“Double-dipping” or “double-counting” is an American principle in divorce proceedings that the same marital asset should not be both subject to the equitable distribution of property and utilized as an income generator to pay alimony. Put another way, the “general principle [is] that a court may not take an income producing asset into account in its property division and also award alimony based on that same income.” Callahan v. Callahan, 157 Conn.App. 78 (2015).
Connecticut’s double-dip jurisprudence is sparse without a fixed rule. Instead, our courts seem to reject or accept the concept depending on what is equitable in the individual circumstances.
No consistent national rule concerning double-counting
States differ widely in their approaches to double-dipping. A recent American Bar Association (ABA) article explains why the double-dip is controversial with “no uniform resolution.” Some states allow it, others reject it and a third group applies various standards to each unique situation.
The policy behind the rule is that using the value of an asset for two different purposes would unfairly bring advantage to one litigant and disadvantage to the other. M.K. Reichert, The Double Dip Concept in Divorce Cases, 46-SPG Fam. Advoc. 27 (Spring 2024).
According to Reichert, supporters of allowing the double-dip reason that because the policies behind alimony and property distribution are distinctly different, using one asset to support both may be fair in some divorces. In fact, to do so may be preferable because it ultimately could provide more resources to the receiving spouse.
Opponents frown upon double-dipping when “the same funds … counted twice would result in unfair outcomes and undermine the principle of equitable division.”
Double-dipping into business interests
A common context in which double-counting concerns arise is when one spouse-litigant owns all or part of an income-generating business. Business ownership interests like shares in a closely held family business or a partnership interest in a professional practice are normally marital assets subject to equitable distribution. A business-owning spouse, however, may also draw income from their business – income that a court could designate as a source of alimony in the divorce judgment.
It could be considered double-dipping to give the other spouse an ownership interest in the business while also designating the same business asset as an income generator from which the owner-litigant will pay spousal support. See Callahan.
On the other hand, it is different if the court orders the owner-litigant to pay to the other spouse a lump sum representing a share of the value of the business as part of property division. Specifically, our state Supreme Court has held that a transfer of funds representing part of the business’s value (as opposed to granting actual business ownership) is not a double-dip because the alimony payor still owns the business that could generate income as a future source for alimony.
Compensation for value is different from business ownership
The leading Connecticut Supreme Court case on this issue is Oudheusden v. Oudheusden, 338 Conn. 761 (2021). The court found no inappropriate double-dipping into the litigant-owner’s businesses “because any rule against double counting does not apply when the distributed asset is the value of a business and the alimony is based on income earned from that business.” (Emphasis added.)
The Supreme Court explained that Connecticut has no statute prohibiting double-dipping so here it is a matter of equity and fairness. For example, the court had held previously that it would be improper double-counting for the court to give a business interest to the alimony recipient and also designate it as a revenue source for the alimony payor – who will not have access to income from that property if it is in the hands of the recipient. O’Brien v. O’Brien, 326 Conn. 81 (2017).
Valuation method does not taint the business asset as double-dipped
An argument asserted in Oudheusden was that because the values of the businesses were calculated using methods based on historic and projected future business income, it would be double-dipping to use them as income sources for alimony. The court looked at how other states have analyzed this theory, noting that the double-counting rule is not implicated just because the “business’[s] fair market value was determined by an income method of valuation.” Income is a logical factor in determining the value of an income-generating concern.
And further, “every jurisdiction that has considered the issue has concluded that the double counting rule does not apply when the asset at issue is the value of a business …” as opposed to an actual transfer of ownership to the spouse who will receive alimony.
Oudheusden’s holding
The opinion provides guidance to Connecticut courts considering this issue:
- Adhere to the statutory requirements for equitable distribution and alimony awards.
- Awards should be “as a whole … fair and equitable,” without application of rigid rules.
- If a litigant receives compensation for business value as part of the property division, the court should not “unfairly reduce the paying spouse’s ability to earn income from that business,” such as by undercapitalization.
An experienced Connecticut family lawyer can provide insight into any double-counting issues a divorce litigant may face and develop litigation strategies to promote a client’s position.
