What does “double dipping” mean in a divorce context, and why would this be a problem?

You’ve got a marital asset which is the business, and the business has a value. You’re counting that marital asset as property in the division of all of the property in the divorce case. You’re counting it once, and then you’re wanting spousal support, so you’re counting the business again because it has a stream of income that it produces. Then you’re using that to provide spousal support to one of the parties. That can be double dipping, where you’re valuing the business, giving the spouse half of the value, plus valuing the stream of income from that same business and giving that spouse spousal support.

The problem is that it really goes to the way that the business valuator is getting a value for the business. Typically, if a business really has value, that means that there is a certain amount of money that’s flowing to the owner that’s over and above what we call “reasonable compensation”. You kind of look at the industry like a veterinarian. You say, “What does a normal veterinarian make if I went out to get a job as a veterinarian?” You can kind of figure that out. Your business appraiser says, “Well, if I went out to get a job as a veterinarian, I could make $150,000 a year.”

But then you look at the veterinary business. Let’s say in this veterinary business, the owners were making $300,000 a year each. That’s what’s called excess earnings. To be very careful not to double dip, you either have to only provide spousal support based on a normal compensation for a veterinarian or you have to only value the business based on a normal compensation for a veterinarian and not use the excess earnings. You can use the excess earnings for spousal support, or you could use the excess earnings to value the business, but you can’t use them for both because that’s what causes double dipping.

Laura Schantz, a Beaverton divorce and family lawyer and mediator has helped clients find creative solutions to complex financial matters involving asset division, spousal support, and child support. To learn more about Laura Schantz and her firm, visit www.oregondivorceattorney.com.