The website of the Napuck Law Offices in Minnesota offers a Top 10 list of divorce mistakes. Transferring or selling assets before divorce is right at the top. Enough spouses make this mistake that the law even has a name for it. It’s called dissipation of marital assets and it can end up costing you a great deal of money.
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The court doesn’t technically have jurisdiction over your property until you or your spouse files for divorce and the other is served with the papers. This doesn’t mean you can do anything you like with marital property right up until this time, however. Judges can look back to actions taken during the period of time leading up to filing, and can rule accordingly when the court does have jurisdiction. According to the law firm of Gislason & Hunter, courts can consider actions taken “in contemplation” of divorce. You might not have ulterior motives, such as transferring property so your soon-to-be ex doesn’t receive a share of it, but this may not matter. Although the exact rules can vary by state, it’s pretty universal that judges frown on this type of dealing, and it doesn't necessarily matter whose name the property is held in.
Effect on Property Division
Both you and your spouse have a legal right to a share of all property acquired during your marriage. If you give it away or sell it without her consent or knowledge, the best case scenario is that the judge will tweak the division of marital property to compensate her for the lost asset. If you sell an acre of land for $30,000 and the cash now is sitting in a savings account, there’s typically no problem -- the judge can give you $15,000 and your spouse $15,000. But if the cash can’t be accounted for, he can ascribe the whole $30,000 to your side of the property division equation. Even if you’ve long since spent the money, it can be treated as an asset you’re currently receiving in the divorce. If the judge is dividing marital property 50-50, he’ll put $30,000 in your spouse’s column to balance things out. This might be another asset worth that much, but the judge can also require you to make a cash payment to her in no other assets are available.
Dissipation of Marital Assets
The worst case scenario is that your spouse will make a claim that you’ve intentionally dissipated marital assets. This often is the charge when one spouse spends marital money in the course of an extramarital affair, but it can also apply to removing assets from the marital estate for other reasons. Minnesota law defines dissipation as property “transferred, encumbered, concealed, or disposed of, except in the ordinary course of business or for the necessities of life.” If you sold the land and the money didn’t move in and out of a bank account afterward, possibly paying marital bills, your ex may be able to establish dissipation.
If she’s successful, the judge can award her the entire value of the asset in some states -- you wouldn’t receive property of equal value in your column making it a 50-50 distribution of total assets. In some states, such as New Jersey, the judge has discretion to handle the situation as he sees fit, so if your action was particularly egregious, he might award your spouse even more than the value of the missing property. In some jurisdictions, you have the burden of proof to establish that you didn’t dissipate the property. In others, responsibility for proving that you did falls to your spouse.
Most states require that the transfer or sale must occur within a reasonable period of time before divorce proceedings begin – the court won’t look back five years. Colorado and New Jersey require that it happen at a point time when your marriage is already breaking down, or under circumstances that make it clear you weren’t acting in the best interests of the marriage.