A new Massachusetts Appeals Court case, Michael A. Trethewey v. Rosalia F. Trethewey, highlights the risk of “double dipping” in divorce matters involving marital asset division and alimony (or other support) orders. In Trethewey, the probate and family judge treated the husband’s employment “bonus” as both a divisible asset for equitable distribution and as income for alimony purposes.
The Appeals Court found that this amounted to impermissible “double dipping” and reversed the Probate and Family Court’s decision on this issue. The wife must now return the portion of the “bonus” she received through equitable distribution: $1.7 million.
Background
Michael was married to Rosalia for 20 years when, in April 2015, he filed for divorce. Extensive proceedings followed, including a 19-day trial between November 2017 and July 2019. Michael was a financial advisor for about 20 years before filing for divorce and throughout the trial.
In June 2018, during the trial, Michael signed an employment contract with Wells Fargo. As part of his compensation package, Wells Fargo gave Michael a $5 million “Transitional Bonus.” At the same time, Michael signed a $5 million promissory note with Wells Fargo, thereby creating a debt Michael would have to pay (i.e., a loan from Wells Fargo).
So, as it turns out, the “bonus” wasn’t really a bonus. Instead, it was an advance on income Michael would earn at Wells Fargo over the next 112 months. This was the deal regarding the advance: Michael was expected to meet certain business benchmarks for the following 112 months. As he did, Wells Fargo would reduce Michael’s debt to them under the note by $51,550.04 per month. This figure included a monthly installment of the advance (the portion Michael earned per month) and interest. If Michael stopped working for Wells Fargo before paying off the note, the outstanding balance would be due immediately.
Wells Fargo wired the $5 million advance to Michael in July 2018.
Probate and Family Court: Judge Counts Transitional Bonus Both as Income for Alimony Purposes and as a Divisible Asset for Equitable Distribution
On May 26, 2021, the probate and family judge issued Michael and Rosalia’s divorce judgment, along with 87 pages of findings of fact and conclusions of law. The probate and family judge ordered alimony in this divorce and equitably divided the marital estate.
In determining Michael’s income for alimony purposes, the judge included the monthly loan forgiveness related to the bonus–as if Michael were receiving a $51,000 (approximately) monthly payment from Wells Fargo in addition to his traditional income. In doing so, she found that Michael’s annual gross income was $1,282,684. Approximately half of that figure was traditional income. The other half, however, was the Transitional Bonus income (about $600,000). The judge then ordered Michael to pay Rosalia $35,499 per month in alimony.
Turning to the equitable distribution of the marital estate, the judge found that Michael and Rosalia’s combined assets totaled just over $8.4 million. This total included the remainder of the Transitional Bonus, which was in Michael’s Wells Fargo brokerage checking account. That account balance was just over $3.2 million. Wanting to give Rosalia slightly more of the marital estate through equitable distribution, the judge awarded Rosalia 53% of the parties’ total assets. Rosalia therefore received 53% of the brokerage checking account balance (which held the remainder of the Transitional Bonus).
So, the judge ultimately dipped into the Transitional Bonus two (really three) ways. First, the judge counted the Transitional Bonus as income for alimony purposes. Then she treated the Transitional Bonus as a divisible asset for equitable distribution. And, lastly, she ordered that each party be responsible for their own liabilities, which included the Wells Fargo debt. This left Michael solely responsible for the Wells Fargo liability even though it stemmed from the advance that Rosalia got a portion of (53% of the $3.2 million remainder).
Appeals Court: Impermissible Double Dipping in Alimony and Marital Estate Distribution
Michael appealed the Probate and Family Court decision. Michael argued that the probate and family judge impermissibly “double dipped” (i.e., double counted) when she treated the Transitional Bonus as both income for alimony purposes and as a divisible asset for equitable distribution. The Appeals Court agreed with Michael.
What Is Double Dipping?
