Double Dipping Explained in New Massachusetts Appeals Court Case

Double Dipping Explained in New Massachusetts Appeals Court Case

By Hannah Lejter

The Appeals Court highlighted an issue in divorce matters called “double dipping”, also known as “double counting,” reversing the Probate and Family Court’s decision in a new Massachusetts Appeals Court case, Michael A. Trethewey v. Rosalia F. Trethewey. In  Trethewey, the husband, Michael, received a “Transitional Bonus” from his employer, Wells Fargo, which the probate and family judge considered as both a divisible asset for equitable distribution and as income for the purpose of alimony, essentially counting it twice. As a result, the wife, Rosalia, received more money in alimony as well as 53% of the parties’ total marital assets.

According to the Appeals Court, 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 dive deeper into why the Appeals Court determined that the judge engaged in double dipping and sent the case back to the lower court for further action.

The 5 Million Dollar Deal

In 2015, Michael filed for divorce, followed by a 19-day trial. In 2018, during the trial, Michael signed an employment contract with Wells Fargo, who gave him a $5 million “Transitional Bonus” as part of his compensation package. At the same time, Michael signed a $5 million promissory note with Wells Fargo, promising to pay 5 million dollars through deductions from his pay. This means that Michael made a deal with Wells Fargo: Michael promised to pay back—eventually and incrementally—the $5 million dollars given to him as part of his employment contract. This arrangement stated that Michael would meet specific performance metrics at his job for 112 months (9 years), and Wells Fargo would give him a lump sum of $55,550.04 per month.

By receiving the lump sum payment upfront, Michael could potentially use it for immediate needs or investments. However, in exchange for this upfront payment, Michael agreed to repay the amount over time through deductions from his future earnings. This type of arrangement, while perhaps unfamiliar to some, is not uncommon in financial industries where bonuses or incentives are often tied to performance or future obligations. In the event that Michael stops working for Wells Fargo before paying off the promissory note, the former employer would require Michael to pay off the balance at once.

The “Transitional Bonus” may have been transitional, but it was not “traditional” in the sense that receiving a bonus traditionally means one is receiving extra money. Michael’s “Transitional Bonus” was an advance on income Michael would earn at Wells Fargo over the following nine years.

Double (or even Triple) Dipping

The probate and family judge issued the divorce judgement on May 26, 2021. Firstly, the judge treated the monthly $55,550.04 as regular income and thus added Michael’s annual gross income ($1,282,684) to the “Transitional Bonus” income (approximately $600,000), ultimately ordering Michael to pay Rosalia $35,499 per month in alimony. Secondly, the judge calculated the equitable distribution of the marital estate, finding that the parties’ combined assets amounted to a little over $8.4 million, including the $3.2 million remainder of the “Transitional Bonus”. Through equitable distribution, the judge wished to give Rosalia a bit more than half of the marital estate, and awarded Rosalia 53% of the parties’ total assets, meaning that she received 53% of the $3.2 remainder (amounting to approximately $1.7 million) of the “Transitional Bonus”. The probate judge double dipped by awarding Rosalia both alimony income and 53% of the total assets.

The Appeals Court ruled that it was appropriate for the probate and family judge to treat the portion of the monthly lump fee from the “Transitional Bonus” as income for alimony purposes, but that the remainder of the “Transitional Bonus”, money that was yet unearned, should not have been treated as an asset for division. Moreover, the judge ordered that each party shall be responsible for their own liabilities and ruled that the remainder of the bonus was a liability since Michael had not yet earned that money.

Michael was therefore entirely responsible  for the Wells Fargo liability and would need to pay back this debt, regardless of the fact that Rosalia received a share of it. Arguably, the “Transitional Bonus” was counted three times—once as income, once as a divisible asset, and once as a liability, when it should have been counted only once as income for alimony purposes.

What Comes Next?

On April 24, 2024, the Appeals Court reversed the probate and family judge’s decision. The case will go back to the Probate and Family Court, where the means of payment of the $1.7 million will be determined. Normally, the Appeals Court would propose that the probate and family judge reassess the double dipping issue, but they decided that this was unnecessary in this particular circumstance, stating that “[t]he error here was in counting the $3.2 million Wells Fargo account as part of the marital estate when it was not free and clear of the corresponding liability.” The Appeals Court’s proposition corrects the mistake, leading to an equitable distribution of assets that aligns with the judge’s original expressed intention of awarding slightly more than one-half of the marital estate to the wife. Avoiding double dipping is important to ensure fair distribution of assets in a divorce case.

If you have a divorce with complicated assets, reach out to Hera Law Group for a free consultation, info@heralawgroup.com or 978-637-2048.

Sources

Trethewey, M. A. v. Trethewey, R. F., No. 23-P-55 (Middlesex, 2023-2024). url: https://www.mass.gov/files/documents/2024/04/24/d23P0055.pdf

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