Wasteful Dissipation of Separate Property Assets: Trend or Aberration?

Domestic Relations Law Section
§ 236B sets forth mandatory factors that a court must utilize in determining maintenance and equitable distribution awards in a matrimonial action; the “catch-all” factor is typically the last of the enumerated factors in the statutory list. This factor affords the court in “considering the circumstances of the case and of the respective parties” the discretion to entertain any other factor which the court shall expressly find to be “just and proper.”

Of course, parties may opt out of the statutory scheme for maintenance and support by an agreement either before or subsequent to the marriage if memorialized in writing, subscribed by the parties, and acknowledged in the manner required to entitle a deed to be recorded.2 However, even these agreements may prove deficient vis-a-vis the application of the “catch-all” factors of the Domestic Relations Law.

The Third Department in Owens v. Owens, decided this past June, is a case in point.3 The decision is an example of a court’s use of the “catch-all factor” to right a wrong when warranted by the circumstances. The exercise of judicial discretion is not without its hazards, however, and though equity may be done in a particular instance, the overall impact of such a decision may import future consequences that in effect alter the statutory boundaries in reaching for a desired result.

At the time the parties were married in 1985, the husband came to the marriage with significant assets, his “separate property.”4 Those assets included a Manhattan apartment building that he purchased for $130,000 and subsequently sold during the marriage for $4.6 million dollars. In addition, he had a half-ownership in what ultimately became the marital residence and inherited the remainder at the death of his father.

During the marriage, the parties virtually lived off of the husband’s separate property assets, residing in a 4500-square-foot home with superior amenities on 5 acres overlooking the Delaware River. Neither of the spouses were required to work to support their marital lifestyle. In fact, the husband conceded they lived comfortably and then lavishly after the sale of the Manhattan apartment building. However, by the time of trial in 2011, the husband had squandered most of his “separate property” assets including the proceeds of sale of his Manhattan apartment building, spent or lost due to the husband’s mismanagement.

The wife asserted a claim for marital waste. (The Domestic Relations Law specifically excludes “separate property” from the distributive power of the court, therefore the separate property assets of the husband in this instance would have been beyond the court’s reach in distributing a share of those assets to the wife.)5 The trial court found “… the husband wastefully dissipated millions of dollars of his separate property and was ‘extremely cavalier’ about the condition of his investments.”6

Wasteful dissipation of assets is a statutory factor in an equitable distribution determination.7 The question before this court is whether dissipation pertains solely to marital assets or are “assets” broadly defined to include “separate property” assets? In the Second Department, the statute has been interpreted to apply to wasteful dissipation of “marital,” and not “separate” assets.8 In Vogel, the appellate court found it error for the trial court to find wasteful dissipation of marital assets by a defendant who dissipated the cash of a life insurance policy that clearly constituted his separate property. Further, in Spera, decided in March of 2010, the Second Department refused to give a spouse credit for dissipation of an asset (a 401k plan) where the spouse did not contest the separate nature of the asset.9 So too, the trial court in Owens did not give wife a credit for husband’s dissipation of his separate property assets.

The Appellate Division, Third Department disagreed. They found the husband’s cavalier attitude regarding his own assets to be so distasteful and economically egregious as to trigger the catch all factors and therein the authority to intercede on the wife’s behalf.

The court acknowledged that separate property itself is not subject to equitable distribution. Nonetheless, they reasoned that the statute does permit separate property interests of a party to be considered when equitably distributing marital property via the statutory factors pertaining to each parties income and property.

The appellate court noted that from the time of the parties’ separation in 2008 to the time of trial, the wife was without income or assets though she did have a nursing degree earned during the marriage and engaged sporadically in per diem work. Husband, on the other hand, was debt-free, collecting Social Security, held $80,000 in assets, owned a 2005 Mercedes and 1995 Jaguar convertible as well as held title to the marital residence valued at approximately $465,000 and paid his attorneys $65000 in legal fees.

As a result, on appeal, the trial court award of marital property was modified to increase from 40% to 50% wife’s interest in the $335,000 appreciation in the marital residence. (In addition, they increased her counsel fee award from $25,000 to $35,000.)

Further, the court went on to modify the trial court award of maintenance to the wife by increasing the duration of wife’s maintenance award of $2000 per month for nine months to twenty-four months. A post-judgment maintenance award lists among its factors for the court to consider:
(1) the income and property of the respective parties including marital property distributed pursuant to subdivision five of this part;
(2) the length of the marriage; …
(4) the present and future earning capacity of both parties; …
(17) the wasteful dissipation of marital property by either spouse; …
(20) any other factor which the court may expressly find to be just and proper.10
The court concluded that “under the circumstances of this case,” the wife’s ability to be self-supporting by some standard of living does not mean she is self-supporting in the context of the marital standard of living.”11 The court went on to impute substantial [separate property] income to the husband “that he would have earned had he not been so cavalier and wasteful in the manner in which he blatantly risked virtually all of his capital.”

Imputing separate property income on nonexistent assets … punishing misconduct in regard to separate property assets … made possible through the discretionary power afforded the court via the statutory catch-all factors. Whether the other appellate departments of this state will follow in the footsteps of the Third Department only time will tell.