Economic Fault

The mere allegation of gambling losses, without proof of the amount lost, may be insufficient to prove wasteful dissipation, however. Wilner v. Wilner, 192 AD2d 524, 595 N.Y.S.2d 978 (2d Dept, 1993) (dissenting opinion).

A loss suffered under one party's management of joint investments is not necessarily dissipation of marital assets. There must be a showing that the investment loss is “not merely the product of market forces.” Owens v. Owens, N.Y. App.Div. Lexis 4292 at 10. In the Owens matter, the husband had lost nearly $4.6 million through “gross mismanagement” in the form of complete failure to monitor the investments. The court further found that Mr. Owens was “extremely cavalier” about his investments. This extreme misbehavior is quite different from market losses upon reasonable investments, so the precipitous stock declines for the period 2008-2009 would constitute market forces rather than wasteful dissipation.

Case Law

Borrowing from cases concerning professional investment adviser/brokers, the gravamen for marital investment dissipation could be the variance from actual market indices. Scalp & Blade, Inc. V. Advest, Inc., 309 AD2d 219,220; 765 N.Y.S.2d 92, 93 (4th Dept., 2003). However, even when investment performance lags the indices, there may be no legitimate claim by the non-investing spouse. Where the family has historically benefitted from similar investments when they were successful, the investor spouse should not be penalized for a few that were unsuccessful. Wilner v. Wilner, 192 AD2d 524, 528 (2d Dept, 1993) (dissenting opinion).

Courts have found wasteful dissipation where there have been high-risk investments. For example, a spouse who' made unsecured loans, invested in failed businesses and' spent huge amounts on himself was held to have wasted marital assets in Noble v. Noble, 78 AD3d 1386 (3d Dept. 2010). Investments in the commodities and futures markets or in a Broadway play have also been deemed wasteful dissipation of marital assets. Wilner v. Wilner, 192 AD2d 524 (2d Dept, 1993). However, the dissent in Wilner argued that commodities and futures investments are “recognized and legitimate” and not per se a wasteful dissipation of marital assets. The dissent pointed to the lack of proof that the losses were imprudent, unusually risky or the result of poor business judgment. 192 AD2d at 527.'

A claim of wasteful investment should be supported by expert testimony that the investment decisions were “so financially unsound at the time they were made so as to evidence a reckless disregard of the family assets.” 192 A.D. 2d at 528.

The Marital Home: A Special Asset

The New York divorce courts have taken affirmative measures to preserve the asset value of the marital home. This has taken the form of directing a refinancing to lower costs and prevent foreclosure. Nederlander v. Nederlander 102 AD3d 416 (1st Dept. 2013); Weinstock v. Weinstock, 8 Misc 3d 221 (S.Ct. Nassau Cty 2005). The rationale for this court intervention, explained the Nederlander court, is the need to protect the parties' “expectancy” in marital property by preventing its dissipation prior to equitable distribution at judgment. One party's refusal to refinance to lower payments and preserve the parties' shared interest in the martial home was treated by the Weinstock court as wrongful dissipation of marital assets.'

The weight of authority precludes sale of the marital home pendente lite. Brady v. Brady, 101 AD2d 797 (2d Dept. 1984); Portano v. Portano, 85 AD2d 622 (2d Dept 1981). There may be a need for a court to order such a sale to prevent dissipation, but there is no authority to do so absent a change in the law. Sedgh v. Sedgh, 142 Misc. 2d 931, 933 (Sup. Ct. Nassau Cty (1989). Despite these generally followed teachings, some courts have ordered a sale where loss of the property to foreclosure was imminent, or other extreme circumstances existed. St Angelo v. St. Angelo, 130 Misc.2d 583 (S.Ct. Suff. Cty, 1985) (wife permitted to sell home where foreclosure threatened, her income not sufficient to cover mortgage and husband unreasonably refused to contribute to mortgage payment for two years).

