Role of timing and relationship status in marital asset dissipation claims

On Behalf of | Oct 29, 2021 | Property Division

When a Connecticut court equitably divides marital property between divorcing spouses, a potential issue for dispute may involve whether either of the litigants wrongfully dissipated marital assets. For example, did one of them take an expensive vacation or give large gifts to friends, family members or a paramour, leaving less for their soon-to-be ex-spouse?

Dissipation of marital property means there will be less to split in the divorce. This misconduct could deprive the innocent spouse of marital wealth they would have likely received absent the other litigant’s improper depletion or actions that depreciated the value of marital property.

Automatic court orders prevent asset dissipation after divorce filing

In a Connecticut family law matter filed before the court, automatic court orders require the litigants each to provide financial statements detailing all assets. These orders prevent (except with signed permission from the other or by court order) either of them during the proceedings from disposing of assets except in the ordinary course of business, for usual household expenses, for legal fees for the divorce, or for investment transactions in narrowly defined circumstances.

What about assets already squandered before the divorce filing?

The blameless spouse can submit evidence that the other litigant improperly sold, transferred, retitled, damaged, encumbered, gifted, concealed, wasted, destroyed or otherwise squandered marital property at times before the divorce filing – and sometimes even prior to the couple’s physical separation. If the litigant accused of dissipation cannot solidly document ownership and location of each marital asset under their control, the court may find it equitable (fair) to divide marital property unequally. CT Gen Stat § 46b-81.

This lopsided distribution would financially favor the innocent litigant to compensate for the loss in value of their portion from the other’s improper marital asset dissipation.

Temporal limitations in a dissipation claim

The Connecticut Supreme Court analyzed preseparation dissipation claims in Finan v. Finan, 287 Conn. 491 (2008). As a matter of first impression, the court held that Connecticut judges could consider evidence of improper depletion of marital assets that occurred even before the litigants physically separated.

The breakdown test

Agreeing with most other states’ courts, the Connecticut Supreme Court adopted the “breakdown test.” This means that a judge may consider preseparation, wrongful marital asset dissipation in certain circumstances. Namely, to be misconduct for purposes of the divorce, the litigant must have squandered money or property during a time of serious marital problems that could have ended in divorce or separation. Specifically, the wasting of assets must have happened “in contemplation of divorce or separation” or when the marriage was in “serious jeopardy” or “undergoing an irretrievable breakdown.”

If the innocent litigant satisfies the breakdown test, the court may infer that the wrongdoing spouse intended to deprive the other of a fair share of marital property in a future divorce.

The court’s power to consider past dissipation is limited by the nature of the marital relationship at the time

The judge may not reach back to review questionable actions of a litigant during times of marital harmony or at least of coexistence with the intention to stay together. While it may look suspicious, for example, an unwelcome, big loss on an investment at a time of healthy marital relationship is not dissipation of the asset.

Rather, the litigant who made the investment decision likely just made a poor or unlucky judgment. Even if the spouses argued about it, it cannot be dissipation without the required marital breakdown.

Quoting a law review article, the Finan court said that “without a breakdown test … every expenditure and economic decision … during marriage can be questioned, and the courts would become auditing agencies for every failed marriage.” Finan also cites A.L.R.4th for the proposition that married people can spend marital funds “for their own enjoyment,” until they contemplate divorce.

So, part of the dissipation question requires the court to analyze the health of the marital relationship at the time of a questionable asset transfer. In lay terms, if the litigants were experiencing serious problems with the marriage or considering divorce or separation, the court may consider evidence of asset dissipation during that time as potentially relevant to the equitable distribution of the marital estate.

Again, quoting the law review, the Finan court observed, “Many spouses begin divorce planning before actual separation, when the marital breakdown is not yet complete” and that irreconcilable breakdown (and dissipation for a suspicious reason) can happen while still living in the same home.

Nuts and bolts

As a practical matter, a litigant may bring a wrongful dissipation claim within the divorce proceedings as a basis for the judge to adjust the equitable distribution of marital property in favor of the guiltless party. The accuser must prove an improper expenditure, transfer, concealment, destruction or use of a marital asset. To defend against the accusation, the accused litigant, however, must be able to document and account for the assets. In a dissipation claim, each party should use investigative techniques like forensic accounting as well as vigorous, thorough discovery requests.

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