One question that frequently arises during a divorce is what to do when a spouse hides or sells a piece of marital property before the divorce is final.
It is not uncommon for a spouse to sell or hide a piece of property during a divorce solely to benefit himself. The courts define this type of behavior as the “dissipation of marital assets.”
Dissipation of marital assets is when one spouse conceals, sells, or wastes marital property for their own benefit or for a reason that has nothing to do with the marriage at a time when the marriage is falling apart.
The doctrine of dissipation of marital assets is the idea that the court has the power to include property sold or wasted before the divorce is final as part of the marital estate, even though the spouses no longer own the property.
What is the Remedy if There has Been Wasteful Dissipation of Marital Assets?
In general, if a court finds that one spouse has wasted marital assets, the court has the power to include the property in the marital assets when deciding how to divide the property fairly and equitably between the spouses.
For example, suppose a husband sells a car for $25,000.00 before the divorce is finalized and hides the money in a bank account for himself. If the court finds that the sale was a wasteful dissipation of a marital asset, the court will consider that the husband still has the $25,000.00 and include that as a portion of the marital estate he has already received.
How to Prove Dissipation of Marital Assets
The test for the dissipation of marital assets is to determine whether the assets were wasted, sold, or misused to diminish the marital estate. Each state’s laws differ on what constitutes the dissipation of marital assets. But, in general, most states require four elements:
- Whether the expenditure benefited the marriage or was made for a purpose entirely unrelated to the marriage,
- The timing of the transaction (was it during a time when the marriage was falling apart?),
- Was the expenditure excessive or minor, and
- Did the dissipating spouse intend to hide, deplete, or divert the marital asset?
While not all states have identical elements for dissipation, there is a commonality in what courts look for when determining whether dissipation is present.
Generally, to prove a transfer of an asset was a dissipation of a marital asset, the alleging spouse must show that the other spouse intentionally depleted the marital assets. Most courts will not find that negligent financial mismanagement of marital property is, in and of itself, a dissipation of marital assets.
Example of a Transfer that is not Dissipation of Marital Assets
Take, for example, a case where a husband alleges that his wife dissipated assets when she transferred a house that was marital property to her mother. The house was worth $100,000.00.
The wife claims that even though the house was a marital asset at the time of the transfer, the transfer was not a dissipation of marital assets because she transferred the property in exchange for forgiveness of a $150,000.00 debt the couple owed to her mother.
This would not be a dissipation of a marital asset because the wife did not transfer the house with the intent to dissipate marital assets. The transfer was actually for the benefit of the marriage because it eliminated a $150,000.00 debt with only a $100,000.00 payment.
An Example of Dissipation of Marital Assets
Take, for example, a wife who presented evidence to the court that her husband hid money in a bank account held in the name of his mistress. The court found out that the husband deposited money into an account he shared with his mistress during the marriage. This would be an example of the dissipation of marital assets.
What Types of Actions are Considered Dissipation of Marital Assets?
There isn’t a law that says precisely what kinds of actions count as intentional and wasteful dissipation of marital assets. When deciding if there has been a dissipation of marital assets, courts usually look at the facts and circumstances of each case.
However, most states recognize that some behaviors are more likely to indicate the dissipation of marital assets. Here are a few examples of things that courts have said are examples of wasting assets from a marriage.
Gambling Debts are Generally Considered the Dissipation of Marital Assets
Generally, courts hold that excessive gambling is presumptively fraudulent and rises to the level of dissipation of marital assets.
However, some courts hold that gambling alone does not constitute dissipation without evidence establishing additional conduct rising to the dissipation of marital assets.
For example, one court held that a wife did not dissipate marital assets even though she spent an average of $10,000.00 to $12,000.00 per year gambling. The court, in that case, held that there was insufficient evidence of dissipation because the wife worked three jobs that provided additional income to cover the gambling debts.66
Failing to Pay the Mortgage or Taxes can be a Dissipation of Martial Assets.
In general, if a spouse fails to make mortgage payments or fails to make tax payments which leads to foreclosure, most courts would see this behavior as constituting the dissipation of marital assets.
Similarly, if a party has significant assets (such as a bank account) at the time of separation, but when the time of the trial comes around, and the asset is gone, the court will consider this dissipation of marital assets. The only exception would be if the spouse can prove the money was used for reasonable expenses.
Money Spent on Alcohol or Drugs can be a Dissipation of Marital Assets
In general, the money spent on excessive alcohol use and drug-related expenditures is often considered a dissipation of marital assets. Most courts require excessive use and substantial money to be spent on alcohol or drug-related activity before it is considered a marital asset dissipation.
Is Money Spent on extramarital affairs Dissipation of Marital Assets?
Generally, suppose a spouse spends substantial money on an affair for gifts, vacations, hotels, and other expenses. In that case, this will be considered the dissipation of marital assets.
How to Prevent Your Spouse from Selling Assets During a Divorce.
The transfer of marital assets before a divorce is finalized prevents a court from having the ability to distribute all marital assets in the final divorce decree equitably.
One way to prevent the transfer of assets is using a preliminary injunction. A preliminary injunction is a court order preventing the parties from transferring or dissipating any marital assets while the divorce is pending.
These preliminary injunctions prohibit the parties from intentionally destroying, removing, transferring, or otherwise reducing the value of the marital property while the divorce is pending.
How to Obtain a Preliminary Injunction?
Two types of preliminary injunctions can be used to prevent spouses from dissipating assets during a divorce. The first is an automatic injunction, which requires no action by either of the spouses. The second type of injunction is a preliminary injunction pendente lite. This type of injunction requires a spouse to file a motion with the court and have a hearing before a judge asking for a court order to stop the spouse from transferring or selling assets while the divorce is pending.
Automatic Injunctions
A few states have enacted automatic injunctions. These are statutorily based and automatically impose mandatory injunctions against both parties upon filing a divorce.
These injunctions prevent the spouses from “transferring, encumbering, concealing, selling or otherwise disposing of any of property of the parties.”
Preliminary Injunctions Pendente lite
While only a few states impose automatic injunctions upon the filing of the dissolution, many other states will issue a preliminary injunction if a spouse files a motion and proves that there is a credible threat of future harm or reason to fear imminent dissipation.
Courts typically require the spouse to establish the following when deciding whether to issue a preliminary injunction:
1) the spouse filing the motion has a right that needs protection;
2) the spouse filing the motion will suffer irreparable harm without that protection;
3) no adequate remedy at law exists; and
4) the spouse filing the motion will likely succeed on the merits.
Conclusion
A spouse who transfers assets in contemplation of divorce or during the divorce creates an unequal playing field which prevents a court from fairly and equitably distributing marital assets.
All courts can consider the dissipating spouse’s conduct when deciding how to divide the remaining marital property equitably. The court can do this by ordering an unequal division of assets, issuing an order rescinding the fraudulent transfer, and bringing the property back into the marital estate to be divided.
If you have questions about a spouse transferring property before a divorce, you should contact an experienced family attorney in your jurisdiction.