Dividing closely-held business interests in divorce often is a challenging process. Connecticut law provides courts with wide discretion in distributing marital property. An important – and complicated—aspect of disposing of business interests involves the  determination of the value of a business (or multiple business interests). Similarly, if the spouses jointly manage a family business, choosing between a variety of options for dividing the business requires sophisticated skill and thoughtful preparation.

Understanding The Double-Dip In Asset Distribution And Alimony

The income from a business is often a factor in determining the value of a business, which may be distinguished from a measure of the earning capacity of the recipient of the business income. Double dipping” refers to the concept of counting a marital asset in allocating property and a second time in awarding spousal support.

The Connecticut Appellate Court recently reviewed the issue of double-dipping. See Oudheusden v. Oudheusden, 190 Conn.App. 169, cert. granted, 332 Conn. 911 (2019).  A litigant operated two businesses, representing his only sources of income. The business income was included in determining the fair market value of the businesses. The trial court awarded the opposing party 50 percent of the value of the businesses in disposing marital assets. The court then awarded the opposing party lifetime alimony based on the business operator’s total income from the businesses.

The appellate panel reasoned that the financial “orders ignored the economic relationship between the value of the businesses and the defendant’s ability to earn income. In ordering the business owner to pay 50 percent of the value of the businesses, the court deprived him of his ability to pay the alimony award. The appellate panel held that the trial court improperly double counted the asset.

The appellate panel makes it clear that the analysis is not a bright-line rule. Each case has unique facts and circumstances. The family court must take into account the entire marital estate and sources of income in each individual matter.

In a complex marital estate, there may be offsets, multiple sources of income, or evidence to determine earning capacity that require full analysis to reduce the risk of a resolution involving entry of financial orders that prejudice the payor or benefit the payee. Skilled matrimonial lawyers must identify the potential for orders that double count income in both settlement negotiations and in litigated resolutions, as well as to present an analysis to a mediator and or Judge in advocating a spouse’s interests.