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Property division at divorce is governed by statute. Most jurisdictions use a list of factors in determining how to divide property. Currently, a majority of states have abolished the use of “fault” or “conduct of the parties” as a relevant consideration. However, there is one area of fault that remains a consideration in all jurisdictions. Fraudulent conveyance or concealment of marital assets for the purpose of depriving the other spouse of an equitable share is seen as relevant to the division issue. Commonly referred to as dissipation or egregious economic fault, this factor could be included under the common statutory consideration of “contribution” because both positive and negative contributions could be measured. Alternatively dissipation may be thought of as an equitable consideration requiring a court to make an adjustment for the wrongdoing of one of the spouses. Finally, it can be seen as reflecting the notion that marriage is an economic partnership as well as a social one. In a business-partnership dissolution, the dissipation of assets of the business would certainly be a consideration. Two primary methods for dissipation of marital assets There are two primary methods of dealing with the dissipation of marital assets. The most common is to assess consequences once dissipation has occurred and has been proven. Such remedies include an unequal division of assets, the rescission of fraudulent conveyances or in some cases the reclassification of marital property. In extreme cases, a court may appoint a receiver to manage a closely held business where the threat of dissipation is increased due to one spouse’s unilateral ability to control. The other method of dealing with dissipation is to attempt to prevent it before it occurs. A few jurisdictions provide for automatic injunctions against the transferring of property after a divorce petition is filed. Most states, however, require a party to seek injunctive relief if there is a concern about dissipation. In this column, we will discuss these remedies, as well as how to raise and prove a case of dissipation. A simple definition of dissipation would be the concealing, wasting or conveying of marital assets during the dissolution proceeding or in anticipation of divorce. There are several key elements that need to be proven: the actual waste, the intent to deprive the marital community of the asset and the timing of the action. The first requirement in establishing the dissipation is identifying the asset and the manner in which it was mishandled. Courts will often look to whether or not the expenditure was typical in the marriage, who benefited from the expenditure (a third party or the marital community) and the amount of the expenditure relative to the parties’ wealth. It sometimes can be difficult to ascertain what behavior constitutes dissipation because of subjective notions of “reasonable expenses.” There are, however, some types of expenditures that are most likely to be seen as dissipation such as gifts to a paramour, excessive gambling losses or money used to purchase illegal substances. In addition, unusual and excessive credit card charges, sometimes with the return of merchandise for cash credit, may be viewed as dissipation. More problematic are those expenditures that are part of a pattern that existed during the course of the marriage such as investment activity. The court may consider when the “bad” investment took place, whether it was characteristic of the marriage-long pattern, and how large it was in relation to the marital estate and the parties’ standard of living. Generally speaking, courts will consider only intentional expenditures. Negligent conduct or simple poor judgments resulting in a loss do not constitute dissipation. The court may also consider whether the spouse objected to the expenditure when it was made. A failure to protect assets such as the nonpayment of mortgage or tax liabilities resulting in foreclosure also may constitute dissipation. In some cases, a spouse has argued that a refusal to sign a joint income tax return resulting in a higher tax liability constitutes dissipation. The marital community may have had assets that simply no longer exist at the time of the dissolution. Once the moving party establishes the prior existence of the asset and the fact that is has been alienated, the burden shifts to the other spouse to show that the conveyance or depletion of the asset was for the benefit of the marital community. Excessive gift giving to parties outside the marriage generally constitutes a prima facie case of dissipation, with the burden shifting to the other party to justify his or her actions. The second important aspect of establishing a dissipation claim relates to the timing of the action. Courts generally do not require that the conduct constituting dissipation occur subsequent to the parties’ separation or after the parties’ commencement of a dissolution proceeding, but rather the action must have at least occurred in contemplation of the divorce or after the “marital breakdown.” While courts vary in their interpretation of the relevant time frame, there is general agreement that the timing relates to the element of intent. The closer the action is to the breakup of the relationship, the more likely it is that the action taken was contrary to the best interest of the marital community. There are also policy considerations related to limiting the inquiry to a time when the marriage was at a de facto, if not a legal, end. To do otherwise would open up all expenditures made in a marriage to scrutiny. At least one court was also concerned about the impact that this would have on litigation costs, as well as about opening up attorneys to malpractice actions for failing to investigate every expenditure made during the marriage. The American Law Institute in its Principles of the Law of Family Dissolution recommends that states adopt a specific time period prior to the filing of the dissolution as relevant for purposes of considering dissipation. Florida has adopted this approach, including in its factors for division of property “the intentional dissipation, waste, depletion, or destruction of marital assets after the filing of the petition or within 2 years prior to the filing of the petition.” In New York, unusual economic transfers made within three years of the divorce will be scrutinized and are subject to challenge. Some differences in the timing requirement may be seen in the community-property as opposed to the common law or “equitable distribution” jurisdictions. Generally speaking, in a common law jurisdiction prior to divorce, property owned by one of the spouses can be alienated by that spouse. Conversely, all property acquired during marriage (with the exception of gifts, bequests and inheritances) in a community-property state is considered to be marital property and not alienable by a spouse without the other spouse’s consent. States also use preventive measures, such as injunctions So far the remedies discussed apply after dissipation has already occurred. Recognizing the inadequacy of using these remedies as the only approach to the problem of dissipation, states also employ preventive measures such as preliminary injunctions. Such orders enjoin a party from transferring, encumbering or otherwise alienating marital assets once a petition is filed. A few states have enacted automatic injunctions that are imposed at the time of filing against both parties. They are issued sua sponte by the court, and a violation can in some instances result in a criminal charge. The Arizona statute, which illustrates an automatic injunction statute, prohibits the parties from “transferring, encumbering, concealing, selling or otherwise disposing of any of property of the parties” unless the conduct is related to the “usual course of business, necessities, or court and reasonable attorney fees related to the action.” Some have criticized these statutes as being unnecessarily restrictive. Again, they are more likely to be upheld in community-property states where the ability to alienate property during the marriage is already severely limited. In common law jurisdictions, they are likely to be challenged in situations where they significantly affect a spouse’s ability to conduct business activities, such as in the case of a professional investor. In jurisdictions without the automatic stay provisions, a party who desires an injunction must request one from the court. Most states apply the traditional requirements for obtaining a preliminary injunction, which are a showing that: 1) the moving party has a right that is in need of protection; 2) the moving party will suffer irreparable harm without that protection; 3) no adequate remedy at law exists; and 4) the moving party is likely to succeed on the merits. Because such an injunction places a significant burden on a party’s ability to manage his or her financial affairs and in some cases restricts business opportunities, courts often require some proof of the likelihood of dissipation. In this regard, past expenditures that may not be relevant to establishing dissipation because of time limitations may be used to establish a likelihood of future dissipation. Surely any statements made with reference to threats of alienating assets can be used. Particular attention should be paid to those situations in which marital investments are managed exclusively by one of the spouses. Barbara Handschu is a solo practitioner with offices in New York City and Buffalo, N.Y. She can be reached via e-mail at [email protected]. Mary Kay Kisthardt is a professor of law at the University of Missouri-Kansas City School of Law. She can be reached at [email protected]. Erica Driskell contributed research for this column.

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