Double Dip Prohibited in Divorce: IRA Edition

A recurring issue in divorce litigation is the treatment of marital assets that generate income, such as pensions, rental real estate and businesses. Pennsylvania case law establishes clearly that these assets can be divided as property in equitable distribution or counted as income for alimony, but not both. A recent decision published by Adams County Judge Robert G. Bigham applies this law and logic to IRA distributions, in Sealander v. Sealander, 48 Adams Co. Leg. J. 356 (April 12, 2013).

In Sealander, the wife waived her interest in husband’s IRA retirement account when she signed a marital settlement agreement in October 2011. Nine months later, (ex-)husband initiated a support modification proceeding when he began to provide medical insurance coverage for the children and (ex-)wife no longer had child care expenses. During the modification hearing, (ex-)wife argued that the court should treat the IRA distributions that (ex-)husband received in 2011 and 2012 as income. Husband argued that his income did not include the IRA distributions because they were already divided in equitable distribution.

A cow can provide milk or meat, but not both. The same is true in family law: an income-generating asset can be treated as a source of income for a support order, or it can be treated as property that is divided between spouses in equitable distribution. In his opinion, Judge Bigham thoroughly reviewed the case law that prohibits this form of double dipping. He also cited the statutory definition of “income” in child support cases, which includes income derived from property, but not the value of the property itself.

Not all family lawyers agree upon a strict prohibition on double dipping. Some lawyers, for instance, believe that double dipping should be permitted when income-generating assets could provide a source of child support. On one hand, children do not receive any share of the marital property when it is divided in divorce, so they do not benefit twice from an income-producing asset. On the other hand, the owner pays twice and has no control over how the child support payment is spent by the other parent.

Some valuation experts argue that no double dip exists when the income-generating asset does not diminish in value. Commercial real estate is a good example of this: If rental income is used to pay alimony for a few years, and then the property is sold to be divided in equitable distribution, the sales price probably isn’t less than what the owner could have received by selling the property in the first place. The owner suffers no detriment by paying alimony from the rental income, so there is no double dip. I haven’t seen this argument made in any of the published decisions yet.