-face on the issue. Often, it seems the courts are primarily concerned with reaching a fair result.
Consideration for Alimony Purposes Allowed Once Value Realized.Some decisions hold that the prohibition against double dipping does not preclude consideration of a pension for alimony purposes once the pensioned employee receives pension payments equivalent to the value of the pension calculated as of the termination of the marriage. E.g., Staver v. Staver, 217 N.J. Super. 541, 526 A.2d 290 (Ch. Div. 1987); Walker v. Walker, 553 N.W.2d 90 (Minn. Ct. App. 1996); Pelot v. Pelot, 116 Wis. 2d 339, 342 N.W.2d 64 (Ct. App. 1983).
Consideration for Alimony Purposes Permissible with Respect to Postdivorce Contributions. Along the same lines, courts have held that the double-dipping prohibition does not extend to postdivorce contributions to a pension that was awarded to the employee. E.g., Bain v. Bain (rule against double consideration of a pension does not bar the trial court from considering the amount of the retirement payments attributable to postdissolution contributions); Olski v. Olski, 197 Wis. 2d 237, 540 N.W.2d 412 (1995) (the portion of a former spouse's pension attributable to postdivorce employment, and therefore not subject to division as marital property at divorce, may be treated as income for postdivorce maintenance obligations).
Consideration of Income from Previously Awarded Asset Permissible. In states that generally frown on double dipping, does the prohibition extend to the income from an asset awarded as part of equitable distribution? In Hommel v. Hommel, 162 Wis. 2d 782, 471 N.W.2d 1 (1991), the Wisconsin Supreme Court held that investment income from assets awarded as part of the division of property at divorce could be included in calculating the payor spouse's income for purposes of revising the maintenance award. This conclusion is consistent with the legislative policy of allowing for support to the payee spouse in accord with the needs and earning capacity of the parties, the court reasoned.
Consideration for Alimony Purposes Allowed Where the Pension Was Not Actually Distributed. If the trial court did not award the pension or other income-producing asset to either party in the property settlement, there can be no double counting. See Neubauer v. Neubauer, 433 N.W.2d 456 (Minn. Ct. App. 1988) (husband's pension could be considered a source of income because it was not mentioned in the dissolution agreement); Gibson v. Gibson, 437 N.W.2d 170 (S.D. 1989) (not error to treat pensions as factor in awarding alimony since trial court did not treat pensions as divisible marital property).
Consideration for Alimony Purposes Allowed Where Pension Payments Not Received. Some courts have concluded that the double-dipping complaint is premature if the spouse to whom the pension was awarded has not yet retired and begun drawing retirement benefits. E.g., Littleton v. Littleton, 555 So. 2d 924 (Fla. Dist. Ct. App. 1990) (not error to consider pension both as a marital asset and as a source of income for paying alimony where husband not yet retired); Carroll v. Carroll, 528 So. 2d 931 (Fla. Dist. Ct. App. 1988) (prohibition against dual consideration comes into play only when pension benefits are a present source of income for the party who is compelled to pay alimony).
Consideration for Alimony Allowed Where Pensioned Spouse Retires Early. Suppose a spouse with an alimony obligation retires earlier than expected and files for modification. Arguably, rigid application of the double-dipping rule may "cheat" the wife out of several years of alimony. This potential unfairness was recognized in Weaver v. Weaver, 172 Mich. App. 257, 431 N.W.2d 476 (1988), where the husband sought modification of his alimony obligation upon taking early retirement. The appellate court remanded to the trial court to determine whether the parties contemplated the early retirement when they agreed on their property settlement. If not, the alimony award should remain in force even if the husband had to dip into the money he was receiving from the pension awarded to him as part of the property settlement, the court said.
Similarly, in Horton v. Horton, 219 N.J. Super. 76, 529 A.2d 1034 (Ch. Div. 1987), where the husband retired at age 56 less than two years after the settlement agreement, the New Jersey court decided that the double-dipping prohibition does not apply when the pensioned spouse retires unexpectedly. However, Horton is no longer binding authority in New Jersey, in view of the state's subsequently enacted antidipping law. See Innes v. Innes, 569 A.2d at 779 (stating that the statute rejects Horton).
