When divorce is on the horizon, people sometimes shift their spending habits. Some start pinching pennies and planning for the inevitable expenses that will arise during and after the proceedings. Others start spending – occasionally to excess. It may not even be malicious (trips to get away, self-help seminars or updating one’s wardrobe for a fresh new start), but the question is whether this could be considered a dissipation of assets that could become an issue during your divorce?
In general, you want to maintain the status quo of spending you had prior to separation. If you always spend $200 per month on clothing, it is probably not going to be an issue if you continue doing so when it comes to the divorce. The question is if you never spent this amount before and now suddenly you do, are those expenses reasonable? Did they disenfranchise the other spouse? If the Court finds one spouse was wrongly deprived of marital assets by the sudden uptick in spending of the other, the court could respond in several ways. These include:
- Offsetting alimony payments by that amount;
- Reducing one’s financial interest in other marital property, such as the house, vehicles or family business;
- Imposing penalties or order the other spouse to pay back a portion of marital assets; or
- Requiring the spender to be fully responsible for the debt incurred.
What Exactly is Dissipation of Assets?
Dissipation of assets is a claim that marital assets were squandered or frivolously spent in a way that reduces the value of marital assets – particularly while the marriage is undergoing an irreconcilable breakdown. It may not be necessary to prove that was the intention so long as that was the effect.
The New Jersey Superior Court ruled in the 1992 appellate case of Kothari v. Kothari that dissipation is “where a spouse uses marital property for his or her own benefit for a purpose unrelated to the marriage at a time when the marriage relationship was in serious jeopardy.”
As our Freehold divorce attorneys can explain, it goes back to the notion that marital property (all property acquired during the marriage, with some exceptions) must be equitably divided at the time of the divorce in accordance with the principles of equitable distribution, as outlined in N.J.S.A. 2A:34-23-1. If you and your spouse agree on your own about how assets should be divvied up, then there is no need to engage the courts in the equitable distribution process. It is only when you’re unable to negotiate a property settlement agreement that the Courts step in.
Some people are concerned during divorce that their spouse will understate their income or fail to disclose certain assets. Dissipation of assets is another type of fraud.
Dissipation of marital assets frequently come up in cases involving infidelity. New Jersey allows for no-fault divorce, per N.J.S.A. § 2A:34-2. That means whether a spouse had an affair or did not isn’t usually going to be a factor. But a spouse who extravagantly spends on another person or persons with whom they were having an extramarital affair may find themselves required to pay for it.
Proving Dissipation of Assets
The spouse alleging dissipation of assets must show that dissipation occurred, at which point the burden of proof shifts to the other to show the money spent or assets used had a legitimate purpose. A key element will be when the breakdown of the marriage occurred. If your spouse spends $50,000 on a luxury trip with friends before the breakdown of your marriage, you may not be happy about it, but that doesn’t necessarily mean its dissipation.
Other things that are not dissipation (per previous New Jersey court rulings):
- A bad business decision.
- Money lost in day trading (as long as there was no intent to dissipate assets).
- Spending for non-marital purposes while the marriage is still intact.
Courts weighing dissipation claims are going to consider:
- Proximity of expenditure to the separation of the two parties.
- Whether the expenditure was typical of expenditures made by both parties prior to the marriage breakdown.
- Whether the expenditures benefited joint marital interests or was for the benefit of one spouse to the exclusion of the other.
- The need for – and amount of – the expenditure.
Remember that equitable distribution does not mean “equal.” That means if the court determines that one spouse has been treated unfairly, the court can disproportionately allocate other assets – or debts – to make up for it.
Our experienced Freehold divorce lawyers are committed to helping you navigate the distribution of assets in your divorce.
Call Rozin|Golinder Law, LLC today at (732) 810-0034 for a free and confidential consultation.