What Is Double Dipping?
Double-dipping refers to counting an asset once for the purpose of dividing community property and again for determining spousal support or child support. Double-dipping typically arises in cases involving an ownership interest in a business or financial investment, such as retirement accounts and corporate stocks.
Under California law, all community property is subject to equal division between the parties upon divorce. All property and assets acquired during a marriage are considered to be community property. In contrast, property that a spouse acquired before marriage, during marriage through gift, bequest, devise, or descent, and after the date of separation qualifies as the acquiring spouse’s separate property. The separate property interest of a spouse is not subject to division upon divorce.
Furthermore, spousal support obligations are determined based on a spouse’s financial condition. The financially disadvantaged spouse must demonstrate both a need for spousal support and that the other spouse has enough wealth to pay for their support.
When determining the amount someone owes in spousal support, the court will evaluate the parties’ respective financial conditions, including sources of income, assets, and liabilities. Double dipping occurs when an asset—such as a small business—is included as community property subject to equal division upon divorce, and as a part of the owner spouse's wealth for calculating child or spousal support.
The Effect of Double Dipping
Some argue that double-dipping improperly inflates a party’s wealth for determining issues of spousal support. For example, if a business is considered community property, both parties are entitled to half of the company’s value. However, if the full value of an asset is included for purposes of determining spousal support, the community interest of the spouse requesting support is then attributed to the other spouse’s income. As a result, the supporting spouse’s wealth includes an amount from which they cannot benefit—the other spouse’s community interest.
Another problem involves the valuations of business goodwill attributable to the effort an owner contributes through their hard work and reputation in operating their business. The owner’s ability to make money running their business might get folded into a valuation of the business as a whole.
Thus, when the value of the owner’s business is also counted as an asset for purposes of determining spousal support, payment obligations factoring business profits resulting from the owner’s efforts are counted twice: once as an asset of goodwill, and again from the earnings borne from that goodwill.
Is Double Dipping Not Actually a Problem?
Some courts have held that counting an asset for both property division purposes and determining alimony is not a problem. One court noted that the community does not actually acquire an interest in business through property division, and does not have an interest in its profits during the marriage. In a few cases, California courts allowed business profits to count toward both community property and calculating spousal support without offset.
In Need of Legal Advice? Reach Out to Hanson, Gorian, Bradford & Hanich
Property division issues can be challenging to sort out in divorce cases, due to sophisticated accounting concepts. If you are going through a divorce involving high-value assets and investments, you should seek the legal advice of an experienced attorney from Hanson, Gorian, Bradford & Hanich. We are determined to guide you the complex legal issues so that you can base your legal decisions on adequate information.
Call Hanson, Gorian, Bradford & Hanich at (951) 506-6654 or visit us online to schedule a consultation about your dispute today.