Dissipation of marital assets – the wasting of money through extravagant spending, gambling or excessive borrowing or fraudulent conveyance to third parties – is the most common form of economic misconduct in divorces. Very often, a spouse contemplating a divorce hides assets that might be included in the distribution in the property settlement. Secretion of assets works to the disadvantage of the wife because in many marriages the husband manages the money.
Courts look with disfavor on the dissipation, and some consider it serious marital misconduct. Bad behavior that is seen as an economic fault can significantly influence the judge’s discretion in an equitable division of marital assets. Judges deal with dissipation after the fact via unequal distribution of the remaining marital assets in favor of the victim party. The most common way is to treat the dissipated assets as marital property, and then distribute what has been dissipated as that party’s share of the marital pie. For instance, an alienated spouse who squandered marital assets in the casinos may find the losses negatively credited to his or her share of the marital estate.
In a divorce action, the plaintiff may make a claim of dissipation by stating that the defendant improperly spent marital assets during the time of the marriage breakdown, or that the assets were spent for a non-marital purpose, (such as significant gifts, hotel rooms, air tickets for a mistress, etc.) during the marriage. Once this has been established, the defendant must prove the funds were spent on a legitimate purpose. The court appropriately adjusts its division of property to offset the dissipation.
The amount of money is not important, and the court adjusts the allocation of marital resources appropriately. The victim spouse may decide that the costs of pursuing the claim exceed the benefits.
One common form of dissipation of assets is the expenditure of marital funds for a girlfriend or paramour. Spending marital property on gifts for a significant other understandably infuriates the victim spouse and may substantially reduce any prospect of reaching an amicable settlement out of court.
In dealing with dissipation, courts balance the competing goals of preventing dishonest or reckless expenditure of marital funds against reasonable use of marital funds for legitimate purposes. Generally, a dissipated asset may be considered marital property if 1) the asset is lost; 2) the loss happened upon and after the breakdown of the marriage; 3) the guilty spouse controlled the asset when it was lost; and 4) the loss was not incidental to a valid marital purpose. Loss can take many forms. Dissipation includes concealment and conveyance of assets through acts that are reckless and negligent but not necessarily intentional.
Dishonest spouses very often reduce the marital estate by conveying assets to friendly third parties. Sometimes these schemes become quite complicated and require a forensic accountant who can analyze financial records for evidence of dissipation and secretion. Sometimes, a court orders a rescission of a fraudulent conveyance of assets, which in effect restores the property or assets to the marital estate. The Uniform Fraudulent Transfers Act (UFTA) and case law govern recisions of fraudulently conveyed property. Expenditures or loss associated with a valid marital purpose are more problematic. No court has made a definite ruling of the meaning of this phrase, but valid marital purpose would be when one partner spends marital assets on routine living expenses, business expenses associated with a marital business, reasonable maintenance, or payment of taxes on marital property.
The court values dissipated marital assets as of the date that they were dissipated. This is particularly important as it pertains to investment or retirement accounts, so if one spouse cashes out, the court values the investments based upon on the date they were sold, not based upon what they might have turned into had they remained invested.