By Sheryl J. Seiden, Esq.[1]
It is not uncommon for a spouse to question the other spouse's spending of marital assets when they are proceeding with a divorce. Spending which was acceptable during the marriage is often suspect when parties are divorcing. Bad business decisions during the marriage often become allegations of intentional mishandling of marital assets. Money that was previously used to support a spouses extended family may now be seen as a channel for diminishing the marital estate. Through the course of discovery, one spouse often discovers that marital assets were spent to foster another spouse's extramarital affair. All of these allegations may give rise to a claim of dissipation of marital assets.
Until such time as a spouse is contemplating a divorce, he or she is vested with the authority to spend marital funds for his or her own benefit, even if this spending is a bit extravagant. However, extravagant spending will inevitably decrease the size of the marital estate, and therefore leave the non-spending spouse with a reduce share of assets upon dissolution of their marriage. At what point is one spouse's extravagant spending considered dissipation?
What Is And What Is Not Dissipation?
In Kothari v. Kothari, 255 N.J Super. 500, 506-07 (App. Div. 1992), the Appellate Division defined dissipation as "where a spouse uses marital property for his or her own benefit and for a purpose unrelated to the marriage at a time when the marriage relationship was in serious jeopardy."
To prove a claim of dissipation, one must first understand what is and what is not dissipation of marital assets.
A bad business decision is not dissipation. Goldman v. Goldman, 248 N.J. Super. 10, 18 (Chan. Div, 1991) (plaintiff-husband's advancing of $400,000 of marital assets to his car dealership which was thereafter lost was not dissipation as he made a good faith effort to preserve the car dealership, a marital asset, for himself and his spouse);
Marital assets which are lost by one spouse when day trading is not dissipation if there is no intent to dissipate assets. Bonaventure v. Bonaventura, 2005 WL 5801340 (App. Div. 2005) (unpublished decision).
Funds that are wired out of the country to a party's family after the party contemplated divorce is considered dissipation. Kothari v. Jothari, 255 N.J. Super. 500 (App. Div, 1992) (defendant-husband dissipated marital assets when he sent significant amounts of money to his parents in India from marital assets where he had filed divorce on three separate occasions); Kabir v. Kabir, 2009 WL 1097901 (App. Div. April 24, 2009)(unpublished decision)( funds wired to Bangladesh from the date of the parties' separation to the date that the plaintiff filed for divorce was dissipation); .
Spending for non-marital purposes while the marriage is intact is not dissipation.
A party's intentional poor maintenance of a marital asset after the filing of a complaint for divorce can be deemed dissipation. Kronberg v. Kronberg, 2006 WL 1507036 (App. Div. June 2, 2006) (unpublished decision)(defendant-wife was awarded a greater share of equity in marital residence where plaintiff-husband's poor choices in maintaining the house led to the decreased equity in this marital asset).
A party cannot use marital assets to defray support from current earnings and therefore defeat a spouse's interest in the marital asset at the time of equitable distribution. Lynn v. Lynn, 165 N, J. Super. 328 (App. Div. 1979).
Martial assets that were liquidated and used to pay a spouse's personal debts and support obligations after the filing of the complaint for divorce were dissipated. Ferrier v. Anastos-Ferrier, 2005 WL 3617896 at *10 (App. Div,. 2006) (unpublished decision).
Proving Dissipation
N.J.S.A 2A:34-23.1(l) authorizes a court to consider "the contribution of each party to the . . . dissipation . . . in the amount of value of the marital property . . . ." when determining the equitable distribution of marital assets. The Supreme Court of New Jersey has specifically cautioned that "any disposition of property in fraud of the other spouse could be promptly made the subject of appropriate judicial action." Painter v. Painter, 65 N.J. 196 (1974).
In determining whether one party's spending is dissipation, the Court will consider the following factors: (1) the proximity of the expenditure to the parties' separation; (2) whether the expenditure was typical of expenditures made by the parties prior to the breakdown of the marriage;(3) whether the expenditures benefited the ‘joint' marital enterprise or was for the benefit of one spouse to the exclusion of the other ; and (4) the need for, and amount of, the expenditure.
The Court not only has the authority to allocate assets, but it can also disproportionally allocate debt in a matrimonial proceeding. In determining equitable distribution, a court will not only consider the assets of the marital estate but will also consider the debts of the marital estate. In Monte v. Monte, 212 N.J. Super. 557 (App. Div 1996), the Appellate Division, held that "if debt resulted because [one spouse] intentionally dissipated marital assets such intention dissipation is no more than a fraud on marital rights and the debt will not be charged to the [other spouse]." When one party objects to a debt on the grounds that it is non-marital, it is the party owning the debt who has the burden to establish that the debt is traceable to a marital asset or for a marital purpose. Clark v. Clark, 324 N.J. Super. 587 (Chan. Div. 1999) (court did not allocate between parties increased automobile insurance surcharge which resulted from wife's conviction for driving under the influence and leaving the scene of an accident which occurred prior to filing of complaint as wife did not satisfy her burden of proving that this debt was traceable to a marital source).
A Few Tips To To Prevent Against Dissipation
After the breakdown of the marital relationship, there are a few techniques that a spouse can invoke to prevent a future dissipation claim. While a dissipation claim can be reduced to an order or judgment of indebtedness against one spouse, if the indebted spouse has no assets, the order or judgment may be useless. 255 N.J. Super. 510. In order to avoid a dissipation claim, a spouse should consider invoking the following tools:
Notice of Lis Pendens: In any matrimonial matter where property is titled in either party's name or both parties' names and is the subject to equitable distribution, a Notice of Lis Pendens can be filed against the property to protect a client's interest. N.J.S.A. 2A:15-6; Di Iorio v. Di Iorio, 254 N.J. Super. 172 (Chan. Div., Union Co. 1991). The Notice of Lis Pendens puts other third parties on notice that a party has rights to the property at issue. A Notice of Lis Pendens should not be filed against property that is not subject to equitable distribution in the parties' matrimonial matter.
Order to Freeze Accounts: A court can order that both party shall not dissipate, hypothecate, withdraw or other use any marital assets. The order can best protect the parties if it specifically references the institution holding the accounts and the account numbers and is served on the respective institutions with instructions to freeze the accounts.
Shut Down Open Lines of Credit. In this market where home equity lines of credit are no longer easy to secure, parties may have open home equity line of credits with minimal or no balances. A party must use cause in keeping a home equity line of credit open. Although both parties may have signed for the home equity line of credit, often only one party needs to authorize the withdrawal of equity from this funding source. Accordingly, to the extent reasonably possibly, home equity line of credits should be secured and closed.
[1] Sheryl J. Seiden is an attorney admitted to practice law in the States of New Jersey and New York. She is the founding partner of Seiden Family Law, LLC in Cranford, NJ. She is an officer of the Family Law Section of the New Jersey State Bar Association and a fellow of the American Academy of Matrimonial Lawyers – New Jersey Chapter. She is a frequent lecturer on topics affecting the practice of family law.