Divorce is a challenging and often expensive process, made even more complex when one spouse engages in dissipation of marital assets. This occurs when marital funds or property are wasted, hidden, or used for non-marital purposes, such as reckless spending, transferring assets to third parties, or funding an affair. Such actions can severely impact the equitable division of property, leaving one spouse at a financial disadvantage. Understanding what constitutes dissipation of assets, how to uncover hidden spending, and the ways it influences property division is essential for anyone navigating a divorce. These issues are common in our cases, and we routinely identify dissipated marital assets to ensure our clients receive a fair and just settlement. Protecting your financial future begins with recognizing and addressing dissipation during the divorce process.
What is Dissipation of Marital Assets?
Dissipation of marital assets occurs when one spouse misuses, wastes, or intentionally depletes marital funds or property for purposes unrelated to the marriage, often during its breakdown. Common examples include:
- Spending on paramours (e.g., trips, gifts, or accommodations).
- Excessive gambling or reckless financial decisions.
- Transferring marital assets to third parties or family members.
- Selling property below market value without the other spouse’s consent.
Courts consider these behaviors as detrimental to equitable property division, particularly when they leave the marital estate unfairly depleted. When the divorce hits down the road, your wife’s attorney can subpoena all these records, and you will find yourself faced with a claim for dissipating marital assets. Although Colorado is a no-fault divorce state, and evidence of one spouse’s misconduct is not admissible to determine how property is divided, the court may adjust amounts awarded to each party if it finds that one spouse has squandered or given away marital assets during the marriage.
Dissipation of Marital Assets
In Colorado, dissipation of marital assets is classified as “economic fault” rather than “marital fault.” While marital fault pertains to personal misconduct, such as infidelity, economic fault focuses solely on financial mismanagement or misuse of marital funds for non-marital purposes. This distinction is crucial because, even in no-fault divorce states like Colorado, economic fault can directly influence property division.
Key legal precedents illustrate how dissipation is treated under Colorado law. In IRM Jorgenson, 143 P.3d 1169 (Colo. App. 2006), the court emphasized that economic fault could affect property division, ensuring an equitable outcome despite the state’s no-fault framework. Similarly, IRM Finer, 920 P.2d 325, 331 (Colo. App. 1996), established that dissipated assets are valued at the time they were misused, ensuring their depletion’s impact on the marital estate is accounted for in the division of assets.
When pursuing a dissipation claim, the accusing spouse must show that the expenditure occurred during the breakdown of the marriage and was for a non-marital purpose, such as significant gifts, hotel accommodations, or airfare for a paramour. Once this is demonstrated, the burden shifts to the accused spouse to prove the expenditure was for legitimate marital purposes. If the court determines dissipation occurred, it will adjust the division of property to compensate for the depleted assets, ensuring fairness in the settlement.
Understanding these legal principles is essential if you believe marital assets were dissipated. Proving such claims can lead to an equitable adjustment in the division of property, helping protect your financial future during divorce proceedings.
Common Types of Dissipation
If you suspect dissipation of marital assets, consulting your attorney should be your first step. An experienced lawyer can uncover questionable expenditures through tools like interrogatories, requests for production of documents, financial releases, and depositions. Every financial move—credit card charges, bank transactions, cash withdrawals, or even rewards and mileage accounts—can be scrutinized during divorce proceedings and potentially used to support a dissipation claim.
It’s Not the Size That Matters: The court will consider dissipation claims even for items of little monetary value. While pursuing minor claims may not always be cost-effective, their cumulative impact on property division should not be overlooked.
Ease Up on the Vice: Excessive spending on gambling, drinking, or reckless purchases can form the basis for a dissipation claim. Such financial misconduct is viewed as economic fault and may significantly influence the court’s decision on equitable asset division.
Trim Down the Transfers: Transferring marital assets to family members, lovers, or third parties without consent is a classic example of dissipation. Courts often compensate the affected spouse by allocating other assets to account for the loss caused by such transfers.
