Divorce Law Alert - Dissipation of Assets in Divorce: What You Need to Know
08.29.16
This Divorce Alert is brought to you by the Chicago Divorce and Family Law Attorneys at Aronberg Goldgehn Davis & Garmisa and Divorce Magazine. To improve its readability, this alert is a slightly modified version of the original.
By: Rosemary Frank, MBA, CDFA, ADFA, CFE, MAFF
Divorce is a time of great distrust between spouses. Such distrust is most likely at the root of the many possible reasons for the divorce. If money seems to be disappearing, either during the marriage or since the initiation of the divorce, it is possible that there is spending that qualifies as dissipation.
What Is Dissipation?
Dissipation is the spending of marital funds, or use of any marital asset, for some purpose that does not benefit the marriage. Dissipation is money that is leaving the marital estate, thereby reducing what remains to be divided in the settlement of the marital estate. Examples may include gambling, alcohol, illegal drugs, expenditures on any activity related to a paramour, and unusual or excessive purchases by one spouse not characteristic during the marriage.
Dissipation is one of those things that the offended spouse knows is happening, but providing evidence of same could become a challenge. Extensive forensic analysis of household finances may be required to identify specific instances of dissipated funds by dates, use and dollar amounts of such expenditures. The more efforts that have been made by the aberrant spouse to hide the dissipation, the more forensic work will be required. Sometimes this literally becomes a “shell game” of moving money among different accounts, to make the use of funds seem authentic to the marriage, before they are finally redirected and dissipated.
Steps to Identifying Dissipation
The forensic process examines all sources and timing of funds flowing into the marriage, all movement of funds among various accounts held by the parties, and all ultimate uses and timing of funds for expenditures. The forensic expert will then confers with their client to identify all known payees on documented transactions as being known or otherwise. All unknown payees are then researched and identified.
Even when an expenditure seems to be marital, it is possible that a “mirror” expenditure was dissipation. For instance, if there was a payment to a florist on Valentine’s Day, the client can estimate that her bouquet of daisies did not match the charge that included red roses for the paramour as well. A somewhat more astute spouse might order exact duplicates of red roses, lingerie, jewelry, etc., and claim accidental double billing, but all that can be verified as well.
Recovering Assets As the Offended Spouse
Once the dissipation has been identified and documented, recovery by the offended spouse is customary by way of how other assets are distributed. For instance, if the marital assets identified for division are valued at a total of $600,000 and $100,000 of dissipation has been documented, the $600,000 will be divided in some unequal way to compensate the spouse who suffered due to the dissipation by the other. With the $100,000 gone, there is only $600,000 left to divide.
Assume the goal is an overall 50/50 division of the marital estate. Oftentimes the other spouse’s attorney will argue that half of the $100,000 was his or hers to dissipate, and so he or she will give the other spouse $50,000 more as his or her share of the $100,000.” In this scenario, the result would be a division of the $600,000 to be $325,000 to the injured spouse and $275,000 to the dissipating spouse, for a $50,000 difference.
However, half of the “extra” $50,000 already belonged to the injured spouse. It is marital. The injured spouse just got half-paid with his or her own money. The other spouse could try to fix that by giving the injured spouse another $25,000, but half of that is already their own money. So that is still not accurate.
Had there been no dissipation, there would be $700,000 in the marital estate to be divided 50/50. The dissipating spouse has essentially taken $100,000 of his or her share early. So the injured spouse should be given $100,000 off the top. That would leave $500,000 of the marital estate to be divided 50/50, giving each spouse $250,000. That means that from the $600,000, the injured spouse gets $350,000 and the dissipating spouse gets $250,000. That is a very different outcome.
Demonstrating and proving dissipation might be a bit difficult, but when you understand the potential impact it can make on the overall division of the remaining martial estate, it can be well worth the effort. Properly applied, forensic documentation of dissipation can literally result in assets to the injured spouse equal to the dissipation, before the remaining marital estate is further divided.
About the Author
Rosemary Frank is the Principal of Rosemary Frank Financial, LLC, a fee-only Registered Investment Adviser. She provides services in the areas of wealth management, divorce financial consulting, and other attorney support services. She received her B.S. degree from Rochester Institute of Technology and was awarded an MBA by the University at Buffalo, State University of New York. Rosemary holds the designations of Certified Divorce Financial Analyst (CDFA), Advanced Divorce Financial Analyst (ADFA), Certified Fraud Examiner (CFE) and Master Analyst in Financial Forensics (MAFF).
