Tag: property division

“Double Dipping” Considerations in a Divorce When a Business Interest is at Issue

In some divorce cases, a business (or an interest in a business) that is owned by one spouse, and from which he or she receives income, also constitutes an asset to which a value must be ascribed so that the asset can be distributed between the parties in some manner as part of an overall division of property. In instances where both the value of a business interest must be divided, and an award of alimony in favor of the non-titled spouse might also be appropriate, the concept of “double dipping” must be carefully considered in order to avoid potential inequities that could otherwise result when resolving the two separate, but sometimes interrelated issues, of property distribution and spousal support.

What is Double Dipping Generally

Generally speaking, the concept of “double-dipping” refers to a situation in which one spouse is unfairly paid twice for a single asset; once in the context of property division and a second time as part of a spousal support award.

How Can Double Dipping Occur when a Business Interest is Being Divided?

When the value of a business interest must be divided in a divorce, there are a variety of valuation methodologies that can be employed to determine the value of the interest for property distribution purposes. While an exploration into the various valuation methodologies is beyond the scope of this article, one common valuation approach that is employed in the divorce context (and stated in very simplistic terms) is for the value of the business interest to be calculated as a function of the entity’s future stream of expected income.   It is in this context that “double-dipping” issues are most likely to arise.

Specifically, double dipping concerns can arise if the same cash flows that are used to determine the overall value of a spouse’s business interest are also considered a component of that spouse’s income for purposes of calculating spousal support. Stated differently, when a business is valued based upon the entity’s expected income stream, it would constitute double dipping to both distribute the value of the business and then also base spousal support on the full amount of income the business produces.

How Can Double Dipping be Avoided

While there is a variety of ways to address double dipping concerns that may arise when a business interest is being valued and divided, one common methodology is for a “reasonable compensation” or “replacement compensation,” figure to be attributed to the business owning spouse. This figure represents the hypothetical amount that the business would pay to an unrelated person to perform the same function as the business owning spouse. Then, in determining what amount of income earned by that spouse is available for spousal support purposes, only the “reasonable compensation” amount utilized, which would necessarily be some amount less than the business owning spouse’s total earnings. Relatedly, in determining a value for the business interest, the “reasonable compensation” amount is subtracted out from the business cash flows that are used to determine the overall value of a spouse’s business interest. As a result of this process (commonly referred to as “normalizing income”), the higher the reasonable compensation figure attributed to the business-owning spouse is, the lower the value of the business will be for distribution purposes and, conversely, the lower the reasonable compensation figure attributed to the business-owning spouse is, the higher the value of the business will be for distribution purposes.

Are Forensic Experts Utilized Where Double Dipping Issues Might Arise

Yes. In cases where business valuation and/or potential double dipping issues arise, it is crucial to involve a business valuation expert with expertise in these areas. Such experts can assist clients and attorneys in wading through and understanding these often complex and thorny issues.

Cases involving distribution of business interests and double dipping concerns are often complex and, in order to be handled properly, require a great deal of expertise and attention. At Broder Orland Murray & DeMattie LLC, we have extensive experience handling matters involving these issues and are poised to help clients achieve favorable and fair results when these issues arise.

What Can I Do to Make My Connecticut Divorce Case Move More Quickly?

This Week’s Blog by Sarah E. Murray

  • Provide requested information and documents promptly
  • To the extent possible, make or respond to a settlement offer as early in your case as you and your attorney think is appropriate
  • If both parties and their counsel are motivated to get a case done quickly, it can be accomplished

What is the Relationship between Discovery and How Quickly My Connecticut Divorce Case Moves?

Many Connecticut divorce clients from Greenwich to Fairfield want to know what they can do to ensure that their case moves in a timely fashion.  For many people, once they have made the difficult decision to get a divorce, they do not want the divorce case itself to move slowly.  The timing of Connecticut divorce cases is not always within the control of the client or his or her attorney, but there are certain things that clients can do to ensure that the case moves as quickly as possible.

