Double Dipping in Equitable Distribution

August 18, 2015 § 3 Comments

When Michael and Rosie Jackson went through their divorce, the chancellor awarded the former marital residence to Rosie and ordered that she pay the mortgage debt on it. The parties agreed that the value of the home was $78,000, and that its mortgage debt was $50,103, resulting in equity of $27,897.

When the chancellor toted up the assets, he assigned the equity to Rosie. Her share of the marital assets amounted to $31,928, and Michael’s share came to $120,310.64. The difference in favor of Michael was $88,382.64.

Then the chancellor allocated the marital debts between the parties. Michael was assigned $4,950 in credit card debt, reducing Michael’s asset value to $115,360. Rosie was assigned the mortgage debt, which the chancellor found to have reduced Rosie’s asset value to minus $18, 175. In order to equalize the estates based on that arithmetic, the chancellor awarded Rosie lump-sum alimony $57,680.32.

Before going any further, take a moment and ask yourself whether there is any flaw in that arrangement.

In Jackson v. Jackson, handed down by the MSSC on August 13, 2015, the court reversed in part and remanded because the chancellor counted the mortgage debt twice: once by subtracting it from the total value of the property; and a second time by including it in the debts assigned to Rosie. The result was that Rosie’s share of the marital estate was undervalued by $50,103, which in turn affected the amount of lump-sum alimony awarded. The case was sent back to the trial court for a re-do on that issue. All other issues were affirmed.

The COA had affirmed this decision and brushed aside Michael’s complaint about the calculation, noting that our law requires only that the division of the marital estate be equitable, not necessarily equal. The COA’s decision was the subject of a prior post here dealing with homosexual behavior as habitual cruel and inhuman treatment.

Judges do make mistakes when it comes to juggling those numbers in equitable distribution cases. Always check behind the judge for errors in handling debt such as was done here. While you’re at it, check arithmetic and make sure that the figures used match up with the evidence. File a timely R59 motion if you catch an error. Better to let the judge fix it, if she will, than to have to go to the expense of an appeal.

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§ 3 Responses to Double Dipping in Equitable Distribution

  • randywallace says:

    I can’t buy that Reid. All other things being equal, A $200k house with $100k in equity is no more or less of an asset than a $100k house with no mortgage.

    We don’t consider $100k in cash to be worth more than its face value simply because it can potentially be invested to make a return.

    However, it can be argued that the $100k in cash has more value than the $100k equity in either house due to transaction costs required to liquidate either house.

    • Reid says:

      I agree, Randy. Like I said at the end of my comment, and the more I thought through the consequences of what I was suggesting, the less I liked it. But I thought the train of thought might be worth following, if only to avoid similar error.

  • Reid says:

    I’m not sure that the chancellor got it wrong, as a normative matter (disclaimer about MSSC being the final arbiter, settled law, etc., goes here). Rosie not only has to pay the principal debt, but she also has to pay any interest that continues to accrue post-judgment. If she sells the house, she avoids the interest accrual but also loses the value of quiet enjoyment, whatever it may be. It can be argued that the interest value of the debt should count as an additional liability (in that case, I think the same calculus would apply to ALL interest-bearing debts), and it may be appropriate to double-count the debt as a shorthand where precise evidence was not adduced.

    The more I think about this, the more unwieldy it sounds. Maybe it COULD be an alternative ground to support the chancellor’s decision, but actually doing so would be problematic.

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