Heller is in serious trouble. On the heels of the Bohme case (see the March 18 BVWire), another divorce ruling from the Ohio Court of Appeals shows just how moribund the Heller double dip analysis has become.
It’s about the future income stream: The husband was an ocular plastic surgeon. At issue was his ownership interest in a surgical center. The parties stipulated the value based on the 2013 share price, which, in turn, seems to have been the result of a capitalization of earnings approach.
The trial court adopted the stipulated value for its division of property. It then determined the husband’s annual income, including the distributions he received from the surgical center, and, based on that calculation, ordered him to pay spousal and child support. The husband appealed, alleging the trial court’s ruling violates the 2008 Heller prohibition against double dipping.
The Court of Appeals in essence posed and answered two questions: Did a double dip occur? And does the law prohibit it, as Heller said it did? As to the first issue, the Court of Appeals found Heller got it wrong when it defined “double dipping” as “the double counting of a marital asset, once in the property division and again in the [spousal support] award.” Double counting only occurs “when a court twice counts a future income stream—once in valuing the marital asset and once in deciding the economically superior spouse’s ability to pay spousal support,” the appeals court explained. For clarification, it added: “It is the future income stream, not the marital asset, that is the subject of the doubling in the double dip.” The premise for a double dip claim, therefore, is that the asset was valued based on its future income stream, by way of a discounted cash flow analysis or a capitalization of earnings analysis, the court noted. This was the case here.
No flat prohibition: As to the second question, the Court of Appeals found several reasons to back away from Heller. Most importantly, Heller failed to consider a crucial statutory provision that expressly requires a court determining spousal support to consider all sources of income, including income derived from a marital asset divided in the property distribution. This provision “precludes us from adopting an outright prohibition of double dipping. To the extent that Heller did that, we must overrule Heller.”
Ultimately, it comes down to fairness and equity, the Court of Appeals said. Whether to remedy the double dip and how to do it (if it exists) were left to the discretion of the trial court, it explained. Here, it remanded, but only because it found the trial court had not considered the double dip in its analysis. This did not mean that the trial court necessarily had to change its property division or spousal support award. It just had to show it considered the issues.
Takeaway: Reading Gallo in tandem with the recent Bohme decision makes it clear that double dip is permissible under Ohio law. Ohio courts hitch the determinations as to property division and spousal support to fairness and equity.
Find a discussion of Gallo v. Gallo, 2015 Ohio App. LEXIS 938 (March 17, 2015), in the May edition of Business Valuation Update; the court opinion is available soon at BVLaw.
Legal update webinar: The Bohme case and the double dipping issue will be discussed in a webinar on April 2: BVLaw Case Update: A One Hour Briefing, with Sylvia Golden, BVR’s legal editor, and R. James Alerding (Alerding Consulting LLP). Other recent BV cases of note will also be covered.