A deep dive into dissipation of marital assets

On Behalf of | May 17, 2023 | Property Division

Sometimes when a marriage breaks down, one spouse may unreasonably dissipate, squander or misuse marital funds or other marital assets. The actions may result in difficulties, including litigation in the division of marital property in a divorce.

Legal restraint on dissipation of marital assets

Upon commencing a Connecticut divorce, an automatic court order requires that until the divorce is over, each litigant may not “sell, transfer, exchange, assign, remove, or in any way dispose of [or encumber] [property] without the consent of the other party in writing,” or by court order. Either party may still use assets “in the usual course of business or for customary and usual household expenses or for reasonable attorney’s fees” in the divorce. Connecticut Practice Book, Rules for the Superior Court, Rule 25-5 (2023).

The order allows for filing of lis pendens and for some investment activity, subject to restrictions. Litigants may not hide property or remove the other litigant’s name from joint property without written consent or court permission. Neither may “incur unreasonable debts,” including use of a residential credit line, use of any asset as collateral or unreasonable usage of credit cards.

The parties must also exchange detailed financial statements. The litigants have an ongoing duty to update financial information throughout the course of the dissolution proceeding under the mandatory discovery procedure.

Connecticut courts on the parameters of dissipation

Our courts have interpreted and further defined these rules through analyzing whether dissipation has occurred in individual disputes as well as developing potential remedies for the wronged litigants in divorce proceedings. The equitable distribution of property in the divorce may include an offset to reflect one party’s dissipation of marital money or assets in order to even the playing field again and not allow the dissipator to be unfairly enriched through their unethical conduct.

After an extensive review of out-of-state courts on the subject, our state Supreme Court held in Gershman v. Gershman, 286 Conn. 341 (2008), that in divorce, dissipation requires at least “financial misconduct involving marital assets, such as intentional waste or a selfish financial impropriety, coupled with a purpose unrelated to the marriage.”

The court explained that dissipation occurs when one litigant “conceals, conveys or wastes marital assets in anticipation of a divorce,” requiring “some type of improper conduct.” Historically, courts have found dissipation in classic cases involving gambling, spending on a romantic relationship outside the marriage or transferring property or money to a third party for little to nothing in return. Sometimes the transferring litigant classifies these as gifts, but they are really loans that will be repaid or the receiver is just holding the asset outside the marriage for the litigant pending the end of the proceedings.

Importantly, the court emphasized that the test for dissipation does not have “[w]ell-defined contours,” especially in “ambiguous situations.” In other words, these transactions can be difficult to analyze or even discover, with the court noting that these cases often turn on the “financial motivation of the party charged with misconduct.”

In Gershman, the court found that the husband’s losing investments and excessive cost overruns on construction of the marital residence were not dissipation of marital assets because there was no financial misconduct, “intentional waste or … selfish financial transaction,” or spending for a nonmarital purpose.

Timing and motivation

Shortly after Gershman, the Connecticut Supreme Court held that a court may consider whether assets were wrongly dissipated even if it happened before the litigants’ physical separation – with the caveat that at the time at least one of the following was also true:

  • The dissipating spouse contemplated separation or divorce.
  • The marriage was “in serious jeopardy.”
  • The marriage was irretrievably breaking down.

When dividing the property, state statute directs the judge to consider “the contribution of each of the parties in the acquisition, preservation or appreciation in value of their respective estates.” CT Gen. Stat. 46b-81.

The high court noted that while statute does not define “preservation,” the ordinary understanding of the word as described in the dictionary is to “maintain in safety from injury, peril, or harm; protect.” “Dissipation” has a dictionary definition of “[w]asteful expenditure or consumption,” making the concepts of preservation and dissipation “financial[ly] antithe[tical].” Finan v. Finan, 287 Conn. 491 (2008).

The statute places no temporal limitations on when dissipation can be legally recognized. A court may find dissipation occurred before physical separation of the parties, as long as one of the above-bulleted scenarios was also true at the time. Married individuals may argue about unilateral spending choices, but it is just an aspect of the marriage – until it is clearly being done to keep property away from the other spouse when the marriage dissolves.

Finally, if a spouse tolerated excessive or unusual spending behavior during the marriage, it does not suddenly become dissipation when the relationship breaks down. For example, in the Superior Court case of Zentek v. Zentek, 2013 WL 6439597 (2013 unpublished), money the husband spent for gambling during the marriage with no pushback from his wife at the time did not become dissipation when the marriage became jeopardized. The spending was not during the breakdown of the union and the wife sometimes went to casinos with him.

Or, as one Forbes article states, “People are allowed to spend money however they like, and just because you did not like it that your spouse spent $45,000 on a race car, does not necessarily mean it is dissipation.” First, there must be a marital breakdown.

Evidentiary issues

A court cannot find that dissipation or asset concealment occurred without solid, sufficient evidence of the act of dissipation or of hiding. Sufficient evidence of the value of dissipated assets is important to make property distribution fair. Dissipation and asset valuation cannot be based only on the assertions of a litigant, which would call for the judge’s mere speculation. See the opinion of the Superior Court of Connecticut in Candella v. Candella, 2018 WL 3715577 (2018 unpublished). The court requires sufficient evidence to support a finding of “engage[ment] in financial misconduct for a non-marital purpose.”

Experienced legal counsel

Spousal dissipation of assets in anticipation of divorce is a factually specific issue in each case with scenarios falling into gray areas on a regular basis. It behooves a divorce litigant who suspects dissipation, or is accused of dissipating assets, to engage an experienced family lawyer who can initiate a thorough investigation on behalf of the client, which may necessitate the services of a forensic accountant.

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