The Double-Dip Concept in Divorce
In divorce cases involving one or more self-employed parties, division of assets can be complicated, and the assets must be fully analyzed in conjunction with the “double dip” theory. You might be asking yourself, what is the double dip theory? The double dip is a concept that arises when the same funds are counted as both income for spousal support but also included in the valuation of an asset to be divided between the parties. This concept has garnered increased attention in recent years, and really stresses the importance of correctly identifying funds as either an asset or income or both. For example, if a party who owns a service business and the business grosses $300,000.00 per year is the business income an asset of the marriage to be divided, or income that is calculated in spousal support numbers, or both?
The answer to this question depends greatly on the state where the divorcing parties are getting divorced. New Jersey, California, and Ohio are among the states allowing the double-dip concept to be allowed. The courts in these states seem to take the stance that spousal support and property division are distinct legal issues and so it can be counted as income and as an asset that should be divided. States such as New York and Illinois take a different stance which does not allow the funds to be counted twice. These states believe that it would be unfair for the income to be counted twice, once as income and once as an asset.
In Michigan, despite the argument against double dipping having some merit from an accounting standpoint, Michigan courts had rejected a bright-line application in the context of spousal support in Lotus v Lotus, 298 Mich App 21; 826 NW2d 152 (2012). In that case, the Court of Appeals rejected the “bright-line test” and stated that the courts must employ a case-by-case approach when determining whether double-dipping will achieve an outcome that is just and reasonable.
The appeals court found the following factors sufficient to justify the result as equitable: (1) to do otherwise would be to award the same dollars twice; (2) the wife had engaged in bad behavior and made numerous unsubstantiated allegations during the litigation; (3) the wife had received half the business value that resulted from the husband’s own labors; and (4) the wife was in a position to compete and “wreak havoc” with the business.
Note that in other contexts, Michigan courts have analyzed double-dip arguments and have generally permitted a double dip where they found it was not unfair. McAllister v McAllister, 205 Mich App 84; 517 NW2d 268 (1994).
In the child support context, the double-dip argument has been rejected because with child support, it is the child, not the spouse, who is getting one of the “dips.” See Marks v Marks, No 222923 (Mich Ct App May 25, 2001) (unpublished) (award of child support and half value of family business upheld); Stefanko v Stefanko, No 215452 (Mich Ct App Jan 30, 2001) (unpublished) (award of child support is not double dip because child support is not property of spouse; award of alimony need not adjust for alleged double dip); see also Rattee v Rattee, 767 A2d 415 (NH 2001).
The double dip concept is just another area why online divorce providers may not provide you with the benefits that you seek and may actually cause harm to your case. If you are self-employed and going through a divorce, please call Legacy Legal & Business Services PLC at (616) 681-0100 or schedule on our website at www.legacylegalbusiness.com to schedule your free consultation with Attorney, Margret L. Webb.