Is Double-Dipping Fair?

GEO_edited-1A common complaint from ex-spouses who are obliged to pay spousal support is that all too often, the supported spouse gets a double-dip, and I don’t mean an ice cream cone.

Double-dipping occurs when a payor spouse pays support based on his employment income, but also pays support on his investment, rental or capital gains income arising from assets that were divided between the spouses, or for which the supported spouse received compensation through the receipt of cash or the retention of the family home.

Let me give you an example. If a husband retains a rental property valued at $100,000 and an investment portfolio worth $200,000 and in return the wife receives the former matrimonial home with a basement suite, valued at $300,000, it seems unfair for her husband to include these additional income sources as income for the purpose of paying spousal support. Yes, he may earn income on his share of the family property, but the wife also has that option.

As well, consider that the wife’s home has a basement suite she declines to rent and therefore eliminates an additional source of income for herself.

On top of all that, keep in mind that for Canadians, the matrimonial home is a tax-free asset, while the husband’s rental property will attract capital gains tax as will the investment portfolio.

Another common example of this practice is where a business is valued by capitalizing the business’ income stream and the wife is compensated for her interest, while the husband is ordered to pay support on that same income stream.

Do our courts care? Nope. But lawmakers in California thought it was an important issue when Bill SB 481 was tabled in the Senate with the goal of passing legislation that would give judges the discretion to consider the sources of income utilized for a support calculation to prevent unfair, blatant double-dipping.

Regrettably, this attempt to address double-dipping faltered,dying in the Senate in January 2012, with no pending legislation.

The treatment of this issue by North American courts is divergent to say the least. In Mississippi the courts have declared double-dipping a “glaring inequity” while in other jurisdictions there is passive tolerance with no apparent will to resolve the unfairness that can occur.

Of course, cynics will say that because double-dipping most frequently prejudices husbands, not wives, it will be a long time until our courts get around to fixing the problem.

California was on the right track with their double-dipping bill, a proposal that would at least encourage judges to consider whether paying spousal support on income derived from divided family assets is equitable. Certainly, the draft legislation only opened the door for an inquiry, nothing more.

Perhaps it will resurface in California and then catch on in other jurisdictions. Let’s hope so. Fair means fair for everyone.

Lawdiva aka Georgialee Lang

Twenty-Year Old Divorce Case Reopened: It’s Not Over Til It’s Over

La Spiga 2011-03-22In 1990 New York securities trader Steven Cohen was just beginning to see the fruits of his Wall Street career ripen. The only bad news was that his marriage didn’t survive and he needed to negotiate a financial settlement with his wife, Patricia Cohen.

At the time he told his wife that he had lost $9 million dollars in a co-op apartment investment he made in 1986, leaving his net worth at a mere $8.1 million. She didn’t believe him, but had no grounds to refute his assertion.

Mr. Cohen remarried two years later and built his business, SAC Capital, growing it from $25 million in assets to several billion dollars. Life was very good for him, until 2008.

It was then Ms. Cohen discovered a court file that revealed her ex-husband had settled the investment loss case with one of his co-op partners and recovered $5.5 million. She filed a lawsuit against him in 2009 alleging fraud.

Unfortunately, the first judge who heard the case threw it out saying the claim was too old to pursue and was unsubstantiated.

The Manhattan Appeals Court saw it differently. This month they reinstated Ms. Cohen’s lawsuit holding that the lack of timeliness in its filing was because she only discovered evidence of fraud eighteen years after the divorce.

My advice to Mr. Cohen: “Settle this case now, after all, you are a multi-billionaire and will likely not even notice a shortage of a couple of million.”

Besides, Cohen’s $15-billion dollar hedge-fund is the target of an insider trading investigation that has already seen the arrest of five individuals related to his Connecticut-based business. As well, two companies affiliated with SAC Capital have recently settled insider trading allegations with the US Securities and Exchange Commission for $614 million dollars, the largest insider trading settlement in the United States.

While there have been no charges laid against Mr. Cohen, the SEC is breathing down his neck. He really doesn’t need the aggravation of his ex-wife’s court action and the publicity that accompanies it.

Family law is different however. Cases that should be settled often are not because of petty vindictiveness and the need to win, and of course, Cohen can afford to bury his ex in legal fees.

Lawdiva aka Georgialee Lang