Where Did My Money Go?
In today’s day and age, it’s not uncommon for marriages to end under circumstances that include cheating and extra-marital affairs, as well as dire financial issues, like extreme spending, gambling addiction and more. In the courts, the phrase used for this kind of thing is called “wasteful dissipation of assets”. It’s a legalese term that sounds intimidating, but really just means excessive spending of resources/money/assets that belonged to both spouses jointly in a way that the law deems wasteful. Since it happens often enough, it should come as no surprise that many people want their divorce process to include an investigation into whether or not their spouse engaged in wasteful dissipation of assets.
What are common examples of wasteful dissipation of assets?
This category may include money or other assets spent on extramarital affairs, including but not limited to gifts and travel with paramours, gambling, drug use and substance abuse. Sometimes the spouse will admit to having had an extramarital affair or a gambling or substantial abuse addiction of some kind. That is one step forward. But to claim wasteful dissipation of assets, you must prove that the monies were spent.
Proving your case typically requires digging deep during discovery, which includes reviewing credit card and bank statements to search for evidence of money spent as part of affairs or other dissipation. At times, we also engage a forensic accounting firm to aid in this process.
In my practice, when we have reason to believe there is a wasteful dissipation of assets, we try to research as far back as seven years, because many times, the affair may have started much earlier. Or, when there is one affair, there may have been a series of affairs preceding it. Plus, any risk-taking behavior might mean there is other risky related behavior. Once a wasteful dissipation of marital assets is proven, the monies that had been spent are usually put back into the “marital pot” and then equitably divided.
Exceptions that also qualify as wasteful dissipation:
The failure to sign a joint tax return during the pendency of a divorce. I have clients tell me that they refuse to sign a tax return with their soon-to-be ex-spouse. While there are many good reasons not to sign a joint return, most can be dealt with in other ways.
Filing separately is typically more costly to the family unit than filing a joint tax return, which is why the court might consider it wasteful. However, you must remember that the IRS is not deterred by indemnification agreements.
Refusing to sell certain assets can also be considered wasteful dissipation. Whether it’s refusal to sell stock that is losing value in the market, a house that is depreciating in value with no good reason to hold on to it, or other situations in which one spouse is clearly holding on to something to keep the other spouse from obtaining the most value possible, each of these could also be considered wasteful dissipation during the pendency of a divorce.
Collaborating with financial professionals is key.
Though I am a Certified Divorce Financial Analyst and understand and can educate my client on these issues, I often collaborate with forensic accountants, financial advisors, and tax attorneys/accountants to make sure that we deal with all financial and tax issues properly during a divorce action.
A forensic accountant can analyze the lifestyle of both parties to make sure that each is receiving or providing proper child support and alimony/spousal maintenance. A forensic accountant might also value a family business, or search for hidden monies, transfers, loans, improper business deductions or spending in a business. One way to hide income is to use your business to pay personal expenses and then fail to report those payments as income. And in the case of presumed wasteful dissipation, business owners may be paying their paramour’s expenses through their business.
As you proceed through a divorce, it is imperative to have professionals who can watch your back and who understand where to look for hidden assets and income as well as any dissipation of marital assets. It’s also important if you are the payor that you have someone who can protect you so that you’re not overpaying support, and ensure you receive a fair and equitable resolution to your divorce matter.