When it comes to dividing marital property in a divorce settlement, probate courts adhere to the adage, “waste not, want not.”

Dissipation of assets involves a spouse in the throes of divorce, separation or annulment disposing. The spouse hides or shifts marital property without the other mate’s consent. In many instances, the offending spouse creates a significant debt against the couple’s marital property. This often is through extraordinary use of their assets for non-necessities of life.

Ways a wasteful spouse might dissipate marital assets include:
  • Incurring major gambling losses;
  • depleting the parties’ net worth through excessive spending on alcohol or drugs;
  • maxing out credit cards on hotels, travel and restaurant expenses tied to an extramarital affair;
  • conveying marital property to family members or friends below cost with the intent to reacquire the undervalued asset post-divorce;
  • destroying big-ticket personal property, such as furniture; and
  • sustaining losses concerning a sham investment.

 

Probate court judges weigh numerous factors to determine whether to attribute the parties’ depleted net worth to a spouse’s dissipation of assets.

Judges, for example, will gauge:
  1. The amount of an expenditure and whether it was needed;
  2. whether an outlay was the kind of expenditure routinely made by the couple before the marital breakdown;
  3. whether both parties gained from the expenditure, rather than one spouse benefitting to the other’s exclusion; and
  4. when the expenditure occurred, relative to the couple’s separation.

 

If a court finds assets were dissipated, the usual recourse is to divide the remaining marital property. The court divides the property so the innocent spouse is restored to the position he or she would have been in had not the offending mate dissipated the assets. The spouse seeking such an allocation must prove to the probate judge that the offending spouse diminished the marital estate.

Courts will impose a debt at the expense of the dissipating spouse to the benefit of the non-offending spouse. This is in the ultimate distribution of marital property in the parties’ settlement agreement.  Similarly, if a spouse hides an asset, the concealed asset likely will be given to the other spouse once it is unveiled.

In some ways, one can view dissipation of assets as a “sin tax.” Essentially, a spouse’s “faulty” misconduct, whether it involves gambling, substance abuse or illicit liaisons, prompts the court to impose financial consequences by awarding a greater portion of marital property to the non-offending spouse.

Wasting Assets in Mass.

Although the Massachusetts statute that governs the equitable distribution of marital property to the divorcing parties doesn’t explicitly reference dissipation of assets, a judge assigning the estate must consider numerous factors, including “the conduct of the parties during the marriage,” “the contribution of each of the parties in the acquisition, preservation or appreciation in value of their respective estates,” and “the liabilities and needs of each of the parties.”

Many states, including Minnesota and New Jersey, like Massachusetts, consider a spouse’s dissipation of assets as a factor to consider in allocating a disproportionate share of the marital estate to the innocent spouse. Other jurisdictions, such as Florida, specifically articulate in a statute that a factor in unequal distribution of marital property in a divorce is “the intentional dissipation, waste, depletion, or destruction after the filing of the petition or within 2 years prior to the filing of the petition.”

Goodell v. Goodell

In the 2016 Massachusetts case of Goodell v. Goodell, in which a probate court awarded a wife $316,000 more in marital assets than her spouse, the husband alleged his ex-wife wasted more than a quarter-million dollars by making several unexplained bank withdrawals shortly before and immediately after filing for divorce.

The Supreme Judicial Court found that the wife did not make any lavish purchases or use the cash withdrawals “for personal indulgence and in disregard of marital obligations.” The Court ruled that dissipation “is not a separate category unto itself, requiring rigid or formulaic treatment (but is) merely a subcomponent of the mandatory and discretionary…factors that, taken together, determine what division of the marital estate would be equitable.”

Forensic Accounting:

Proving dissipation of assets may require a forensic accountant. Such a financial expert can uncover assets hidden offshore by a wasteful spouse. The expert may detect pseudo-gifting of valuables intended to be undone once a divorce is finalized. The expert may even expose inconsistencies in financial documents attempting to mask gambling losses.

Forensic accounting involves culling through credit card receipts, tax returns and loan applications, among other documentation. This is to determine if a spouse in a deteriorating marriage has diverted significant assets of the couple for his or her own pleasure at the expense of the other spouse and the couple’s joint financial obligations.

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