Divorce, Equitable Distribution and Wasteful Dissipation

One issue that tends to come up in divorce cases is wasteful dissipation.  While I mentioned it in the past, this post will address it in greater detail.

Wasteful dissipation is one of the statutory factors that must be considered by a trial court upon rendering a determination of the equitable distribution of marital assets as set forth in Domestic Relations Law §236(B)(5)(d):

(1) the income and property of each party at the time of marriage, and at the time of the commencement of the action; (2) the duration of the marriage and the age and health of both parties; (3) the need of a custodial parent to occupy or own the marital residence and to use or own its household effects; (4) the loss of inheritance and pension rights upon dissolution of the marriage as of the date of issolutio;(5) any award of maintenance under subdivision six of this part; (6) any equitable claim to, interest in, or direct or indirect contribution made to the acquisition of such marital property by the party not having title, including joint efforts or expenditures and contributions and services as a spouse, parent, wage earner and homemaker, and to the career or career potential of the other party; (7) the liquid or non-liquid character of all marital property; (8) the probable future financial circumstances of each party; (9) the impossibility or difficulty of evaluating any component asset or any interest in a business, corporation or profession, and the economic desirability of retaining such asset or interest intact and free from any claim or interference by the other party; (10) the tax consequences to each party; (11) the wasteful dissipation of assets by either spouse; (12) any transfer or encumbrance made in contemplation of a matrimonial action without fair consideration; (13) any other factor which the court shall expressly find to be just and proper.

“Wasteful dissipation” is a term commonly used to describe a spouse’s unnecessary or unjustified use of marital money to justify a disproportionate equitable distribution. What makes wasteful dissipation problematic from a lawyer’s point of view is that its definition is vague and imprecise.  It can consist of gambling and poor business judgment, as well as other forms of financial or economic misconduct.  While the appellate courts have not given a precise definition of what actions by a spouse fall within the scope of wasteful dissipation, the trial courts and divorce attorneys deal with this issue frequently.  This also provides a significant opportunity for prolonging divorce litigation.  At times, a party will look for situations where any negative impact on the marital estate can be traced to the imperfect conduct of the other spouse.  Divorce lawyers may seek to improve their clients’ equitable distribution award and may blame the other spouse for a decline in the overall value of the marital estate.

With respect to a business, wasteful dissipation may occur if a party fails to recoup a value from an unsuccessful business, or “it necessarily is a wasteful dissipation of assets to fail to recoup the value of a profitable business, such as plaintiff’s masonry business. ” Scala v. Scala, 59 A.D.3d 1042 (4th Dept. 2009).  Failure to take care of or repair a marital property also may amount to a wasteful dissipation.

In a recent decision, Abrams v. Abrams, 57 A.D.3d 809 (2nd Dept. 2008), the Appellate Division held that the wife’s inability to testify with specificity as to how she spent the proceeds of loan suggested she dissipated marital assets in contemplation of divorce. The Appellate Division pointed out that “the former husband correctly contended that he was entitled to a portion of the proceeds of a home equity loan that the wife obtained with respect to certain investment residential property, especially in light of the wife’s inability to testify with specificity as to how she spent the proceeds of that loan. This suggested that the wife dissipated these marital assets in contemplation of divorce. The judgment was modified to award the husband a credit which represented his share of the proceeds of that loan, after accounting for the taxes paid by the wife on both the marital residence and the investment residential property.”

A party’s use of marital assets to pay for “basic living expenses” does not constitute wasteful dissipation.  Damas v. Damas, 51 A.D.3d 709 (2nd Dept. 2008).

If a party makes financial decisions and acts in such a way that the marital estate is diminished, that party should be ready to provide a legitimate explanation for his or her actions. The client is well advised to make full disclosure of all such activities to the divorce lawyer and to provide a detailed explanation for the course of action taken.

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