In re Marriage of Sinha, 2021 IL App (2d) 191129
In Sinha, the Second District addressed a situation in which the wife, Jyoti Sinha, transferred $540,000 from an E-Trade account held by both parties to an account in India owned by her mother. The transfer was made approximately three months before Jyoti filed for divorce. Those funds were never returned to the marital estate.
The Circuit Court held that dissipation could not legally occur until the marriage was irretrievably broken. The Circuit Court then held that “it could not determine the date on which the marriage was irretrievably broken,” so it looked to the date on which the petition for dissolution of marriage was filed. The petition for dissolution of marriage was filed approximately three months after the $540,000 was transferred, so the transfer could not constitute dissipation according to the Circuit Court.
The Second District reversed the Circuit Court on this issue. The Second District held that Jyoti committed dissipation when she made this transfer, and that the Circuit Court should have considered this dissipation when it allocated the remaining marital assets between the parties. The Second District rejected the Circuit Court’s need for a specific date on which the marriage was irretrievably broken. Instead, the Second District held that the lower court should have determined if the transfer was made while the marriage was “undergoing an irreconcilable breakdown.”
What Is the Context for Dissipation in the First Place?
Under Illinois law, spouses are free to spend their own money and transfer, sell or give away their own property as they want. If a spouse has funds in his or her own bank or investment accounts, for example, they can do with those funds what they want during the marriage. A spouse is not legally entitled to prevent the other spouse from spending his or her money. The same rule holds for joint bank accounts. In a typical joint bank account, each party to the account has the right to withdraw all or some of the funds contained in that joint account. While spouses will oftentimes discuss how they spend money and what they purchase, neither spouse may legally assert a veto on how the other spends money from a joint account.
This basic rule can raise some serious problems when a marriage is in the process of breaking down or has already broken down. At this point, one spouse may, for example, want to hide marital money for themselves knowing that a divorce is coming. One spouse may also decide to recklessly use martial funds for their own enjoyment at the other spouse’s expense. In other cases, a spouse might have a gambling or drug addiction that is spiraling out of control. There are many reasons why one spouse may hide or spend marital funds, but the end result may be to leave the other spouse with little or no property after the divorce.
During a divorce proceeding, a court can take a number of different actions to protect marital assets from being hidden or wasted. Before a divorce action is filed, however, a spouse’s options are limited. This is where the concept of dissipation comes into play. If one spouse dissipates marital money, the other spouse can request that the value of those dissipated assets gets added back to the marital estate. For example, let us assume that the marital estate has $200,000 in assets. If a court were to give each spouse 50% of the marital estate in a divorce, each spouse would get $100,000. Now let us assume that the marital estate was worth $400,000 before the divorce was filed, but the husband transferred $200,000 to his girlfriend who ran off with the money. The court could decide that the marital estate includes both the $200,000 in actual assets plus the $200,000 the husband gave to his girlfriend. The court could still give each spouse 50% of the marital estate, but the wife would get the $200,000 in actual assets and husband would get credited with the $200,000 in dissipated assets. As a practical matter, this means that the wife gets the entire marital estate and the husband gets nothing.
It is also possible that the spouse that dissipated marital assets will have to reimburse the other spouse for some portion of the lost funds. For example, if wife dissipated $200,000, but only $100,000 remained in the marital estate, a court could order the wife to pay back a substantial amount to the husband. In this situation, if the $200,000 in dissipated assets is added to the $100,000, the total marital estate is $300,000. If the court awarded each spouse 50%, the husband would be entitled to $150,000, but would only receive $100,000 in actual assets. The court could then order the wife to pay the husband $50,000.
Legal Definition of Dissipation
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.” There are three critical concepts contained in this statement:
(a) marital property,
(b) sole benefit of one of the spouses for a purpose unrelated to the marriage, and
(c) the marriage is undergoing an irreconcilable breakdown.
The third factor was the issue addressed in Sinha. Some background on the other two factors is important in order to understand what happened in Sinha.
Marital property is a concept used to equitably allocate assets and other property in a divorce. Marital property generally includes any employment income earned by either spouse during the marriage, any property acquired during the marriage, and any interest or appreciation in value of any marital property during the marriage. Property that a spouse owned prior to the marriage is considered non-marital property. The technical rules concerning marital and non-marital property can become complex and are beyond the scope of this article. The important point here is that the concept of marital property does not limit how a spouse uses or disposes of his or her money and property during the marriage and before a divorce is filed.