Play Down the Paramour: Using marital funds for gifts, vacations, or accommodations for a significant other is a prime example of dissipation. These actions can lead to a court-ordered adjustment in property division, damage the possibility of an amicable settlement, and often infuriate the wronged spouse.
Business Is Business: Business expenses are generally not considered dissipation if they align with normal operations or reasonable salaries. However, personal expenses disguised as business costs could be grounds for a claim.
Your Word Is Your Bond: If both spouses agreed to a particular expenditure during or after the marriage breakdown, dissipation cannot be claimed. Documentation of mutual consent is essential to prevent disputes over spending.
Hobbling Hobbies: Spending on recreational activities or hobbies is typically not considered dissipation if the expenses were mutually enjoyed or approved during the marriage.
Assessing the Damage: The court values dissipated marital assets based on their worth at the time they were misused, not on potential future value. This principle is especially relevant for investment or retirement accounts. If one spouse cashes out, the court uses the sale date value rather than any hypothetical gains the assets might have generated.
Placing Assets in a Trust: Placing marital assets into a trust without the other spouse’s knowledge can constitute dissipation under certain circumstances. For instance, In re Marriage of Pooley, 996 P.2d 230 (Colo. App. 1999), recognized that transferring assets to a trust could be viewed as dissipation, warranting inclusion of their pre-trust value in property division. Similarly, Kaladic v. Kaladic, 589 P.2d 502 (Colo. App. 1978), set aside the transfer of marital assets into an irrevocable trust without spousal consent.
If you are planning to file for divorce, investigating your spouse’s financial behavior is crucial, particularly if infidelity is involved. Extramarital affairs funded by marital assets—such as vacations, accommodations, or gifts—can be exposed during legal proceedings, often leading to financial repercussions. Conversely, if you are engaging in such behavior, avoid using marital funds, as this misuse could lead to costly claims, extensive audits, and unfavorable legal outcomes.
Playing “Hide and Seek” with Assets: Attempting to conceal marital assets often results in aggressive legal action by the opposing spouse’s attorney. Financial misconduct turns into a game of “seek and destroy,” with attorneys uncovering hidden accounts, questionable transfers, and improper spending.
To learn more about dissipation claims and how infidelity affects hidden assets, consult a family law expert to protect your financial future during divorce proceedings.
Fraudulent Transfers Under CUFTA: Transferring marital assets to hinder equitable division in divorce can constitute dissipation under CUFTA. In Rios de Martinez v. Landaverde, 2024 COA 115, the court held that a spouse may bring a “Colorado Uniform Fraudulent Transfers Act” (“CUFTA”) claim if the other spouse transferred assets in anticipation of divorce with fraudulent intent. Indicators such as concealment, lack of adequate consideration, or transfers to insiders can lead the court to reverse the transfer or adjust property division
Steps to Uncover Hidden Assets in a Divorce
Uncovering hidden assets is critical to ensuring an equitable division of property during divorce proceedings. Start by thoroughly examining all financial documents, including tax returns, bank statements, and investment accounts, for discrepancies or unexplained transfers. Work with your attorney to issue subpoenas for financial records and depose third parties, such as business partners or financial advisors, who may have insight into undisclosed assets. Hiring a forensic accountant can also be invaluable in tracing hidden funds, evaluating suspicious transactions, and identifying concealed income sources. Additionally, tools like credit reports and online asset searches can reveal unknown accounts or properties. Taking these proactive steps can protect your financial future and ensure fairness in the final settlement.
To learn more, take a look at how cheating and infidelity affect dissipation and hidden assets.
Suzanne Griffiths is the Managing Shareholder of Griffiths Law PC. She has been recognized by the Best Lawyers in America© since 2019 for family law and has been selected to Colorado Superlawyers since 2005. She has also been recognized in 5280 magazines for Top Lawyer in Family Law in Denver since 2016.