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Dissipation of Marital Assets to Pay for Other Marital Assets
© 2003 National Legal Research Group, Inc.
ILLINOIS: In re Marriage of Miller, 342 Ill. App. 3d 988, 796 N.E.2d 135 (2003).
The husband did not dissipate marital property by using it to pay for taxes, repairs, and improvements on other marital property. He did not dissipate marital property stock by selling it, as the proceeds were marital property, and the stock would in fact have lost value if it had not been sold. The husband did not dissipate marital property by closing his medical practice, where maintaining the practice made it difficult for the husband to care for the three sons in his custody, the stress of divorce was interfering with patient care, and the husband had an alternate source of income sufficient to meet his obligations.
Following the entry of a final divorce decree which determined inter alia that the husband was guilty of dissipating marital assets by quitting a successful medical practice that he had been engaged in during the marriage, the husband appealed the equitable distribution award made by the trial court. On appeal, that order was affirmed in part, reversed in part, and remanded.
At the time that the petition for divorce was filed, the husband earned medical fees of almost $600,000 per year. The wife had been a registered nurse but became a homemaker soon after their wedding. The divorce proceedings were protracted, taking four years to complete. After one and one-half years, the husband quit practicing medicine. He maintained benefits for his four employees for a period thereafter. After one year, all of his employees, save one part-time person, were terminated. It cost approximately $103,000, however, to keep these employees working and covered by benefits. During the period of the extended divorce proceedings, the wife became depressed and she abused alcohol. She incurred substantial medical expenses. The trial court determined that the money spent by the husband to wind down his medical practice dissipated the marital estate.
The husband testified that he quit the practice of medicine not to visit financial harm on himself or his estranged wife but because of his own difficulties in dealing with the divorce, difficulties that interfered with his ability to provide adequate patient care, and because of the need to devote more time to the needs and concerns of the couple's three sons who were in his custody. The husband was also motivated to leave the active practice of medicine because of a conflict caused by his involvement in the authoring of a medical treatise. In addition, the husband became very active in stock day-trading, which, despite the stresses caused by the divorce, generated substantial income for a period which was far in excess of his earnings from his medical practice. Despite substantial gains in the market, the husband had numerous expenses to cover regarding his suspended medical practice, as well as a need to pay taxes on the income generated by his stock trading. To this was added the wife's medical expenses, the expenses of raising three children, and his debt service. He purchased the wife her own home free and clear from debt. Despite a court order to the contrary, the husband sold several stocks in order to preserve the value of his portfolio when such stocks lost value and to pay debts and taxes thereon. With the subsequent decline in the stock market, however, the husband had to borrow $700,000 over the next two years to cover these expenses, debts, and taxes and to maintain his lifestyle and that of his wife and children. Eventually, the accounts receivable from his practice were collected.
The trial judge held that all these expenditures were a dissipation of marital assets. The husband was ordered to pay the wife $1.6 million and to assume responsibility for all of the $1.3 million in marital debt. The lower court concluded that all of the dissipation stemmed from the husband's decision to quit his medical practice.
In considering the correctness of the trial judge's ruling, the appellate court first recognized that it would not overturn a determination that a spouse had dissipated assets, and therefore deserved to be charged with losses, unless the trial judge's findings exceed the bounds of reason and ignore principles of law designed to ensure fair and just results. It concluded that despite this standard of review, the trial judge herein had committed reversible error.
Dissipation was alleged in that the husband used funds generated by his stock trades in order to pay property taxes due on marital property and to pay debts. The court noted that dissipation is the use of marital assets for one spouse's sole benefit unrelated to the marriage at a time when the marriage is undergoing irreconcilable breakdown. No dissipation was found by the appellate court in this regard. The taxes and debts that had accumulated were far less than the money earned by the husband in his market activity. From this income, he purchased the wife her own home and increased the marital estate by $3 million and made almost $1.3 million after considering the stock margin loan. Dissipation contemplates a diminution in the marital estate's value due to a spouse's actions. Although a spouse may not necessarily derive a personal benefit from the acts which constitute dissipation, expenditures that form the basis for dissipation should have some detrimental effect upon the marital estate. There was no reason for finding that the payment of property taxes due on marital property constituted dissipation and the same was true with regard to the payment of a marital debt, such as the margin loan, a debt used to increase, rather than diminish the value of the marital estate.
Stressing that the concept of dissipation was premised on waste, and that if a spouse's actions do not squander the marital estate's value, there is no dissipation, the appellate court also found that no dissipation had been committed with regard to the husband having sold stock to pay debts and taxes due thereon. The liquidation of the stock account served to preserve marital property, rather than waste it, as continuing to hold the stock would have resulted in a further decline in its value.
The court of appeals then addressed the husband's quitting his medical practice. While it acknowledged that dissipation could be found in the devaluation of a business, it held that the circumstances of the case herein were far removed from the circumstances that normally support such a conclusion. The wife was ill and incapable of caring for the three children, which left the husband with that responsibility. The uncontradicted evidence showed that the stress of the divorce and the added burden of being the children's care giver interfered with the husband's ability to function properly as a physician. Moreover, he had a less time-consuming and more lucrative means of making money, namely stock day-trading, which would allow him to earn a substantial income without putting his patients at risk as the evidence showed was happening, and also to provide for his children's care. It was error for the trial court to assume that the husband could have made the same from the practice of medicine without the added attention to trading that ceasing his practice allowed. The court also pointed out that the finding that the husband had dissipated the entire value of his medical practice was unsupported since almost all of the value of its accounts receivable were collected and added to the marital estate.
As to the $103,000 spent by the husband in winding down the medical practice, the court admitted that some of that sum may have dissipated the value of the marital estate in that the husband could have done it more expeditiously and less expensively. However, the finding by the trial court that the entire amount spent by the husband was dissipation was untenable.
The trial court also found dissipation in the husband's payment of the cost of improvements and repairs to the marital residence, as well as in paying the costs of maintaining a private airplane that was a marital asset. As these expenditures were made to preserve the value of marital assets, they could not be considered dissipation. The husband's purchase of items of tangible personal property with marital funds was also not dissipation where these items were distributed to him as marital assets. The transfer of one marital asset to another asset is not dissipation.
The husband had withdrawn $123,000 from a brokerage account during the pendency of the divorce. The trial court ruled too that this constituted dissipation as the husband had failed to demonstrate that the funds were used to preserve, enhance , or otherwise benefit the marital estate, or to provide necessities for the family. The appellate court disagreed. Taxes were paid with the withdrawn funds. Moreover, a large portion of the remaining funds were used to pay basic living expenses of the wife and children. The payment of $2,700 in monthly support to the wife while the divorce was pending for a number of years could not be considered dissipation.
Finally, the appellate court disagreed with the trial judge's finding that all of the additional debt incurred during the pendency of the divorce was dissipation. The use of some of the borrowed funds to pay the wife's support and medical expenses itself establishes that not all of these funds were dissipated. On remand, an accounting could be required of the husband to establish what was done with such funds.
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