New York is an equitable distribution state. This means that only property acquired during a marriage is subject to division during divorce. In trying to divide marital assets fairly, New York courts consider a variety of factors, including non-monetary contributions, contributions to the spouses’ education, and marital waste.
Understanding Marital Waste
Over the course of a marriage, the assets obtained by a couple make up their marital estate. Marital waste is the wasteful disposition of assets by either spouse.
Marital waste comes into consideration during the property division phase of a divorce. As New York courts attempt to make an equitable ruling regarding asset division, they will consider whether a spouse has used marital assets for personal benefit or recklessly, especially leading up to the split.
What Are Marital Assets?
To understand marital waste, it is important to differentiate marital property from separate property.
Marital assets include:
- Real estate purchased during the marriage, except for any separate property contributions, e.g., a down payment made using separate property funds;
- Personal property, like boats, cars, planes, antiques, and artwork purchased during the marriage;
- Bank accounts, securities, cash, retirement accounts, and pensions acquired throughout the marriage;
- Advanced academic degrees and professional licenses acquired during the marriage;
- Gifts exchanged between the spouses.
Separate property includes:
- Real estate obtained before the marriage;
- Personal property obtained before the marriage;
- Personal injury settlements or judgments secured during the marriage (except for compensation related to loss of wages/earning capacity);
- Separate property value increase (except when the other spouse made contributions that resulted in the increase);
- Any assets described as separate property in a written agreement between the spouses (for example, a prenuptial agreement).
Examples of Marital Waste
A classic example of marital waste is money spent on an affair. If a spouse engages in an extramarital liaison and spends marital assets on the affair, that is considered waste. A spouse might buy their affair partner gifts, such as jewelry, plastic surgery, or real estate. They might pay for airfare to visit the person or to have the person visit them. Spending on hotel bookings, meals, boat rentals, and event tickets can also be considered marital waste.
In 2014, a study found that the average monthly cost of an affair was $444. Consider inflation and the potential income range of an affluent New Yorker, and that amount can easily go up to five figures. Squandering marital assets on an affair is the epitome of spending for personal benefit. "Investing" funds in a business run by an affair partner can also be considered waste.
Another example of marital waste is when a spouse plans to file for divorce and overspends in anticipation of the end of the marriage. Hitting Rodeo Drive or buying a new Rolls Royce in the weeks before filing a divorce petition constitutes reckless spending for personal benefit. Another example would be withdrawing money from a marital account and using it to buy a home for one's sister, cousin, or best friend, without agreement from the other spouse. Gambling, using escort services, and buying drugs are among the most egregious examples of reckless marital waste.
Purposely destroying marital assets so that your spouse can't receive them in the divorce or benefit from their value is also waste. Examples of this might include burning a valuable painting, destroying a room full of antiques in a rage, abandoning a lucrative profession, or throwing jewelry into the ocean.
Marital waste can also be more subtle. Selling a marital asset for a price below market value can amount to marital waste if it is intentional or provides some benefit to the accused spouse. Selling real estate to a person you are having an affair with at a price below market value would also qualify as marital waste.
What is Not Marital Waste
Using marital assets to pay for living expenses commensurate with the couple's standard of living before the divorce is filed or while the divorce is pending is not considered a wasteful dissipation of assets unless the accused spouse is aware that the couple's financial situation has significantly changed (e.g., due to a job loss, economic downturn, etc.).
On the other hand, continuing to live as you did during the marriage is not necessarily considered reckless. If you regularly attended fall fashion week in Paris throughout the marriage (and made large purchases there), doing so while the divorce is pending would not qualify as wasteful dissipation of assets.
It's important to note that hiding an asset is not the same as wasting it. Any hidden asset the courts might discover will be included in the distribution of marital assets. It won't be treated as an asset that was wasted, used up, or given away because it can be accounted for once it has been identified.
Determination of Marital Waste
To determine if marital waste has occurred, the court will evaluate the evidence presented by the wronged spouse.
New York courts consider the following factors when determining marital waste:
- Whether the accused spouse intended to use the funds for a purpose outside of the marriage
- Whether the accused spouse used the asset solely for themselves (purchasing a yacht both spouses use would not qualify)
- Whether the accused spouse attempted to hide the withdrawal or spending
- Whether the purchases made were frivolous
- Whether the accused spouse began to spend the money after they learned or decided they were getting a divorce
- Whether the accused spouse profited from the spending of the funds
- Whether the accused spouse became intentionally unemployed during the marriage
- Whether the wronged spouse consented to or agreed to the spending
- When the money was spent ( the closer in time to the divorce, the more suspicious the expense will be)
- How the spending affected the family (whether it caused financial hardship, etc.)
How to Detect Marital Waste
Many spouses are very clever and secretive in their wasting of marital assets. It's unlikely that the innocent spouse will stumble upon a $2 million receipt that is obviously marital waste. Detecting marital waste is much more complicated, and your attorney will have to hire a private investigator and a forensic accountant to find the necessary evidence.
The investigator will carefully examine the accused spouse's actions and behaviors during the marriage and try to uncover any relevant overspending or waste. Meanwhile, the forensic accountant will carefully audit all of the couple's financial holdings in search of evidence of waste.
In court, you must be able to provide clear evidence that supports a theory of marital waste. A detailed financial analysis and a compelling legal argument will sway a judge.
What Happens After You Prove Marital Waste
When a judge determines there has been marital waste, also known as dissipation of assets, this impacts property division. Generally, this works because the court will present the breakdown of assets in accordance with equitable distribution. Then the court will identify the total amount of assets wasted by the accused spouse. That amount will then be deducted from the accused spouse's share and added to the innocent spouse's. The reasoning is that the accused spouse has already used up or benefited from the amount of wasted assets. Therefore, the innocent spouse is entitled to that same amount for their use after the divorce.
Marital waste requires a detailed examination of marital accounts to trace the wasteful behavior and seek justice for the innocent spouse. Our team of experienced litigators, investigators, and forensic accountants is ready to assist you. Contact us today.