Dissipation of Assets in Divorce: What You Need to Know

Divorce is a time of great distrust of between spouses. Such distrust is most likely at the root of the many possible reasons for the divorce. If money seems to be disappearing, either during the marriage or since the initiation of the divorce, it is possible that there is spending that qualifies as dissipation.

What Is Dissipation? 

Simply put, dissipation is the spending of marital funds, or use of any marital asset, for some purpose that does not benefit the marriage. Dissipation is money that is leaving the marital estate, thereby reducing what remains to be divided in the settlement of the marital estate. Examples may include gambling, alcohol, illegal drugs, expenditures on any activity related to a paramour, and unusual or excessive purchases not characteristic during the marriage, by one spouse.

Dissipation is one of those things that the offended spouse knows is happening, but providing evidence of same could become a challenge. Extensive forensic analysis of household finances may be required to identify specific instances of dissipated funds by dates, use, and dollar amounts of such expenditures. The more efforts that have been made by the aberrant spouse to hide the dissipation, the more forensic work will be required. Sometimes this literally becomes a “shell game” of moving money among different accounts, to make the use of funds seem authentic to the marriage, before they are finally redirected and dissipated.

Steps to Identifying Dissipation 

Overall, the forensic process will examine all sources and timing of funds flowing into the marriage, all movement of funds among various accounts held by the parties, and all ultimate uses and timing of funds for expenditures. The forensic expert will then need to confer with their client to identify all known payees on documented transactions as being known or otherwise. All unknown payees will then need to be researched and identified. For instance, I learned by way of one case I worked on, that strip clubs consistently avoid processing credit card charges under the business name on the sign out front. They usually have generic “food and beverage” names that sound like a family diner.

Even when an expenditure seems to be marital, it is possible that a “mirror” expenditure was dissipation. For instance, payment to a florist on Valentine’s Day. Fortunately, or unfortunately, the client can estimate that her bouquet of daisies did not match the charge that included red roses for the paramour as well. A somewhat more astute spouse might order exact duplicates of red roses, lingerie, jewelry, etc., and claim accidental double billing, but all that can be verified as well.

Recovering Assets as the Offended Spouse

Once the dissipation has been identified and documented, recovery by the offended spouse is customary by way of how other assets are distributed. For instance, if the marital assets identified for division are valued at a total of $600,000 and $100,000 of dissipation has been documented, the $600,000 will be divided in some unequal way to compensate the spouse who suffered due to the dissipation by the other. Remember, the $100,000 is gone, so there is only $600,000 left to divide.

Assume the goal is an overall 50/50 division of the marital estate. What I usually hear from attorneys goes something like this: “Well, half of the $100,000 was his/hers to dissipate, so we will give the other spouse $50,000 more, and that will be their share of the $100,000.” The result being a division of the $600,000 to be $325,000 to the injured spouse and $275,000 to the dissipating spouse, for a $50,000 difference.

But wait. Half of the “extra” $50,000 already belonged to the injured spouse. It is marital. The injured spouse just got half-paid with their own money. You could try to fix that by giving them another $25,000, but half of that is already their own money…. The exponential math indicates that you need to keep repeating this cycle until the injured spouse is given a difference of $100,000 before they are fully restored.

Because this may be difficult to understand, let’s look at it another way. Had there been no dissipation, there would be $700,000 in the marital estate to be divided 50/50. Think of the dissipating spouse as having taken $100,000 of their share early. Now give the injured spouse $100,000 off the top. That leaves $500,000 to be divided 50/50, or $250,000 each, for an overall division of the marital estate of 50/50. That means that from the $600,000, the injured spouse gets $350,000 and the dissipating spouse gets $250,000. That is a very different outcome.

Demonstrating and proving dissipation might be a bit difficult, but when you understand the potential impact it can make on the overall division of the remaining martial estate, it can be well worth the effort. Properly applied, forensic documentation of dissipation can literally result in assets to the injured spouse equal to the dissipation, before the remaining marital estate is further divided.