Dissipation of the Marital Estate

  • By:Karpenski & Schmelkin

The division of the marital estate is one of the corner stone issues in a divorce action. When the parties have been honest with one another about what assets each party has, the conversation then leads into how to divide up the marital estate. However, many times, one or both parties have engaged in financial misconduct either in the years leading up to the divorce or while the divorce is ongoing. This concept of financial misconduct is known as “dissipation of the marital estate.” While there are many different examples of dissipation, the one common theme is that a spouse has engaged in waste of the marital estate.

It is not uncommon that one spouse managed the family finances while the other spouse was not privy to all the financial decisions of the parties. In this case, it is possible that in the months and or years prior to the divorce s/he diverted funds away from the marital estate into secret accounts, accounts held in family members’ names, spending on extramarital affairs, gambling, addiction, illegal activity, etc…

A common example of dissipation occurs when the one spouse transfers large sums of monies from a joint bank account to an individual bank account shortly before filing for divorce and uses the individual bank account to fund lavish gifts, to finance his or her extramarital affair(s) and or to spend down the marital estate on frivolous activities such as gambling, addictive behaviors, and large disbursements to family members

Another common example of dissipation occurs when a spouse retires early or is unemployed or underemployed as a result of failure to secure employment commensurate with his or her education and employment history through reasonable efforts. That spouse, instead of earning income, resorts to living off of marital assets, thereby depleting them. Take for the example, the doctor who at the height of her/his career, at age fifty, earning $400,000 annually, suddenly decides s/he no longer wants to work as a doctor, quits her/his job and takes a job providing consulting work for different medical clinics at a salary less than half of what s/he was previously earning.  As a result of the drastic change of employment, s/he has dwindled down the marital estate. Doctor here chipped away at the parties’ “nest egg” and now the other spouse no longer has the “nest egg” that s/he once relied upon.

A common thread of the examples highlighted above is that one spouse unilaterally spent down and has been wasteful of the marital estate such that the marital estate is worth significantly less than it was before the spouse engaged in financial misconduct. Another commonality of the examples highlighted above is that the other spouse was kept in the dark about these reckless financial decisions. There are many ways for a spouse going through a divorce to became aware of financial misconduct and prevent it from happening while the divorce is ongoing.

Parties to a divorce are subject to an automatic financial restraining order, pursuant to Massachusetts Supplemental Probate and Family Rule 411. Neither party may sell, transfer, buy new, conceal, dispose of or otherwise borrow against any assets while the divorce is ongoing except by written agreement of the parties and except as to paying for reasonable and ordinary living expenses and paying for attorney’s fees. In addition, neither party may incur further liability which would affect the other party’s credit. Also, neither party may change the beneficiary status and/or remove a party and/or children from a life, disability, medical, dental, vision, homeowners, automobile, or umbrella insurance policy.

When a spouse believes the other spouse has engaged in financial misconduct, discovery is essential in the divorce action. The discovery process, together with the exchange of the financial statement and Supplemental Rule 410 documents assists in tracking marital funds. (For a more in depth look at the type of discovery and mandatory discovery in a divorce action, please read our previously blogs; The Importance of Discovery and Types of Discovery in Massachusetts Divorce Cases and Mandatory Financial Disclosures in Massachusetts Divorce). Once the parties’ exchange their financial statements and Rule 410 documents, they will have a better understanding of the assets which are part of the marital estate, as well as the financial conduct of their spouse over the past three years.

However, these are just the starting points for exploring possible financial misconduct. The next place to turn is often the opposing party’s employment and financial accounts as well as party and non-party depositions. Division of the Marital Estate is final and not subject to further modification. It is therefore vital for parties going through a divorce to engage in due diligence when it comes to the financial decisions that affect the marital estate. The parties need to make an informed decision and understand all the pieces of the financial puzzle when negotiating, entering into a separation agreement and/or making arguments before the Judge.

The Court has broad discretion in dividing up the marital estate when there has been dissipation of the marital estate. If you are going through a divorce, it is important that your interest in the marital estate is protected. For exceptional assistance, contact the knowledgeable and experienced attorneys at Karpenski & Schmelkin Divorce and Family Law Attorneys.

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Posted in: Divorce