New York Family Law Blog
Dissipation of marital assets refers to the wasteful, reckless, or intentional use of marital funds for purposes unrelated to the marriage, often occurring during or shortly before divorce proceedings. Examples include excessive spending, gambling, or transferring assets to conceal them. In New York, the spouse alleging dissipation must prove it by showing that the other spouse’s actions diminished marital property unjustifiably. Courts evaluate the intent and circumstances, distinguishing between poor financial outcomes and reckless behavior. Dissipation claims can significantly affect equitable distribution, as courts may compensate the wronged spouse by adjusting the division of remaining marital assets.
Background Facts
The couple, married in 2001, had three children and signed a prenuptial agreement before marriage. During the marriage, the defendant used marital funds to purchase a car wash. The plaintiff later argued that this investment was a wasteful dissipation of marital assets, claiming it was a poor financial decision and made without proper justification. The defendant contended the car wash was intended to generate income for the family and provide a workplace for the plaintiff after his release from prison.
Question Before the Court
Whether the defendant’s use of $550,000 in marital funds to purchase the car wash amounted to wasteful dissipation of assets.
Court’s Decision
The court ruled that the plaintiff failed to meet the burden of proving the car wash investment was a wasteful dissipation of assets. It found that the defendant purchased the car wash with the plaintiff’s consent to provide income during his incarceration and a workplace for him after his release. Although the car wash was sold at a loss during the divorce proceedings, the court concluded that an unsuccessful business venture, absent evidence of bad faith or recklessness, does not constitute dissipation.
Instead of awarding the plaintiff a $550,000 credit for dissipation, the court ordered the proceeds from the car wash’s sale to be divided equally between the parties.
Discussion
Dissipation of marital assets occurs when one spouse uses marital funds for their own benefit in a manner that is wasteful, reckless, or contrary to the interests of the marriage. In New York, the spouse alleging dissipation must prove it by a preponderance of the evidence. Courts generally focus on the intent and circumstances surrounding the expenditure.
In this case, the court emphasized the following factors:
- Purpose of the Investment: Evidence showed the car wash was intended to generate income and provide the plaintiff with employment after incarceration. This demonstrated a legitimate purpose related to the family’s financial well-being.
- Consent: The plaintiff initially consented to the purchase, weakening claims that the investment was reckless or unauthorized.
- Outcome of the Investment: While the car wash ultimately sold at a loss, the court noted that poor financial outcomes do not necessarily prove dissipation. Investments often carry risks, and a loss alone does not indicate wasteful or bad-faith behavior.
- Timing and Sale of the Asset: Although the defendant sold the car wash during the divorce proceedings, violating a restraining order on transferring marital assets, the sale price was consistent with a prior agreement between the parties. This further supported the conclusion that the defendant did not act recklessly or in bad faith.
The court’s decision aligns with the principle that courts should not second-guess reasonable financial decisions made during a marriage unless there is clear evidence of recklessness or bad faith.
Conclusion
To succeed on a dissipation claim, a party must prove that the other spouse used marital funds in a way that was reckless, wasteful, or unrelated to the marriage’s interests. Poor investment outcomes, on their own, do not meet this standard.
For individuals facing divorce proceedings, understanding how dissipation claims work is essential to protecting your financial interests. If you have concerns about asset distribution in your divorce, contact an experienced New York divorce lawyer at Stephen Bilkis & Associates for a consultation. We can help you navigate complex financial issues and advocate for a fair outcome.