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The Divorce Encyclopedia
Dissipation of Assets

Term Definition Dissipation of Assets - the wasting of marital assets through extravagant spending, gambling or excessive borrowing or fraudulent conveyance of a third party.
Application in Divorce 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. According to one source, "[t]he immense body of case law dealing with [dissipation] is a tribute to both the dogged persistence of spouses who are determined to steal marital property for themselves, and the ingenuity of courts faced with stopping them."

In divorce, the allegations that a jilted husband emptied a wall safe, or looted a safe deposit box, or cooked the books are the themes and refrains that judges hear like the sad refrains in Greek chorus. In divorce actions, courts even hear claims that spouses dissipated assets during the happier times of the marriage.

Courts disagree the expenditure of marital funds for living expenses during a separation, but a majority have said that the burden of proof is on the party doing the spending. That means he or she must prove that the funds were spent for a marital or proper purpose.

Courts look with disfavor on the dissipation of assets, and some consider it serious marital misconduct. Very often, when one party is contemplating a divorce, he (or she) hides assets that might otherwise be eligible for distribution as part of the property settlement. Very often women are at a disadvantage because the husband manages the money. Sometimes these machinations become quite complicated and require a forensic accountant who can analyze financial records for evidence of dissipation and secretion.

In the context of divorce, dissipation of assets includes concealment and conveyance of assets as well as their wasting through acts that are reckless and negligent and not necessarily intentional.

In divorce actions, sometimes courts issue pretrial injunctions to prevent dissipation before the fact, but this at the least requires that one party demonstrate that dissipation is likely to happen.

Very often dishonest spouses reduce the marital estate by conveying assets to friendly third parties. 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. In divorce actions, courts have rescinded the conveyances of real estate and stock when it was demonstrated that the transfer happened without appropriate consideration and with fraudulent intent.

Very often when couples divorce courts must deal with dissipation after the fact via unequal distribution of the remaining marital assets in favor of the victim party, usually the woman.

In at least one case, a Michigan court added deterrence to the logic of the punitive distribution, holding that the amount of the unequal distribution can be greater than the amount dissipated (although an appeals decision reversed the lower but upheld the facts). A growing body of case law permits courts to award amounts greater than the amount of the damage in the interest of deterrence.

The most common way of dealing with dissipation is to treat the dissipated assets as a marital property, then distribute what is already gone as that party’s share of the marital pie. For instance, an alienated spouse who squandered marital assets in the casinos may find that amount negatively credited to his share of the marital estate. Intent is not a consideration in the dissipation of marital assets by a problem gambler, who is addicted to the thrill in the risk of financial ruination.

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 at the time of the loss; and 4) the loss was not incidental to a valid marital purpose. In the case of the first three elements, the burden of proof is on the spouse alleging dissipation; in the case of the last element, the burden is on the spouse to prove a valid marital purpose.

The expenditure of marital funds for a girlfriend or paramour can be classed as dissipation of the marital estate.

Gifts to children, particularly when the are larger than previous years, may be classed as dissipation, especially if they are made near the time of the marital breakup.

Loss can take many forms, including destruction (a California case where a spiteful husband threw his wife’s jewelry into the ocean); deliberate reduction of an asset’s fair market value; negligent reduction of fair market value; concealment; placement of an asset in a trust; allowing foreclosure of real estate.

Courts sometimes face cases where one spouse improperly appropriates marital funds early in the marriage. A Massachusetts court, for example, considered the wife’s economic misconduct in dividing marital property because he had squirreled away some $100,000 in marital property in accounts in her own name from the beginning of her marriage.

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 and payment of taxes on marital property. In general, the use of marital funds to attorney’s fees is not dissipation.

The payment of temporary spousal and child support, particularly after the breakdown of the marriage but before the divorce, can be knotty. Payment of court-ordered spousal and/or child support is not a marital purpose since by its nature such support is paid by one spouse to the other for the benefit of children. However, courts in some jurisdictions look upon the payment of "reasonable living expenses" as valid marital purpose, not dissipation. The determination of whether such expenses are reasonable and permitted dissipation may lie in whether they are paid before or after the classification of assets.

Courts increasingly hold that dissipation may also include recklessness without intent to harm the spouse or the martial estate. Courts uniformly include "excessive gambling" in this category of dissipation. Martial funds spent entertaining a paramour, with or without a reckless intent, are also dissipation.

Reckless expenditures, such as the loss of $56,000 in marital assets seized by the federal government upon the failure of the husband’s illegal drug business, are dissipation.

Like so much of divorce maneuvering, dissipation becomes darkly comic. In one 2004 Indiana case, a man weakened a claim that his wife removed $3,000 a home safe when he "suddenly remembered" some $75,000 in bonuses he previously said he had not received from his employer. In presenting his case, he further blundered when he failed to allege dissipation in connection with the improper removal of some $7,000 from the parties’ checking account immediately after separation. Thus the court decided that the $7,000 was not subject to a claim of improper division.

See also Secretion of Assets.

Resources: the Uniform Fraudulent Transfers Act (UFTA).

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