Understanding Wasteful Dissipation: why you shouldn’t do it, and what to do if you think your spouse is guilty of it

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The ending of a marriage is painful, stressful, volatile, and fraught. It is almost always in everyone’s best interest to work through your dissolution in the most amicable way possible to reach a mutually beneficial settlement agreement. But the reality is, being in a crumbling relationship headed irretrievably for divorce doesn’t always bring out the best in people.

Almost all exes find all sorts of ways to hurt and punish each other, sometimes even to their own detriment.

One of the ways spouses on the verge of divorce try to harm each other is through finances.

It’s important to know that California is a community property state. In the eyes of the law, with few exceptions, everything a married couple owns is assumed to belong equally to both of them. Anything acquired during the marriage is considered joint property, which the court will split 50/50 in a divorce, including funds, property, and debts. Even if one partner started a business during the marriage (or founded one before the marriage but then grew and supported it with marital funds), it may be treated as community property.

When you’re angry, anxious, hurt, and betrayed, it may seem unfair that your ex will get half of everything in the divorce. Unfortunately, some spouses attempt underhanded means of preventing their exes from getting their legal share. Some spouses try to hide assets. Others engage in a dishonest and risky practice called wasteful dissipation.

Wasteful dissipation refers to excessive or reckless spending of marital assets, typically right before a divorce. It is the act of intentionally squandering joint funds or failing to preserve valuable property in a way that does not benefit the marriage or both partners and which ultimately drains down the estate.

It can take many forms, including but not limited to:

  • Extravagant purchases, spending sprees
  • Gambling
  • Spending excessive amounts on alcohol, drugs, or partying
  • Making risky, unwise investments
  • Giving elaborate gifts of money or valuable assets to third parties
  • Selling off a business or valuable property at well below market rate
  • Making considerable donations to charities or causes
  • Spending lavishly on an extramarital affair – vacations, gifts, luxury accommodations, expensive restaurants
  • Failing to protect assets – neglecting to responsibly maintain and manage assets or investments, resulting in avoidable losses or decrease in value, such as letting the family home go into foreclosure.

Sometimes wasteful dissipation is purely spiteful and vindictive—the spender doesn’t gain much financially, only punishes the ex by leaving less to divide. Other times, one spouse tries to get as much out of the marital assets as possible before they are divided. Some spouses even give assets away to remove them from the marital coffer before division to reclaim them afterward.

The intentional dissipation of assets is unlawful and can have serious ramifications.

In cases where there is a significant income disparity between spouses—for example, if one spouse has a high-powered job or owns a lucrative business and the other has stayed home with children—wasteful dissipation by the higher-earning spouse could be financially devastating to the lower earner, while not hurting the higher earner very much, as they can recoup losses more quickly.

But spouses who are tempted to try to shed assets ahead of divorce should know that although the goal of the California family court is to split marital property equally if it is proven that one spouse purposely or carelessly wasted joint funds or property, the judge may order an unequal split—awarding the cheated spouse more assets, or assigning the spendthrift more responsibility for shared debt. The court can also impose financial penalties, such as paying back the losses to the ex or paying extra in support. Wasteful dissipation often results in litigation, making divorce more complicated, drawn-out, and expensive.

California has certain protections to prevent wasteful dissipation, at least once the dissolution is in process. As soon as a divorce action is filed, Automatic Temporary Restraining Orders (ATRO) go into effect, which prevent either spouse from making any drastic financial decisions or actions (emptying a bank account, changing beneficiaries, selling significant assets, etc.) The ATRO prevents the partners from attempting to deplete assets and provides a helpful snapshot of marital finances during the split.

Wasteful dissipation can be challenging to prove. If you suspect your spouse of engaging in reckless financial behavior, you will need bank statements, credit card bills, receipts, and records of transactions made with debit cards or cash. You will also need a record of your typical family budget and expenditures, as you will need to demonstrate a change in spending habits that coincides with the deterioration of the marriage.

Particularly in a high-net-worth divorce, where there is a great deal at stake financially—perhaps multiple homes, vacation properties, land, valuable furnishings, antiques and collectibles, jewelry, luxury cars, boats, planes, investments, banking and brokerage accounts, retirement accounts, pensions and 401Ks, businesses, professional practices, intellectual property, and so on— you may require the services of a forensic accountant.

The veteran family attorneys at SFLG are experienced in all aspects of divorce and specialize in navigating issues involving high-asset cases. If you are concerned about wasteful dissipation, we’re here to help.

By Debra Schoenberg

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