Dissipation Blog Post: C.C. v. R.C.
Domestic Relations Law §236B(5)(c) provides that “marital property shall be distributed equitably between the parties, considering the circumstances of the case and of the respective parties.” The trial court is vested with broad discretion in making an equitable distribution of marital property. See Morille-Hinds v. Hinds, 169 A.D.3d 896, 898 (2d Dep’t 2009). “When both spouses equally contribute to a marriage of long duration, the division of marital property should be as equal as possible; however, equitable distribution does not necessarily mean equal distribution.” Id. In light of this, DRL §236B(5)(d) provides a list of 14 factors for courts to consider when determining an “equitable” distribution of marital property. One specific factor for consideration is “the wasteful dissipation of assets by either spouse.” See DRL §236B(5)(d)(12).
The “wasteful dissipation” of marital assets has been described as economic fault that has resulted in the diminishment of marital property. A spouse who alleges that the other spouse has engaged in waste and dissipation of marital assets bears the burden of establishing such conduct by a preponderance of the evidence. See Raynor v. Raynor, 68 A.D.3d 836 (2d Dep’t 2019). Courts have found that conduct that constitutes wasteful dissipation of marital assets can occur “as a result of positive conduct such as to secretly and wrongfully dissipate marital assets in anticipation of equitable distribution, or use of marital funds to pay personal expenses, or as a result of inaction, such as failure to take reasonable steps to preserve the value of assets or using marital assets in furtherance of an extramarital affair.” 48A N.Y. Jur. 2d Domestic Relations 2756, Wasteful Dissipation of Assets as an Equitable Distribution Factor.
The Supreme Court of Richmond County was recently presented with a case, C.C. v. R.C., in which the Court considered the issue of wasteful dissipation of marital assets. See C.C. v. R.C., N.Y.L.J., February 25, 2022 (Sup. Ct. Richmond Cty., January 10, 2022). In that case, the plaintiff-wife claimed that the defendant-husband wastefully dissipated marital assets, including marital bank accounts and the marital residence due to tax liabilities. The husband testified that, due to the wife’s cancer diagnosis and fearfulness of her own mortality, the parties had jointly agreed that they were “going to live for today.” The court found that both parties had questionable credibility at times, but it was clear that the parties spent their marital income with reckless abandon and engaged in a pattern of mutual financial irresponsibility and wasteful dissipation of their assets continuing until even the time of trial. The parties spent lavishly on vacations, concerts, luxury vehicles and regularly visiting casinos. The court further found that, notwithstanding her complaints about the husband’s wasteful actions, the wife was complicit with the spending noting that the wife spent $1,500 per month on clothing during the proceedings and $16,000 on their daughter’s sweet sixteen party despite being unemployed and not receiving timely spousal maintenance payments. Moreover, the wife did not even file for disability benefits despite claiming she was disabled. In light of this mutual pattern of financial irresponsibility, the Court considered the wasteful dissipation of assets by both parties in determining equitable distribution.
With respect to equitable distribution of the marital bank accounts, the wife claimed that the husband withdrew thousands of dollars of marital funds without any explanation of what the funds were used for, and as such, she was seeking reimbursement for the funds dissipated by the husband. The Court found, through clear and convincing exhibits and testimony, that the husband made numerous withdrawals of marital funds prior to and after commencement of the action in violation of the automatic stays order. The husband had written checks to various people, totaling $238,005.51, without any credible explanation for the payments. The Court found that the husband had wastefully dissipated the marital assets of the parties’ joint bank account without reason or explanation and granted the wife a money judgment for 70% of the dissipated asset. Based upon the duration of the marriage, the income of the parties and the health of the wife, the Court found it reasonable to increase the award by 20% (from 50% to 70%).
With respect to the tax debt, the Court took a different approach in assessing wasteful dissipation and did not apportion liability to one party over the other. During most of the marriage, the husband was the sole income earner. The parties filed joint taxes throughout their marriage; however, they failed to report and pay state and federal taxes for a number of years resulting in hundreds of thousands of dollars being owed, fees and interest being assessed and liens being placed on the marital residence. At the time of trial, both parties agreed that the balance due on taxes was approximately $700,000. While the wife alleged that the tax debt was a wasteful dissipation of marital assets, the Court noted that she signed the joint tax returns and specifically acknowledged the tax liabilities owed to the IRS and State of New York as being owed by her and the husband. Further, the wife never filed for innocent spouse status nor had either party filed for bankruptcy. Both parties even admitted to falsifying business records to obtain Medicare coverage during the marriage. Finding that the wife shared in the benefits derived from the parties’ failure to pay their taxes, the Court held both parties jointly and severally liable for the financial liability arising out of the tax liability.
For practitioners and litigants, there are important takeaways from this decision. Parties in matrimonial matters would be well advised to note that in the absence of an explanation that funds were used for legitimate marital expenses prior to and after the commencement of an action, the innocent spouse will be entitled to reimbursement for his or her share of a dissipated asset. While, for example, things like extensive gambling losses, clothes and gifts for a paramour and large bar tabs all may be indicative of wasteful dissipation, an occasional extravagance probably should not be regarded as a wasteful dissipation. See Practice Commentary to DRL §236B. Indeed, whether family assets may have been wasted is a relative concept and the standard of living of the specific parties will be a factor for consideration. It is also important to note that expenditures that were agreed to and enjoyed by both parties but which, in hindsight, seem improvident to divorcing spouses who can no longer reach rational agreement, should not be held against one party as a waste of assets.