Citing case law, the Appeals Court explains what double dipping is. “The term ‘double dipping’ describes ‘the seeming injustice that occurs when property is awarded to one spouse in an equitable distribution of marital assets and is then also considered as a source of income for purposes of imposing support obligations.’”
Let’s consider an example (as the Appeals Court does): a retirement account in the divorce context. The retirement account is an asset. It has funds that the court can divide. The retirement account is also the retired spouse’s source of income. Now, let’s say the court divides that retirement account between the divorcing spouses through equitable distribution. The retired spouse gets part and the other spouse gets part. But then, when calculating the alimony the retired spouse will pay to the other, the court counts all the income from the retirement account as the retired spouse’s–not just income from the portion of the retirement account the retired spouse got to keep. That’s double dipping. For alimony purposes, the court should’ve only counted income from the portion of the retirement account it awarded to the retired spouse (not all).
How to Avoid Double Dipping in Cases Involving Alimony / Support Orders and Asset Division
The Dalessio case illustrates how a court can avoid double dipping when dividing an asset and also basing a support order, at least in part, on that very asset. In Dalessio, the probate court awarded part of the husband’s proceeds from a personal injury case to the wife (there’s the asset division). The judge then based the husband’s child support obligation on the portion of the proceeds that the husband kept.
In Dalessio, there was no double dipping. The Probate and Family Court first divided the personal injury proceeds between the parties. Then, the court based the child support obligation only on the personal injury proceeds the husband kept, not the full amount.
The Appeals Court notes that the present case is not like Dalessio.
Appeals Court: The Probate and Family Judge Double Dipped (And Arguably Triple Dipped)
In Trethewey, the Appeals Court said it was proper for the probate judge to consider the portion of the $5 million “bonus” Michael got each month as income for alimony purposes. This is because Michael was incrementally earning that “bonus” (at a rate of about $600,000/year). However, the probate judge should not have treated what remained of the unearned portion of the “bonus” as an asset for division. Michael had not yet worked for that money.
In doing so, the probate judge double dipped. Rosalia got over half of the asset itself (which really hadn’t yet been earned). Moreover, she got alimony based on income from the entire asset, including the portion the court awarded her.
To complicate matters further, because Michael hadn’t yet earned the remainder of the bonus, it was a liability–a debt the court assigned to Michael. The Appeals Court found this to be not just an issue of double dipping, but a greater inequity.
“[H]ere the judge’s award of the $1.7 million to the wife from the Wells Fargo account amounts to an error of law,” the Appeals Court said. “Indeed, this is not just a case where the wife was awarded a portion of a marital asset, where the income generated by the wife’s portion was also treated as the husband’s income for alimony purposes…[Such] would be classic double dipping, which is disfavored and unlikely to be valid…In this case, however, the inequity ran even deeper; the money transferred to the wife should not have been regarded as part of a divisible marital asset free from its liability, as the money was in fact anticipated but as yet unearned income, not an asset of the estate free and clear of an equal liability owed.”
Appeals Court: Because the Transitional Bonus shouldn’t have been both counted for alimony purposes and also divided, the $1.7 million award from the Wells Fargo account to Rosalia is reversed.
“On the record before us, it was error for the judge to treat the $5 million advance in this fashion – double dipping or arguably even triple dipping – thereby disadvantaging the husband with respect to the Transitional Bonus threefold,” the Appeals Court said. “Because the resulting award was neither consistent with the judge’s stated rationale – which did not address the double dip – nor equitable, we amend the divorce judgment to eliminate the double dipping problem.”
Given the double (really, triple) dipping here, the Appeals Court reversed the probate court’s decision to award Rosalia $1.7 million from the Wells Fargo account through equitable distribution. She must return it. “With that award reversed,” the Appeals Court said, “the divorce judgment no longer suffers from double counting…”
The Appeals Court remanded this case back to the Probate and Family Court to figure out, in part, the means for payment of the $1.7 million.
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