Double Counting Remains Difficult Issue for Courts
January 14, 2008
This is the last of a series of three articles discussing the recent Wisconsin Court of Appeals decision in Wright v. Wright, No. 2006AP2111 (Wis. Ct. App. Dec. 4, 2007), which was recommended for publication.
As discussed in the previous articles, the appellate court affirmed most of the trial court’s rulings on property division, which held that the trial court properly excluded certain gifted property from the marital estate.
However, in addition to reversing the trial court on one relatively minor property division matter, the appellate court reversed and remanded the maintenance order. In this article, we will discuss one aspect of the decision – and perhaps the most troubling – the trial court’s order on maintenance.
As stated last week in this column, the trial court gave three reasons for not including income from several of the husband’s businesses in its maintenance order. The appellate court disagreed with all three reasons and found a misuse of discretion as a result.
One of the reasons given by the trial court was, as summarized by the court of appeals, “[C]ounting income from these entities would constitute ‘double-counting’ because the value of the companies was included in the property division.”
Double Counting and Business Valuations
The issue of double counting (sometimes referred to “double-dipping”) has been a difficult one for Wisconsin courts. Certain cases have held an asset and its income stream may not be counted both as an asset in the property division and as part of the payor’s income from which support is paid. In re Marriage of Maley, 186 Wis.2d 125, 519 N.W.2d 717 (Ct. App. 1994). Other cases have held that there is no absolute rule against double counting. See Boerner v. Boerner, 2005 WI App 64, 280 Wis. 2d 519, 695 N.W.2d.
While most appellate cases regarding double counting involve application of retirement income for maintenance obligations, it frequently arises in cases such as Wright, where a business is valued and, presumably, some or all of its value for property division includes its future income.
Analyzing the Wright case creates some difficulty, as it is not clear from the court of appeals decision what double counting the trial court utilized in excluding income from these business from its maintenance award. The appellate court held that:
“[I]ncome from assets awarded to a spouse as part of an equal property division are generally included in calculating that spouse’s income for maintenance… The future income generated from the asset is separate and distinct from the asset itself, and therefore can be included in the spouse’s income for maintenance calculations.”
Frequently, businesses are valued by capitalizing its future income. While there is no indication that the businesses in Wright were so valued, it is worrisome that the above language is broad enough to be read as saying that even in such cases, there would be no double counting by using the same income which was capitalized for maintenance.
Even if there is no hard-and-fast rule against double counting, there is no requirement to double count, either. Each case should rise and fall on its own unique facts, subject to the trial court’s exercise of discretion based on those facts.
As questioned in last week’s column, the holding of the trial court is not set forth in any detail in the court of appeals decision. In a decision of 121 pages and 1,062 findings of fact, one has to assume that the trial court gave reasons for finding that the valuation of the business included the income from the business.
The worry is that some may interpret the Wright case as prohibiting double counting in all cases in involving business valuations. Or, on a broader basis, that a trial court’s discretion is limited to the same thinking as that of the court of appeals. As with the suggestion in last week’s column regarding consideration of sources of income, it is recommended that this case be read narrowly, and not as creating hard-and-fast rules for future cases.