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Divorce Mediation Blog

Ohio Continues to Stew about Double Dipping Settele v. Settele

Wednesday, February 17, 2016

Our friend and colleague, Michael Flores of Orleans, knows that we obsess about these things, so he recently sent along September 2015’s case, Settele v. Settele. It is Ohio’s latest foray into the fractious realm of double counting income, to value small businesses, and then for support. The Delessio, Champion, Sampson and Adlakha cases have made Massachusetts lawyers and courts acutely sensitive to the issue, and debate rages daily, here, about what is or is not an “inequitable”, and thus impermissible, double dip.

Ohio lawyers seem to be equally tuned in, as the spate of recent reported cases indicates. That state has gone from relative clarity in Heller I, II and III (2008 -11) [Excluding business income above “reasonable compensation” used in discounted cash flow valuation because: "[t]rial courts may treat a spouse's future business profits either as a marital asset subject to division, or as a stream of income for spousal support purposes, but not both."]; to repudiation in 2015’s Bohme [upholding the trial judge’s use of capitalized income as a simultaneous source of support because double counting is an economic fallacy]; to broad discretion in last year’s Gallo [the courts have been “softening” Heller since its inception and a judge will know an “unfair” double dip when he or she sees it; and is fully armed to mitigate it].

In Settele, Ohio adds denial.

In Settele the court addresses the following question: where a business is valued by net worth calculation only, but including accounts receivable (A/R) as an asset, is support that is drawn from the future collection of those specific A/R a double dip that is barred by Heller I? The husband-appellant complained that his available income stream should have been reduced for support calculation purposes to reflect that a portion that income was A/R at the valuation date, and thus divided already with his wife.

Rather than indulge the “we’ll fix it if it is unfair” approach of Gallo, the Settele court decided, instead, that because A/R have already been “earned”, just not collected, no double dip would occur at all. So, the court concluded, the question of unfairness need not be reached. The decision certainly lines up with the orthodoxy, both here and in Ohio, that an asset-based valuation will generally not yield a double dip problem. But, is it right? Where the asset-based valuation does include A/R, why is it not a double dip to use those specific collections as a source of support? Doesn’t the bare statement that the A/R dollars are already “earned” deny the reality of a cash basis taxpayer? Surely, an owner takes his or her chances on collecting A/R dollars for which he or she has been charged a divisible asset value. Does not the use of those assets (which may never, in fact, be collected) for support, double the owner’s jeopardy?

As Gallo asserts, the Ohio courts have broad discretion to find that double dips are outweighed by other equities. Certainly, A/R, which hopefully yield income in the relative near-term, present a problem of lesser degree than indefinite future cash flows that have been capitalized to form an opinion of value. But, that does not make them inapposite in principle.

It seems that the court could have acknowledged that A/R as a support source may well be a double dip, but that its impact may be minimal, is trumped by other equities, or may be remedied, by exercise of discretion. This would have, it seems, been truer to Gallo by, softening, but not simply disregarding the core of Heller.



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