A Variety of Remedies

The remedy for wasteful dissipation varies with the circumstances, and the courts have “substantial flexibility” to address the issue in the terms of the decree. Mahoney-Buntzman v. Buntzman, 12 NY3d 415, 420 (2009). Where there are few assets remaining after the dissipation, the court can impute the income that would have been earned if the assets were still in existence. Owens v. Owens, 2013 N.Y. App.Div. LEXIS 4292 at 10. Alternatively, the wasteful spouse could receive a reduced share of the remaining assets In Wilner v. Wilner, 192 AD2d 524, the court awarded 75% of the proceeds of the sale of the marital residence and 75% of the value of the life insurance to the wife where the husband had large gambling losses and made high-risk investments.

In Brzuszkiewicz v. Brzuszkiewicz, 28AD3d 860, the wife was awarded the entire proceeds of the sale of the marital residence where the husband had mismanaged the rental property, incurred excessive credit card debt and invested in businesses that showed no profit. A profligate party can also be held responsible for all marital debt. Noble v. Noble, 78 AD3d 1386 (3d Dept, 2010).

A Proper Record

A claim of wasteful dissipation of marital assets can have a decisive effect upon equitable distribution, so a well supported record is crucial. The parties are ill served by a conclusory determination that investment losses are necessarily wasteful dissipation; there should be market data and expert testimony to provide a basis for evaluating investment behavior. Absent these, time and money are more likely to be dissipated on the appeals process.

'

David M. Rosoff is a partner in the firm of Carton & Rosoff, PC, White Plains, NY.

Although the idea that marital “fault” in divorce should be weighed when distributing marital assets has, in general, gone by the wayside in New York, there is one exception. Economic fault, including wasteful dissipation of marital assets, is still a relevant consideration in equitable distribution. Domestic Relations Law ' 236[B][5][d], Owens v. Owens , N.Y.App.Div. Lexis 4292, 2013 NY Slip Op 4380; Brzuszkiewicz v. Brzuszkiewicz, 28AD3d 860, 813 NYS2d 793 (3d Dept. 2006). When faced with a client whose spouse has allegedly wasted marital assets, what must you know?

What Constitutes 'Wasteful Dissipation'?

The paradigm of wasteful dissipation is the loss of marital funds to heavy gambling. In Burnett v. Burnett , 101 AD3d 1417, the Appellate Division, Third Department, upheld the trial court's determination that the husband had “engaged in extensive gambling ' incurring significant debts and depleting substantial assets.” 101 AD3d 1417, 1419 (3d Dept. 2012). The court further stated that such economic misconduct is not excused by the classification of gambling as an addiction.'

The mere allegation of gambling losses, without proof of the amount lost, may be insufficient to prove wasteful dissipation, however. Wilner v. Wilner , 192 AD2d 524, 595 N.Y.S.2d 978 (2d Dept, 1993) (dissenting opinion).

A loss suffered under one party's management of joint investments is not necessarily dissipation of marital assets. There must be a showing that the investment loss is “not merely the product of market forces.” Owens v. Owens, N.Y. App.Div. Lexis 4292 at 10. In the Owens matter, the husband had lost nearly $4.6 million through “gross mismanagement” in the form of complete failure to monitor the investments. The court further found that Mr. Owens was “extremely cavalier” about his investments. This extreme misbehavior is quite different from market losses upon reasonable investments, so the precipitous stock declines for the period 2008-2009 would constitute market forces rather than wasteful dissipation.

Case Law

Borrowing from cases concerning professional investment adviser/brokers, the gravamen for marital investment dissipation could be the variance from actual market indices. Scalp & Blade, Inc. V. Advest, Inc. , 309 AD2d 219,220; 765 N.Y.S.2d 92, 93 (4th Dept., 2003). However, even when investment performance lags the indices, there may be no legitimate claim by the non-investing spouse. Where the family has historically benefitted from similar investments when they were successful, the investor spouse should not be penalized for a few that were unsuccessful. Wilner v. Wilner , 192 AD2d 524, 528 (2d Dept, 1993) (dissenting opinion).

