How Dissipation of Marital Assets Affects Divorce Outcomes

Did you know that financial misconduct involving hidden or squandered assets is a common issue in divorce cases? In high-asset divorce cases, arguments and debates over property division are among the main reasons for delays in litigation.

The U.S. Census Bureau released data showing the divorce of millions of couples every year, with disputes about money being significant in numerous instances. "Marital waste" refers to willful dissipation, destruction, hiding, and inappropriate use of marital property by one spouse. These actions are usually done in anticipation of divorce or during the breakdown of a marriage.

Marital waste covers actions such as spending excessive amounts of money, transferring money to other parties, gambling, or concealing income and assets. How will divorce affect property division, especially if one party has spent marital funds on non-marriage purposes?

In most cases, marital property is divided by the court into equal parts (in the case of community property states) or equitable parts (in the case of equitable distribution states). If one party has wasted, concealed, or abused any marital property, the courts may deviate from an unequal division to adjust matters.

Let’s examine how dissipation of marital assets impacts the final outcome of divorce, including how property, debts, and financial resources are allocated. 

What Dissipation of Marital Assets Means

The concept of dissipation describes how one partner of a marriage intentionally spends or wastes their marital assets. This wasteful spending involves activities that do not relate to one’s marital relationship.

The legal concept of marital dissipation exists in both equitable distribution states and community property states, which have different systems for handling property distribution and establishing legal rights according to their specific jurisdictional rules.

Courts evaluate dissipation claims through three factors. These factors include assessing the timing of expenses after the marriage ended, determining how marital funds were spent, and establishing whether expenditures were aimed at violating the other spouse's rights during the distribution process.

What Qualifies as Dissipation

According to Orange County property division lawyer Stephane Quinn, if one party omits an asset, it can derail the entire process, regardless of whether it was intentional. Courts can reopen a case if assets were concealed. The consequences for such action can include financial penalties or sanctions.

The legal system has determined dissipation through various actual situations. The most frequent type of dissipation case involves spending significant marital resources on an extramarital affair, which includes all costs related to gifts, travel, lodging, and other relevant expenses.

The legal system recognizes the practice of dissipation when couples transfer their marriage assets to family members. Dissipation can also be done when assets are sold to third parties at prices that fall below the assets' actual market value.

Multiple jurisdictions, including Florida, have recognized post-separation spending on cosmetic treatments and luxury items, which leads to substantial joint account reduction as dissipated funds. The case Niederkohr v. Kuselias, 301 So. 3d 1112 (Fla. 5th DCA 2020), established that expenditures on cosmetic procedures that exceeded $100,000 after legal filing constitute dissipated funds.

The process of asset dissipation exists as a separate matter from asset concealment. A spouse who hides cash and underreports income on financial disclosure forms and fails to disclose accounts and investments is seen as concealing assets and not dissipating them. In the example given, the assets were not technically dissipated since they still exist.

What Does Not Qualify as Dissipation

The judicial system requires more proof than financial mistakes or unwise choices to establish dissipation according to court decisions. The losses from investment management and bad business decisions together with the regular expenses that occurred following their separation do not qualify as dissipation since these costs include attorney fees, new rent payments, and typical household expenses. 

Florida appellate courts have repeatedly reversed trial court dissipation findings based on normal post-separation expenditures. These outcomes showed that both parties required proof of their unacceptable financial practices to prove their case.

Knowing what counts as dissipation matters since dissipation claims are sometimes weaponized in litigation. Dissipation is often used as a tactic to inflate the other spouse's apparent culpability. As a result, courts have become increasingly skeptical of broad dissipation allegations that encompass routine spending. 

The existence of dissipation needs particular evidence, which proves that something for which money was spent has become lost without showing that wrongdoing occurred during that time.

How Courts Remedy Dissipation

The standard remedy in equitable distribution states operates through treatment of dissipated amounts as existing assets, which officials use to deduct from the marital estate share of the spouse responsible for the dissipation. 

The court will return $50,000 to the marital estate for distribution purposes if one spouse spent that amount on an extramarital relationship. The court will assign this amount to the dissipating spouse, which will decrease their share of the remaining assets by the equivalent of the dissipated funds.

The analysis takes a different path in community property states. A spouse may sue for damages through California Family Code Section 1101 when their partner breaching fiduciary duty for community property management or its disclosure or transfer brings them harm.

Judges possess the power to grant attorney fees and legal expenses to parties involved in dissipation lawsuits. This legal outcome occurs when the dissipation behavior of one spouse requires the other spouse to conduct extensive research and legal proceedings necessary to demonstrate the dissipation.

Proving Dissipation: Evidence and Discovery

Proving dissipation claims requires substantial evidence, which must be presented in court. The non-dissipating spouse must prove through financial documents that certain money was taken out or moved from accounts. The evidence must show that the financial transactions occurred at the time of marriage breakdown and their purpose was not related to marital costs.

The financial discovery process for the dissipation case requires the inclusion of subpoenas, which will allow access to bank accounts, brokerage accounts, credit card statements, tax returns, wire transfer records, and business financial documents. Forensic accountants are hired to track missing funds and recreate financial records whenever a spouse uses shell companies or third parties to hide their dissipation activities.

The spouse who accuses dissipation needs to present proof. Meanwhile, the other spouse must explain their spending. The system establishes financial disclosure requirements that create penalties for concealing necessary information.

Preventive Measures and Injunctive Relief

A spouse has an opportunity to ask for the court to impose an injunction in case the other party makes use of the conjugal wealth during the process of divorce.

Many states permit courts to issue mutual injunctions or status quo orders early in the divorce process that prevent either party from transferring, encumbering, concealing, or disposing of marital property without the approval of the court or the consent of the other spouse.

The court will see any infraction of this civil order to be a contempt of court. The offending party becomes subject to automatic penalties apart from the dissolution penalties prescribed.

The non-dissipating spouse must obtain a monetary judgment when dissipation results in excessive estate reduction, which makes distribution credits impossible to recover from available assets.