Are we alone? In our quest to find life beyond Earth, we use our own planet to develop and verify new methods and techniques to remotely detect life. Our Life Signature Detection polarimeter (LSDpol), a snapshot full-Stokes spectropolarimeter to be deployed in the field and in space, looks for signals of life on Earth by sensing the linear and circular polarization states of reflected light. Examples of these biosignatures are linear polarization resulting from O2-A band and vegetation, e.g. the Red edge and the Green bump, as well as circular polarization resulting from the homochirality of biotic molecules. LSDpol is optimized for sensing circular polarization. To this end, LSDpol employs a spatial light modulator in the entrance slit of the spectrograph, a liquid-crystal quarter-wave retarder where the fast axis rotates as a function of slit position. The original design of LSDpol implemented a dual-beam spectropolarimeter by combining a quarter-wave plate with a polarization grating. Unfortunately, this design causes significant linear-to-circular cross-talk. In addition, it revealed spurious polarization modulation effects. Here, we present numerical simulations that illustrate how Fresnel diffraction effects can create these spurious modulations. We verified the simulations with accurate polarization state measurements in the lab using 100% linearly and circularly polarized light.