Dissipation
Summary in Divorce

The wasting of marital assets through extravagant spending, gambling or excessive borrowing or fraudulent conveyance of a third parties is called dissipation.

Courts look with disfavor on the dissipation of assets, and some consider it serious marital misconduct. Dissipation of marital assets is the most common form of economic 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.

One common form of dissipation of assets is the expenditure of marital funds for a girlfriend or paramour.

Very often courts deal with dissipation after the fact via unequal distribution of the remaining marital assets in favor of the victim party. The most common way is to treat the dissipated assets as 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 the losses negatively credited to his or her share of the marital estate.

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.

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. Loss can take many forms. Dissipation includes concealment and conveyance of assets through acts that are reckless and negligent but not necessarily intentional.

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.

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.

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