Divorce can unfortunately bring out the very worst in people, and so it is essential to go into this process with a keen awareness of the potential ‘tactics’ that one spouse may choose to employ against the other to gain an upper hand – particularly when it comes to finances. One such tactic that frequently crops up in contentious divorces is the dissipation of assets.
Simply put, this term refers to one spouse intentionally depleting marital assets in an attempt to minimise the share that will be available to the other party as part of their financial settlement. Below, we’ve further explored this underhanded ploy so that you can learn how to spot any warning signs of a future ex-partner choosing this course of action, and also be aware of what legal recourses are available to combat it or minimise any negative outcomes if it has unfortunately already occurred.
What Exactly Is the Dissipation of Assets?
In the context of divorce, “dissipation of assets” means that one spouse has sold, transferred, or otherwise disposed of assets that form part of the marital property to be considered in any financial settlement. This dissipation often occurs during or shortly before divorce proceedings as one spouse tries to prevent the other from benefiting from these assets, thus incurring a financial loss for them. The most common ways to dissipate such assets include selling them at undervalued prices, making unusually large gifts to family or friends, or transferring funds to hidden bank accounts.
Note that although this tactic may be appealing to those who are hoping to gain the financial upper hand in a divorce, courts are experienced at recognising this kind of behaviour and putting a stop to it. If a court does find that assets have been dissipated without any legitimate justification, then the spouse responsible can face serious penalties that will affect their share of any financial settlement.
The Warning Signs of Asset Dissipation
Now that we understand what this nefarious tactic involves, the importance of recognising the signs of asset dissipation is crucial to be able to act quickly and prevent any such financial losses before they happen. Although you may not be able to control all spending of your soon-to-be ex-spouse (routine daily expenses are of course exempt after all), you can take measures to restrict certain behaviours that indicate a clear intention to deplete assets. Below are some key warning signs to watch for when it comes to such behaviours:
- Out-of-Character Purchases and Spending Sprees: Sudden, uncharacteristically lavish spending—like luxury shopping, high-end vacations, or excessive gifting—is a strong indicator of dissipation of assets.
- Unplanned Asset Sales: Quickly selling property or valuable items, especially if below market value, can be a tactic to turn these assets into cash, which is harder to track in financial proceedings.
- Large, Unexplained Withdrawals: Unusually high withdrawals from shared accounts or savings, with no clear purpose, may signal an attempt to transfer funds to hidden locations.
- Gambling: Although it may be a coping mechanism for some, gambling can also be used to “hide” or “lose” assets, thus diminishing the marital pot significantly.
- Increased Gifting to Family or Friends: Making significant gifts to close friends or relatives can also be an attempt to transfer wealth out of the marital pot temporarily.
If you witness any of these actions from an estranged spouse, especially if they are inconsistent with their typical spending habits, then this could suggest an attempt to dissipate assets. However, bear in mind that you will need to have concrete evidence to support any suspicions of such unreasonable financial behaviour if you are going to take any legal action.
Legal Remedies to Combat Asset Dissipation
The first thing to do if you suspect that your spouse is dissipating assets is to consult a family law solicitor as early as possible. They will be able to help you understand what steps are necessary to combat this behaviour quickly and effectively, and they may also suggest involving financial experts like a forensic accountant if need be. In England and Wales, there is legislation in place that allows courts to issue protective measures in the event that a real, imminent risk of asset dissipation is at hand. These include:
- Freezing Injunctions: The most common measure, this order freezes the spouse’s ability to access or control assets, preventing further depletion. Your spouse may not be notified about this injunction immediately to prevent them from moving assets before the order takes effect.
- Payment Orders to Court or Solicitor: Another protective measure, this can require the spouse to pay a set amount to the court or a solicitor, ensuring funds are safeguarded during proceedings.
While these orders provide protection, you should be aware that they do carry some risk. For example, if the court finds later on in proceedings that the injunction was in fact unnecessary or not well-founded, you may become responsible for your spouse’s legal costs. This is why it is crucial that you always seek legal advice first to ensure that you have the relevant evidence before making such a claim.
What Should You Do if Dissipation Has Already Occurred?
If assets have unfortunately already been dissipated by your spouse, you may still have some legal recourse. Courts have the authority to ‘add back’ dissipated assets to the marital pot by accounting for their value in the financial settlement. Where possible, they may also be able to reverse any relevant transactions that occurred as part of dissipation of assets. Courses of action available in such circumstances include:
- Recovering Misallocated Assets: If a spouse gifted money to family members, the court might recover those funds if they’re accessible.
- Notional Add-Backs: If the court can’t recover dissipated assets, they may adjust the financial settlement by treating the spouse as though they still have the missing assets.
- Larger Share of Remaining Assets: If the assets can’t be recovered or added back, the court may grant the affected spouse a greater share of what’s left.
These options enable courts to provide fair financial compensation to both parties in a divorce, even if one spouse has attempted to manipulate the division of assets. However, it is important to note that if assets were lost through irreversible methods (such as gambling losses), a notional ‘add-back’ might be the only feasible option available.
At Grayfords, our team of family law solicitors are highly experienced in dealing with contentious divorces that involve a vast array of complications arising from disputes over finances and child custody matters. We can provide you with expert legal strategies to protect your interests and guide you through the divorce process, while also supporting you on a personal level alongside our consultants specialising in private client law, mediation, and therapy. Don’t hesitate to give us a call today on 020 7100 6100 to book your free initial consultation and find out more about how we can help.
