Washington Law Regarding Waste or Dissipation of Assets
Clients are sometimes dismayed to find that their spouses spent money during the marriage without their consent, and for things that served no benefit to them. Sometimes, a client wants to be reimbursed for these expenditures during a divorce, particularly if the expenditures were for things like gambling, extramarital affairs, internet pornography, or even prostitutes. What constitutes a dissipation of assets? Under what circumstances would the court order reimbursement or offset to the other spouse?
RCW 26.09.080 requires the court to make a just and equitable distribution of the property and liability “without regard to marital misconduct." In other words, courts don’t “punish" a bad spouse or reward the “victim" spouse through the property distribution. Our family law courts have equitable power to look at the relative economic circumstances of the parties, and seem to order reimbursement where a spouse’s extra-marital spending far exceeds that spouse’s contribution to the community. Attorneys sometimes state that the standard in Washington is whether the expenditure did not serve a “community purpose" and attempt to bootstrap the notion of “misconduct" into something that is automatically reimbursable, but that is not an accurate statement of the law. This article intends to identify the standard applied by the courts and to demonstrate how and when the courts might order reimbursement.
The spouse seeking reimbursement has the burden of proving the nature and the extent of assets that have allegedly been wasted or dissipated. Often, a spouse deliberately trying to hide expenditures from his or her partner will use cash, withdrawn in relatedly small increments, which is very difficult to trace. It is nearly impossible to prove what the cash was used for unless the other spouse can find collateral evidence such as receipts, or proof left on a computer. Mere conjectures will not hold up as evidence in court, nor will evidence that the spouse has engaged in a particular activity. The source of the funds must be traced and established.
Washington case law regarding this topic is of limited value. For example, there are no cases involving extramarital affairs, pornography, or sexual misconduct, and no cases that say any illegal activity creates a per se right of reimbursement or offset. However, from the finite body of law that we do have in Washington on the subject of waste or dissipation, a spouse seeking reimbursement has a high burden of proof and the case would probably be determined on a case-by-case basis, heavily considering the overall economic positions of the parties. There are no published cases involving high-net-worth parties. To the contrary, the cases involve parties who are financially distressed and the courts have exercised their discretion to balance the available funds as fairly as possible, in light of the unilateral expenditures of one spouse.
In re Marriage of Williams, 84 Wn. App. 263, 270, (1996), involved the wife’s gambling. The court did not order any reimbursement or offset for gambling debts incurred by the wife, likened gambling to any other form of entertainment, and placed paramount importance on the amount of money the wife brought into the community, as compared to the money taken from the community through her gambling activities.
This demonstrates a common misconception in Washington, that activities that did not serve a “community benefit" give rise to a right of reimbursement. While that is a phrase that get tossed around, it is not an accurate statement of the legal standard in Washington. In Williams, the court held that the wife’s gambling was not “negatively productive conduct" entitling the husband to any sort of right of reimbursement or larger property award." The court found that the gambling was “entertainment." The Husband in Williams had cited several out-of-state cases, particularly an Illinois case, to define as dissipation “where a spouse uses marital property for his or her own benefit and for a purpose unrelated to the marriage at a time when the marriage relationship is in serious jeopardy." Id. (Citations omitted). In response, the Williams court specifically stated “Washington courts, on the other hand, focus instead on ‘whose labor or negatively productive conduct was responsible for creating or dissipating certain marital assets.’" Id. at 271. (Citations omitted). “Balancing Glenda’s (the wife) extra income against her excessive spending, the court here decided to include the gambling related debts in the community’s total liabilities. We do not find this an abuse of discretion." Id.
Glenda Williams worked three jobs to gross a total of $2,500 a month. Her husband earned $3,000 per month, and the gambling debts were divided as community in the dissolution of marriage—worth noting because the Williams court, above all, found that “Of paramount concern in dividing the property of spouses in marriage dissolution proceedings are the post-dissolution economic positions of each of the parties." (Id.)
The typical fact pattern an attorney might see is where the breadwinner, or higher-earning spouse, has been the one to spend money on things like gambling or affairs. Applying the law and logic of Williams, the court would ask whether this was negatively productive, and, if so, how did it compare to that spouse’s financial contribution to the community, and the overall post-dissolution economic positions of each party.
In re Marriage of Clark, 13 Wn. App. 805 (1975) involved the Husband’s appeal of the trial court’s finding that he had dissipated marital assets through “expenditures of his own choosing, mainly alcoholic beverage." (Id. at 807). The wife in that case was a school teacher and the husband had held various jobs, his last position was teaching at a community college for $12,000 per year. While the record does not reflect more specific detail about the nature and extent of his drinking, the Court blamed it for the loss of roughly 15% of the entire marital estate (no interest or lost opportunity costs included in that figure). Husband was unable to account for $10,000 from sale of a family business. This case is often cited for the proposition that the court considered the drinking not as “marital misconduct" per se, but that the court must look at how this conduct affected the financial situation of the community. In reality, the Clark court was not concerned with the immorality or misconduct of Mr. Clark’s actions, but where it left the parties financially, and under those facts, felt it was fair to make a disproportionate division of property in favor of Mrs. Clark.
In In re Marriage of Steadman, 63 Wn. App. 523, 528 (1991) the court found dissipation of assets and required offset where Husband had repeatedly and deliberately failed to pay federal income taxes which resulted in additional tax liability for the community and financial hardship to the wife.
In re Marriage of White, 105 Wn. App. 545 (2001), is cited for the proposition that “When exercising its discretion, a trial court is permitted to consider, as one relevant factor, a spouse's unusually significant contributions to (or wasting of) the assets on hand at trial." The Wife in that case had used her inheritance money to pay off the debt on the family car and the family home and the issue was whether she was entitled to reimbursement. Again, the court has the discretion to look at the overall equities, the wealth of the parties, and where each party is left after the property distribution.
In re Marriage of Morrow, 53 Wn. App. 579 (1989), involved an award of lifetime maintenance to the wife, due to a disproportionate share of the assets awarded to the Husband. After a 13-day trial expended on “untangling" the husband’s complex assets, the court found that many of the marital assets were beyond reach. Id at 558. In making the lifetime maintenance award, the court stated “A final factor that should be considered is Mr. Morrow’s dissipation and probable concealment of assets. [Citations omitted]. Mr. Morrow liquidated retirement funds resulting in a $70,000 tax loss, and the court found that he threatened to liquidate other assets ‘with the very real possibility of [his] being able to achieve certain results.’ The [trial] court also found that ‘Mr. Morrow is an extremely adept accountant who has demonstrated great skill in the structuring and restructuring of various entities to maximum advantage while still managing to control the activities and benefits indirectly from numerous enterprises." (Id.). For context, the Wife netted roughly $175,000 total from the dissolution, whereas the Husband’s assets were estimated to be at least $800,000 and probably more.
In summary, in each of these cases, the courts were called upon to salvage rather dismal financial situations for one or both parties, and consistently seem to favor the spouse who had either not caused financial damage to the community or whose contributions had equaled, if not surpassed, the financial loss. It may also be worth noting a possible gender-bias in these cases: the husbands were all required to reimburse the community, while the wives were not. Finally, a spouse seeking retribution for such marital misconduct as gambling or infidelity will be disappointed as case law does not support this and RCW 26.09.080 expressly prohibits a property distribution based on marital misconduct alone. A very strong showing of the funds actually spent will be required.