Sole Benefit Unrelated to the Marriage
This factor defines the types of expenditures or withdrawals that can constitute dissipation. Many different types of expenditures or actions with marital funds can fall within this category. Some of the more flagrant actions include buying gifts for a boyfriend or girlfriend, gambling losses, giving money to friends or non-immediate family, or hiding money. Making reckless investments that result in significant losses can also fall within this category.
This does not mean that buying basic necessities such as groceries, clothing, haircuts, gas, internet service or phone bills are somehow improper. When a spouse purchases clothing needed for work, for example, the purchase is technically for his or her sole benefit, but it is also for a martial purpose: supporting the family. The same would hold for commuting expenses and buying lunch at work. Contrast these expenses with one spouse deciding to take a road trip across the country so he or she can go mountain climbing. The associated travel expenses are not related to a marital purpose and only benefit that one spouse. The overall context for an expense means a great deal when determining whether dissipation has occurred.
Normal expenditures for basic necessities can cross the line if they are excessive. Buying a suit for work may be appropriate, but buying an expensive suit that is not typical of prior purchases could constitute dissipation. Context also includes the prior spending habits of the parties.
The Marriage Undergoing an Irreconcilable Breakdown
The rule against dissipation conflicts with the basic rule that spouses can do with their money what they want. While the more general rule that spouses can do what they want with their own money is supported by important policy and civil rights interests, when a marriage starts to breakdown, the state has an interest in preventing a race by each spouse to hide or waste as much money as they can. This raises two important questions: (a) how far back from the filing of a divorce proceeding can a court reach for purposes of dissipation, and (b) how much precision should exist for the start date of the dissipation window. These two issues are interrelated.
The Circuit Court in Sinha used the date the wife filed her petition for dissolution of marriage as the date the dissipation period would start. Given that a divorce proceeding can take more than a year to resolve, using the filing date for dissipation provides clarity and some level of protection to both spouses. This precision, however, comes at the cost of allowing the significant wastage of marital assets in the months leading up to the initiation of the divorce action. Further, a spouse that wants to get divorced could wait to file a petition for dissolution until after they have raided bank and investment accounts. This can have the adverse effect of incentivizing married couples to segregate their accounts from each other on the first hint of marital discord.
Going too far back in time with respect to dissipation, however, can create its own problems. First, going too far back in time will undermine the basic policy that spouses can spend their money how they want. Second, the further back in time a court goes with respect to dissipation, the more complex the factual issues become. As factual issues become complex, the cost of the divorce litigation increases, and it may become harder to settle the case amicably.
In Sinha, the Second District rejected a requirement for a hard start date for the dissipation window. The court held that the evidence in the record shows that “the marriage began to irretrievably break down in the late summer of 2015.” The evidence it cited to support its finding was as follows:
[I]n August 2015 the parties began arguing and having difficulties over many issues, including money, petitioner’s parents’ visits, and their son’s diet. Further, petitioner would not allow respondent to take their son to respondent’s parents’ house and, most importantly, many times told respondent to move out of the marital home in August 2015.
While the Second District did not require a hard start date for dissipation, it did not go back more than four months.
The Second District, however, did not foreclose the possibility that it would go further back in time under the appropriate set of facts. In Sinha, the Second District relied on its decision in Marriage of Schneeweis, 2016 IL App (2d) 140147. In Schneeweis, while the Second District arguably pushed the dissipation window back approximately four years, it appears that most of the actual dissipation occurred one to two years before the petition for dissolution was filed.
Addressing Dissipation and Protecting Your Financial Interests
A key takeaway from Sinha is that if your marriage is breaking down, the rule against dissipation may kick in much sooner than you realize. While this will provide some protection against financial misconduct by your spouse, it does not diminish the need for vigilance if your marriage is breaking down. Getting a dissipation judgment is important, but it is only the first step in getting reimbursed. You still have to enforce the judgment against your former spouse, and this can prove difficult if your spouse has wasted a sizable portion of the marital estate and does not have the income or non-marital assets to cover the losses.
If your marriage is on the rocks and you have reason to believe that dissipation of assets may occur, do not wait to seek legal guidance. At the Law Offices of George M. Sanders, P.C., our family law attorneys have extensive experience in resolving complex property division issues, including proving and enforcing dissipation orders. Contact our office today to learn more about how we may be able to help.