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Dissipation – Scope and Limits

Marriage of Schneeweis, 55 N.E.3d 1280

When a marriage is in the process of breaking down, one spouse may waste or squander marital assets for a number of different reasons. In some cases, this wastage may imperil the financial security of the innocent spouse. One example that can serve as a warning to other couples considering divorce is the case of Schneeweis, in which the Second District affirmed a finding by the Circuit Court that the husband (Andrew Schneeweis) dissipated $890,700.19, which represented a sizable portion of the parties’ savings.

What Does “Dissipation of Marital Assets” Mean?

Dissipation is the “use of marital property for the sole benefit of one of the spouses for a purpose unrelated to the marriage at a time that the marriage is undergoing an irreconcilable breakdown.”[1] Under Illinois law, an injured spouse can try to recover the value of assets wasted by the other spouse by invoking the doctrine against dissipation. The doctrine against dissipation is a potentially powerful tool to compensate an innocent spouse for inappropriate reductions in the marital estate. A court can reach back years, in some cases, as happened in Schneeweis, to address one spouse’s dissipation of marital assets. Depending on the relevant facts, this can result in a large amount of dissipation.

While the decision in Schneeweis shows the long reach of the dissipation doctrine, it also shows its limits. In Schneeweis the court reached back approximately four years to address Andrew’s dissipation and found a large amount of dissipation. The problem for Andrew’s wife (Laurie Schneeweis) was that it seemed unlikely that Andrew had the income to compensate Laurie for the lost marital assets. One lesson from Schneeweis is that a spouse needs to pay attention to potential dissipation by the other spouse if the marriage is in the process of breaking down.

Underlying Facts

There was no dispute in Schneeweis that the marriage was undergoing an irreconcilable breakdown by June 2005. Laurie filed her Petition for Dissolution of Marriage in November 2009. Between June 2005 and November 2009, Andrew quit a high paying job and proceeded to lose the large majority of the parties’ savings in risky stock trading.

In October 2006, for example, Andrew quit his job with CDW. For 2006, Andrew would report income from CDW of over $600,000.

When Andrew quit his job with CDW, he did not have another job lined up. Instead of looking for a new job, Andrew decided to support his family by day-trading securities. The Second District stated that Andrew “had no experience or training in day-trading securities” when he left his position at CDW. In order to fund his day-trading activities, Andrew moved funds from the parties’ investment accounts and drew from an equity line of credit on the parties’ home. Andrew did not inform Laurie about his transfers of the parties’ savings.

Andrew did not earn enough income to support the family when he was day-trading. Laurie did not work outside the home for most of this period of time, and when she did, it was on a part-time basis in a clothing store. It appears that the family’s basic living expenses were largely paid for by dipping into their savings.

In June 2007, Andrew “began using the assets in [his trading account] to secure margin debt” so he could trade larger amounts of securities. Using margin debt is risky and Andrew had no prior experience trading on margin. By August 2007, Andrew had $942,000 in margin debt.

In August and October 2008, the stock market collapsed, and Andrew was forced to pay off his margin debt by selling assets held in his trading account. When the dust settled, only $189,058 was left in the trading account. Prior to 2007, the parties had marital assets of over $1.1 million.

Legal Issues

On appeal, Andrew argued that his trading losses could not constitute dissipation because he did not receive any benefit from his trading losses and that while he lost money, he tried to make a profit. The Second District rejected these defenses.

A key element of a dissipation claim is that one spouse uses marital property for his or her sole benefit. The Second District held that while Andrew did not benefit from the trading losses, an “act may constitute dissipation even though a spouse does not necessarily derive a personal benefit from it if the expenditure has some detrimental effect upon the marital estate.” The court stressed a few critical points. First, Andrew kept hidden from Laurie his transfers and trading activities.

Second, the Second District held that the evidence showed “extreme recklessness” by Andrew. Even though Andrew had no meaningful experience trading securities, he put at risk practically all of the parties’ savings. The Second District likened Andrew’s conduct to gambling and showed that he was “someone who no longer valued his family’s financial security.”

Finally, the Second District rejected Andrew’s argument that he acted in good faith and was the victim of a major market collapse in 2008. The Second District held that Laurie did not have to show that Andrew had a bad intent when he lost the family’s savings. The Second District stated that:

We acknowledge that there is a spectrum of risky conduct by a spouse and the courts may arrive at different estimations of whether the conduct is merely a combination of good faith and bad luck or clear dissipation. However, the dissipating spouse’s intent is not dispositive in this determination.

Andrew certainly had the bad luck of having over $900,000 in margin debt when the financial crisis in 2008 sank the market. More importantly, Andrew did not have the experience needed to risk the family’s financial safety by taking on significant margin debt that forced him to sell the securities in his investment account when the market collapsed. As a result, the Circuit Court’s dissipation finding was not against the manifest weight of the evidence presented at the trial.

Lessons Regarding Dissipation and Its Effects

There are a couple of important lessons from the Schneeweis case. First, a court can reach back years to find dissipation in the appropriate case. Second, dissipation is a broad legal concept that can include a wide range of conduct. Third, a large dissipation finding may not help you financially, if your spouse is not able to pay for the losses he or she caused.

If a divorce is imminent, couples should be vigilant for signs of potential dissipation. It can often be helpful to consult with a local divorce attorney if you believe your spouse may be hiding or squandering assets. Contact the Law Offices of George M. Sanders, P.C., to discuss your concerns regarding dissipation.

For a more extended discussion on the legal definition of dissipation, please look at the firm’s post  Dissipation – What Is It, And When Is It an Issue?

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