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Dissipation of Assets.

When parties go through a divorce, the court will divide the couple’s total assets between the parties. Normally, the division is based on notions of fairness, and also depends on various factors such as occupation, savings amounts, or who will have custody of the children. Additionally, the court will divide the amount of debt between the couple. The only property that the court will not consider is property that is inherited or received as a gift by only one party. For example, if your mother left you a large sum of money after her death, the court will not consider that gift when dividing the parties’ assets.

The court cannot make a proper distribution of assets without all relevant information. Indeed, some individuals attempt hide their assets so that the court will not consider them in the division. They may attempt to hide assets in separate accounts or refuse to acknowledge large purchases. In addition, one party may attempt to spend a portion of the assets before the divorce proceeding so that those assets are not considered. This process is known as dissipation of assets, and it is a form of economic misconduct.

Dissipation of assets occurs when a party disposes of assets in a way that does not benefit the marital estate. That is, if one party is attempting to pay off debts acquired during the marriage by both parties, then there likely will not be a dissipation of assets. On the other hand, if one party is, for example, buying gifts for an extramarital relationship, then that would likely be a dissipation of assets. The court sets out a two-part test to determine if dissipation of material assets occurred. First, the court will decide whether the stated purpose of the spending is supported by evidence and, second, whether that purpose is a dissipation under the circumstances. Because the court considers division of equity on a case-by-case basis, the court can consider factors such as whether the expense was typical prior to the ending of the marriage, whether the spending benefited the joint marital expenses, or whether there was a need for the expense when determining the purpose for the dissipation. The amount of the expense may also be a factor.

A very recent case, appealed from the Iowa District Court for Woodbury County, explained how  courts should handle a situation where an individual engages in dissipation of assets before the final divorce decree. In this case, the husband frequently bought and sold property without informing his wife, and he had a business with his two sons that did not involve the wife. The business was insolvent and defunct, but the wife was unaware until the divorce proceedings. In fact, she seemed unaware of most of their debt. Therefore, in addition to considering assets, the court had a long list of debts to divide between the couple as well.

Both parties were ordered not to dispose of any of the assets that were to be divided in the divorce. However, both parties violated that order. The husband auctioned off property and made additional withdrawals from his retirement account, including one to purchase a Corvette. For her part, the wife sold a ring.

The husband withdrew $154,000 from his IRA to pay for his Corvette and to pay other miscellaneous expenses. His miscellaneous expenses included such items as gifts for his children and sales tax proceeds for his business. The party who spends the assets must prove that “the funds were spent for marital purposes.” However, the husband’s expenses mostly benefited him individually and his business.

The Iowa Court of Appeals concluded that these expenses were a dissipation of assets and included the $154,000 in the final amount of assets to be divided. That is, $154,000 of the total assets were deemed to have already been awarded to the husband.

Ultimately, however, since there was so much debt, the wife did not receive any extra substantial assets.  Instead, the court simply awarded the husband a much larger portion of the debt when making the final divorce decree.

This case shows that not only does the court split the assets, it also splits the debt between the couple. In addition, the court will consider whether one party has attempted to dissipate the assets before making any final determinations. Occasionally, a party may dissipate assets without realizing it. If you are going through a divorce and this situation may affect you, contact McCarthy, Callas, & Feeney before changing the status of any of your assets. Call 1-309-788-2800 and we will be happy to discuss you legal needs.

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