At Broder Orland Murray & DeMattie LLC, one of the things that we encourage clients to do in order to help their case move in a timely fashion is to provide financial discovery to the other side as soon as possible.  Some clients even provide financial discovery to the opposing party before he or she requests it.  There are standard documents that, under Connecticut Practice Book Section 25-32, are to be exchanged in divorce cases: personal tax returns, tax returns for any business in which a party has an interest, W-2s, 1099s, K-1s, pay stubs and other evidence of income for the current year, bank and brokerage account statements for the past two years, the most recent retirement account statements, the most recent life insurance statement, current health insurance information, information regarding the cost of COBRA following the divorce, and any written appraisals of assets owned by the parties.  In cases where the finances are more complicated or where there are specific issues for which a party seeks discovery, the discovery requests are more comprehensive than the preceding list.  Top Fairfield County attorneys will provide their clients with comprehensive document requests early in the case, and sometimes at the initial consultation, so that clients know what to expect from opposing counsel and can begin gathering their responsive documents.

Clients who want to move their Fairfield County divorce cases quickly will begin gathering the requested documentation as early as possible so that there is no delay in getting that information to the other side.  Under Connecticut rules of practice, parties generally have 60 days to respond to discovery requests, but waiting that entire time to provide discovery will only prolong the case.  Failing to provide all of the requested information is another way to ensure that the case takes longer, as the opposing party will then have to request the missing information and will sometimes file a motion to obtain a Court order that it be provided.

When Can My Divorce Case be Settled?

Once discovery is complete (or nearly complete) in a case, many attorneys will discuss with their clients the possibility of settling the case.  Settling a divorce case has many advantages, and one of them is that settlements can occur at any time in a case, including in the beginning.  Some Fairfield County divorce clients even settle their cases before filing for divorce in order to ensure that the process goes quickly once the case is filed.

Trial dates in divorce cases normally are not scheduled until later in a case, and sometimes not until the case has been pending for almost one year.  If a case goes to trial, a judge has 120 days to issue a decision.  After the decision is issued, one or both parties can file motions to reargue certain issues or to clarify the decision.  Additionally, one or both parties can take an appeal from a trial court decision, which typically takes at least a year to resolve.

Therefore, settling a divorce case well before the trial dates is usually a way to ensure that the case ends in a timely fashion. Issuing a settlement proposal (or responding to one) early on in a case can be an effective way of moving the case toward a final judgment.  The case can be settled as soon as you and your attorney think it is appropriate to begin settlement discussions, usually after discovery is exchanged and the necessary information is gathered.

At Broder Orland Murray & DeMattie LLC, we understand that many of our clients want their divorce cases to move quickly.  The biggest predictor of how quickly a divorce case will move is the parties and their counsel.  We find that when both parties and their counsel are motivated to get through a case quickly, it usually will happen.  Problems can arise when either the opposing party does not want the divorce to occur quickly, and/or that party’s counsel is not cooperative in efforts to accelerate the case.  Both parties do not need to agree on everything in order for their case to move quickly, but both parties do need to be responsive and work with their attorneys to achieve a resolution of the issues.  When both parties are working toward the same goal, i.e., early resolution of their case, it can be accomplished.

Inheritances, and the marital estate, are your inheritances subject to equitable distribution?

Many clients come into our office from the towns of Fairfield County with family money they inherited during the marriage, or which they anticipate inheriting after a dissolution proceeding.  Sometimes clients want to know whether the inheritance they have already received or anticipate receiving, will be considered part of the marital estate subject to equitable distribution at the time of dissolution.

At the time of entering into a judgment or dissolving a marriage, any inheritance already received is considered a part of the marital asset, subject to equitable distribution pursuant to C.G.S.A. § 46b-81(a)-(c). The recipient spouse does not have a de-facto right to 100% of the value of these funds.  In determining how these funds shall be divided, the Court will consider all of the factors enumerated in the statute, including but not limited to the contribution each party made to the acquisition, preservation or appreciation in value of the inheritance, how the funds are held, whether commingled or separate, when they were acquired during the marriage, and the age, station, occupation, income, health, and estate of the parties. The Connecticut Courts examine all of these factors on a case by case basis to determine what constitutes an equitable distribution of the marital estate, including either spouse’s inherited assets.