Turmoil Within States That Precluded Double Dipping. In some states where courts adopted the prohibition against double dipping, turmoil ensued:
Michigan In Walker v. Walker, one panel of Michigan's intermediate appellate court held that pension benefits awarded to the husband could not later be recategorized as income in determining his ability to pay alimony. Subsequently, several other panels of the same court have labored to distinguish that case where the equities of the situation seem to demand it. E.g., Weaver v. Weaver; Stoltman v. Stoltman, 170 Mich. App. 653, 429 N.W.2d 220 (1988); Lang v. Lang, 159 Mich. App. 429, 425 N.W.2d 800 (1988).
South Dakota In Stemper v. Stemper, the South Dakota Supreme Court condemned dual consideration of a pension as an asset and as a source of alimony, although it later modified its opinion and adjusted the wife's alimony award upward after noting that it had overlooked the fact that the husband had conceded the reasonableness of $200 per month in alimony. But in Gibson v. Gibson, the court stated that there was nothing wrong with dividing a pension plan and at the same time permitting alimony payments based on the income from that plan. The court noted that Stemperhad been modified on rehearing and that it had been "severely limited" by Hautala v. Hautala, 417 N.W.2d 879 (S.D. 1988).
Wisconsin The Wisconsin Supreme Court appeared to soften its rule against double dipping in a recent decision, Cook v. Cook. The court reviewed its own decisions on the issue of double dipping, including the seminal Kronforst case, as well as decisions by the Wisconsin Court of Appeals, and noted that because of the vast range of factual situations facing courts in dividing property and determining maintenance some cases have found it inappropriate to enforce an absolute bar against counting a pension in the property division and in the maintenance decision. The court cautioned against applying the double-counting rule in an inflexible way:
Such an inflexible rule runs counter to the equitable nature of these determinations and to purposes underlying the broad legislative authorization that the circuit court consider relevant financial information in dividing the property and setting the level of maintenance and child support. Rather, the double-counting rule serves to warn parties, counsel and the courts to avoid unfairness by carefully considering the division of income-producing and non-income-producing assets and the probable effects of that division on the need for maintenance and the availability of income to both parents for child support.Cook v. Cook, 560 N.W.2d at 252.
II. Dual Consideration Not Prohibited
Most courts have not adopted the rule against dual consideration of marital property as an asset and as a source of income, and more than a few courts have expressly rejected the rule. E.g., White v. White, 192 Cal. App. 3d 1022, 237 Cal. Rptr. 764 (1984); Krafick v. Krafick, 234 Conn. 783, 663 A.2d 365 (1995); In re Marriage of Klomps; Riley v. Riley, 82 Md. App. 400, 571 A.2d 1261 (1990); Raley v. Raley, 218 Neb. 644, 357 N.W.2d 470 (1984); Beyer v. Beyer, 64 Ohio App. 2d 280, 413 N.E.2d 844 (1978); Greer v. Greer, 807 P.2d 791 (Okla. 1991); McFadden v. McFadden, 386 Pa. Super. 506, 563 A.2d 180 (1989); Braderman v. Braderman, 339 Pa. Super. 185, 488 A.2d 613 (1985); Sachs v. Sachs, 163 Vt. 498, 659 A.2d 678 (1995); Moreno v. Moreno, 24 Va. App. 190, 480 S.E.2d 702 (1997); cf. In re Marriage of Gray (apparently permits consideration of previously awarded assets when determining maintenance as long as other income or assets are available to satisfy the award).
