Unfortunately, as much as divorce can be an emotional conflict, many of the issues in matrimonial litigation are financially driven as well. One of the greatest concerns during the course of divorce litigation is where one or both of the parties tries to transfer, hide, or encumber assets so that their soon to be ex-spouse cannot access or utilize them. Other times, a party is irresponsible and “spends away” the marital estate, or what is known as “dissipating” the marital estate. Dissipating assets can include running up debt by spending, gambling, or losing property (physically). Transferring can involve legally conveying certain properties to oneself or to another individual, or selling off the property itself. Hiding assets can involve underreporting income, or failure to report certain property.
Typically, this is done to prevent the other spouse from obtaining any of those funds, because under New York law, if they are transferred away from the marital estate, they may not be considered under equitable distribution, or the division of the parties’ share marital assets between the spouses. When this occurs, the non-offending spouse may fear that they have no recourse. However, in the New York courts, there are protections for a divorce litigant whose spouse is trying to destroy, transfer, or steal marital property and funds.
One divorce litigant hiding assets and income or dissipating (destroying or spending) assets can negatively impact property division — as mentioned earlier, maintenance and child support — by cutting down the amount of funds or property that can be utilized to make those awards. New York courts are strongly against this type of behavior and, under New York law, the court may impose penalties on parties who seek to engage in such activities.
For a court to determine that an asset has been dissipated, they look to see if:
- The asset is truly lost (as opposed to being able to order the offending party to return the funds or property in question;
- When the assets were lost or transferred (it needs to be after the breakdown of the marriage or filing, losses or transfers before the breakdown qualify as normal financial ups and downs);
- That the offending party was in charge of the asset at the time of the dissipation (if not, it is difficult to show how they are responsible); and
- That the loss or transfer had no valid purpose with respect to the marriage (for example, selling off a marital asset so both parties could pay counsel fees or to pay for schooling for the parties’ children would most likely be considered a valid purpose).
Frequently, penalties for dissipation or secretion of marital assets will come in form of the court awarding the non-offending spouse a greater share of the remaining marital estate under equitable distribution to make up for what was removed or lost due to the offending spouse’s poor behavior. Typically, what the court will do is determine the amount of dissipated property, and deduct it from the dissipating party’s share of what is left of the marital estate. For example, what was once a 50-50 split may become 60-40. Or a court may impute significantly more income to a non-custodial parent for purposes of child support where they are deliberately undervaluing what they earn. Where property has been transferred, the court may order that it be re-conveyed back to the marital estate, undoing any legal transfer.
Therefore, if your ex has been engaging in this activity, it is essential to determine when and how and for what purpose the funds or property have been taken from the marital estate. If the actions of your ex meet the standards set forth above, the court is likely to give you some form of reparations to make up for the damage.