Courts have found wasteful dissipation where there have been high-risk investments. For example, a spouse who' made unsecured loans, invested in failed businesses and' spent huge amounts on himself was held to have wasted marital assets in Noble v. Noble, 78 AD3d 1386 (3d Dept. 2010). Investments in the commodities and futures markets or in a Broadway play have also been deemed wasteful dissipation of marital assets. Wilner v. Wilner, 192 AD2d 524 (2d Dept, 1993). However, the dissent in Wilner argued that commodities and futures investments are “recognized and legitimate” and not per se a wasteful dissipation of marital assets. The dissent pointed to the lack of proof that the losses were imprudent, unusually risky or the result of poor business judgment. 192 AD2d at 527.'

A claim of wasteful investment should be supported by expert testimony that the investment decisions were “so financially unsound at the time they were made so as to evidence a reckless disregard of the family assets.” 192 A.D. 2d at 528.

The Marital Home: A Special Asset

The New York divorce courts have taken affirmative measures to preserve the asset value of the marital home. This has taken the form of directing a refinancing to lower costs and prevent foreclosure. Nederlander v. Nederlander 102 AD3d 416 (1st Dept. 2013); Weinstock v. Weinstock , 8 Misc 3d 221 (S.Ct. Nassau Cty 2005). The rationale for this court intervention, explained the Nederlander court, is the need to protect the parties' “expectancy” in marital property by preventing its dissipation prior to equitable distribution at judgment. One party's refusal to refinance to lower payments and preserve the parties' shared interest in the martial home was treated by the Weinstock court as wrongful dissipation of marital assets.'

The weight of authority precludes sale of the marital home pendente lite. Brady v. Brady , 101 AD2d 797 (2d Dept. 1984); Portano v. Portano , 85 AD2d 622 (2d Dept 1981). There may be a need for a court to order such a sale to prevent dissipation, but there is no authority to do so absent a change in the law. Sedgh v. Sedgh , 142 Misc. 2d 931, 933 (Sup. Ct. Nassau Cty (1989). Despite these generally followed teachings, some courts have ordered a sale where loss of the property to foreclosure was imminent, or other extreme circumstances existed. St Angelo v. St. Angelo , 130 Misc.2d 583 (S.Ct. Suff. Cty, 1985) (wife permitted to sell home where foreclosure threatened, her income not sufficient to cover mortgage and husband unreasonably refused to contribute to mortgage payment for two years).

A Variety of Remedies

The remedy for wasteful dissipation varies with the circumstances, and the courts have “substantial flexibility” to address the issue in the terms of the decree. Mahoney-Buntzman v. Buntzman , 12 NY3d 415, 420 (2009). Where there are few assets remaining after the dissipation, the court can impute the income that would have been earned if the assets were still in existence. Owens v. Owens, 2013 N.Y. App.Div. LEXIS 4292 at 10. Alternatively, the wasteful spouse could receive a reduced share of the remaining assets In Wilner v. Wilner , 192 AD2d 524, the court awarded 75% of the proceeds of the sale of the marital residence and 75% of the value of the life insurance to the wife where the husband had large gambling losses and made high-risk investments.

In Brzuszkiewicz v. Brzuszkiewicz, 28AD3d 860, the wife was awarded the entire proceeds of the sale of the marital residence where the husband had mismanaged the rental property, incurred excessive credit card debt and invested in businesses that showed no profit. A profligate party can also be held responsible for all marital debt. Noble v. Noble , 78 AD3d 1386 (3d Dept, 2010).

A Proper Record

A claim of wasteful dissipation of marital assets can have a decisive effect upon equitable distribution, so a well supported record is crucial. The parties are ill served by a conclusory determination that investment losses are necessarily wasteful dissipation; there should be market data and expert testimony to provide a basis for evaluating investment behavior. Absent these, time and money are more likely to be dissipated on the appeals process.

'

David M. Rosoff is a partner in the firm of Carton & Rosoff, PC, White Plains, NY.