According to the California Court of Appeal in White v. White, the flaw in the double-dipping argument is that spousal support considerations are separate and distinct from property division precepts. The spouse who wants the pension benefits treated as income is not claiming entitlement as a co-owner, the court observed, but instead is asserting that those payments cannot be ignored when calculating the ability of the pensioned spouse to pay spousal support. Calling the double-dipping theory a "fallacy," the court said that while the argument has superficial appeal, `"in every case where one spouse receives permanent spousal support from the other spouse, the source is from the separate property of the paying spouse."' White v. White, 237 Cal. Rptr. at 767 (quoting In re Marriage of Epstein, 24 Cal. 3d 76, 91 n.14, 154 Cal. Rptr. 413, 592 P.2d 1165 (1979)).
Similarly, in Riley v. Riley, Maryland's intermediate appellate court declared that the double-dipping argument overlooks the difference, in function and nature, between alimony and equitable distribution. Alimony focuses on the future and is intended to provide periodic support to a financially dependent spouse following the divorce, while a monetary award focuses on the present and past and is intended to assure that the disposition of marital property upon divorce is equitable.
In In re Marriage of Klomps, the Illinois Appellate Court relied on statutory construction principles when it rejected a double-dipping claim. The statute in question, the court emphasized, required consideration of "the total of all income from all sources," minus specified deductions. 750 Ill. Comp. Stat. Ann. 5/505(a)(3) (West 1992). Retirement benefits of the sort received by the husband were not specified in the statute as a deduction, and nothing in the statute authorized excluding income simply because it was previously classified as marital property, the court declared, emphasizing that courts must give statutory language its plain and ordinary meaning. The retirement benefits at issue, the court said, were analogous to a business's accounts receivable, which are often used to assess the value of a business, whether classified as marital or nonmarital property.
Professor Grace Blumberg has analyzed the issue as follows:
Jurisdictions that have accepted the husband's "double dipping" argument have done so in conclusory fashion, without any elaboration of the issue or discussion of the parity question . . . . Once the property has been divided, a proper support determination requires that all the parties' income producing resources be taken into account. It is as immaterial that an income producing asset was awarded to one party in the property division as it is that an income producing asset was acquired before marriage or by inheritance or after divorce. That an asset qualifies, for any of those reasons, as a spouse's separate or individual property does not insulate it from the other spouse's support claims.
Grace G. Blumberg, The Relationship Between Property Distribution and Spousal and Child Support, in 2 Valuation and Distribution of Marital Property 41.07, at 41-69 to 41-71 (Gary N. Skoloff et al. eds., 1990).
Assets Other Than Pensions. Courts have rejected the double-dipping complaint in contexts other than the pension scenario. E.g., Clark v. Clark, 782 S.W.2d 56 (Ky. Ct. App. 1990) (wife did not effectively receive a double award when the trial court used a capitalization of excess earnings method to value the goodwill of husband's medical practice and also granted wife a maintenance award based on husband's future earnings); Baumgartner v. Baumgartner, 95 Or. App. 723, 770 P.2d 965 (1989) (not inconsistent to award husband his dental practice and also use the dental practice as a source of income for purposes of computing support obligations, since husband's ability to pay these obligations would not be diminished by considering his practice a marital asset).
Child Support. At least two recent cases have rejected a double-dipping claim when raised to reduce or defeat child support. In re Marriage of Klomps; Cook v. Cook.
In In re Marriage of Klomps, one district of the Illinois Appellate Court, declining to follow an earlier decision by a different district, held that a spouse's retirement benefits can be considered as income for child support purposes even though the benefits were previously classified as marital property. Adhering to the double-dipping rule would contradict the clear terms of the child support statute, the court decided.
In Cook v. Cook, the Wisconsin Supreme Court decided that the general prohibition against double counting which bars dual consideration of an asset for purposes of property division and maintenance does not apply in the context of child support. Maintenance looks to the relative positions of the former spouses, while child support is based on the needs of the children and the financial abilities of the parents, the court noted. The child of divorced parents receives nothing from the property division, the court noted. Thus, when a circuit court treats a pension which was subject to property division as income for child support purposes, the pension is counted for the first time between the parent and the child. As between the parent and the child, the pension is not being counted twice. Accordingly we conclude that a rule against "double counting" does not bar consideration of the pension both as property in the property division and as income in calculating child support.
560 N.W.2d at 252.
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