Dividing inherited assets is not always a straightforward process. Great care must be taken in order to identify the specific nature of the inherited assets. For example, if a spouse received an inheritance in the amount of $1,000,000 during a twenty year marriage and the total value of the marital estate at the time of divorce is $1,500,000, the Court might equally divide the entire marital estate, including the inheritance.  By contrast, if it was a five year marriage, and one spouse had inherited $200,000, and the total marital estate was worth $5,000,000, the Court may allocate the receiving spouse with a credit of $200,000, especially if the funds were kept separately.  Courts will not only look at the inheritance received, but as previously noted, they will also consider any appreciation in value of the inheritance.  Additionally, the Courts will examine which spouse was responsible for the appreciation in value. For example, there may be circumstances where a spouse received a $100,000 inheritance and the other spouse actively invested the inherited funds.  If as a result of the non-inheriting spouse’s sole efforts the value of the inheritance increased significantly, the Court may take this into consideration.  The Court might also examine how the funds were being held, and whether the inheritance was kept as one spouse’s separate and distinct property and/or whether all or a portion of the funds had been commingled with the investing spouse’s funds.  If the funds were commingled into a joint account, a court may be more likely to equally divide the inheritance, including any appreciation in value.  What the Court finds equitable depends in part on myriad of factors, including the size of the marital estate, each party’s contribution to the preservation and/or appreciation in value of the inheritance, and how the funds have been held.

The important thing to understand is that unlike many other states, Connecticut does not treat an inheritance as the recipient’s separate property shielded from distribution to the non-inheriting spouse. The inheritance is subject to equitable distribution.  At Broder Orland Murray & DeMattie, LLC we understand the complexities associated with inheritances, and we frequently advise clients as to the myriad of factors a court takes into consideration when examining and distributing the marital estate.

 

 

 

Does Connecticut Recognize “Separate Property?”

One of the most common inquiries that we receive from potential clients in Greenwich, Westport and other towns throughout Fairfield County, is whether or not, upon divorce, their spouse will be entitled to share in certain assets that he or she may perceive to be their “separate property.”  A common example would be where the individual has brought substantial assets with them into the marriage and hopes to solely retain these assets upon their divorce.  Additional examples might be where the inquiring potential client has received an inheritance or a gift during the marriage and wants to know if his or her spouse will have any right to share in a portion of such assets upon divorce.  Depending upon which side of the coin the potential client falls on, the answer to his or her inquiry may be heartening or discouraging.

Unlike many other equitable distribution states, Connecticut does not recognize any assets as  the “separate property” of either spouse, meaning assets that would be  exempt from equitable distribution in a divorce.   Rather, Connecticut is an “All Property” state, which means that any asset owned by either party to a divorce is subject to division in a divorce, regardless of how or when the asset was acquired.

That said, it is important to understand that under our “equitable distribution” law, assets are not automatically divided equally between divorcing spouses, as many people incorrectly assume.  Instead, courts have the discretion to distribute assets between divorcing spouses in any manner that the Court deems to be fair and equitable, and in determining fairness, court’s will consider a variety of factors including factors such as “how” and “when” a particular asset may have been acquired.  The full list of factors that courts may consider in determining an equitable division of property in a divorce is as follows:

  1. The length of the parties’ marriage;
  2. The causes for the annulment, dissolution of the marriage or legal separation;
  3. Age of each of the parties;
  4. Health of each of the parties;
  5. Station of each of the parties;
  6. Occupation of each of the parties;
  7. Amount and sources of income for each of the parties;
  8. Earning capacity of each of the parties;
  9. Vocational skills of each of the parties;
  10. Education of each of the parties;
  11. Employability of each of the parties;
  12. Estate of each of the parties;
  13. Liabilities and needs of each of the parties;
  14. The opportunity of each party for future acquisition of capital assets and income; and
  15. The contribution of each of the parties in the acquisition, preservation or appreciation in value of their respective estates.

Accordingly, as a practical matter, Connecticut divorce Courts will sometimes award one spouse a greater portion, or in some cases the entirety of assets that the party brought into the marriage, or received during the marriage by way of gift or inheritance.

At Broder Orland Murray & DeMattie LLC, we are well-versed in all issues relating to property division and are extremely adept at crafting and presenting the strongest possible arguments on behalf of our clients to achieve favorable property divisions, whether through settlement or at trial.