On double-dip issue, Ohio appeals court agrees with Gallo analysis

BVWireIssue #209-1
February 5, 2020

marital dissolution/divorce
expert testimony, income approach, net asset value, normalization, double dip, future income, double counting, compensation

A recent Ohio appeals court decision expressly agreed with its sister court’s 2015 ruling in Gallo that state law does not prohibit double dipping but does require the trial court to avoid unfairness in distributing marital assets and determining spousal support.

In divorce, the double-dip issue typically arises when the court values the business asset under an income approach for purposes of equitable distribution and also considers the income from the business to determine spousal support to the nonowner spouse. In Gallo, the 10th district Court of Appeals noted it was “the future income stream, not the marital asset, that is the subject of the doubling in the double dip.”

No ‘double dipping offset’: In the instant case, the husband owned a financial services company and a limited liability company providing management consulting services. At trial, only the husband offered expert testimony on the fair market value of both businesses and income available for spousal support. Using an income approach, the husband’s expert found the financial services company was worth $1 million. Normalized compensation to the husband from this company was $310,000. The expert used an adjusted net asset approach to value the LLC, finding it was worth $25,000. The three-year average of distributions the husband received from the LLC was about $106,000. According to the expert, the normalized income available for support was about $416,000. At the same time, the expert found the husband’s actual three-year average income was about $520,000, approximately $100,000 more.

The trial court credited the expert’s valuations and awarded the companies to the husband. For its spousal support calculation, the court used the husband’s three-year average income ($520,000). The court said there was no double dip as to the distributions from the LLC “due to the valuation method used.” And, even though the expert used an income approach to value the financial services company, the valuation also included hard assets and cash on hand besides the husband’s income, the trial court said. The trial court concluded, under the facts of the case, “equity did not require a double dipping offset.” In determining spousal support, the court mentioned various factors showing the husband was financially in a much stronger position than the wife.

The husband appealed the trial court findings with the 9th district Court of Appeals, arguing it was error to use actual average income rather than normalized income when calculating spousal support. Doing so resulted in an “inequitable ‘double dip.’”

The Court of Appeals (9th district) said it agreed with its sister court’s analysis in Gallo that the applicable statute “precludes an outright prohibition of double dipping” and that the trial court should, “in the interest of equity,” consider the impact of double dipping to avoid unfairness. Here, the trial court cited specific circumstances that were “overriding the unfairness in double dipping,” the appeals court said. It upheld the spousal support ruling.

A digest of Kim v. Kim, 2020-Ohio-22 (Jan. 8, 2020), and the court’s opinion, will be available soon at BVLaw. A digest and the court’s opinion in Gallo v. Gallo, 2015-Ohio-982, 2015 Ohio App. LEXIS 938, are available now to BVLaw subscribers.

Please let us know if you have any comments about this article or enhancements you would like to see.