How Major Financial Decisions Can Affect Your Divorce

Divorce is a complex and emotionally charged process that involves dividing assets fairly. One of the most significant issues that can complicate a divorce is the improper use of marital funds or assets before or during the divorce process. The legal terms for this is “marital waste” or “dissipation of assets.” This can include extravagant spending, risky investments, or using funds for extramarital affairs, and often happens without the knowledge or consent of the other spouse. Courts take marital waste seriously because it can undermine the equitable division of assets. It can also add to the tension, making it harder to reach a settlement agreement. Here’s what you need to know about marital waste during a divorce.

• How to Avoid Marital Waste
• Consequences of Marital Waste
• Personal Spending Can Cost You in the Divorce

How to Avoid Marital Waste

Avoiding marital waste is important throughout your divorce. Here are some things to consider as you navigate the process.

1. Be Mindful of Spending Before and During the Divorce Process Any significant or unusual expenditures made right before or during a divorce will likely be scrutinized. Avoid making large purchases, taking expensive trips, or engaging in activities that could be viewed as financially irresponsible, especially if these only benefit you or people outside of your family. If infidelity is an issue, marital funds spent towards supporting extramarital affairs could be considered marital waste.
2. Focus on Practical and Necessary Expenses When spending money during a divorce, prioritize practical and essential expenses. Courts will differentiate between necessary spending and actions that could harm the financial stability of the marital estate.
3. Communicate with Your Attorney Before Major Decisions If you’re considering any large financial moves, consult your attorney first. They will be able to provide counsel on the implications of those decisions. Timing matters, and you may want to wait until after your divorce is finalized.
4. Maintain Transparency Attempting to hide or justify marital waste can backfire. Be honest and upfront about your financial activities to ensure the best possible outcome.

Once your divorce is final, you can choose how to spend your money, but extravagant transactions ahead of and during your divorce can have serious consequences.

Consequences of Marital Waste

The repercussions of marital waste can be significant. Ultimately, the person who commits marital waste may need to replenish the marital estate, which is often resolved during the asset division process. For example, let’s say your total assets are valued at $1 million, and they are being split 50/50. In this case, each spouse would get $500,000. However, if it came to light that your spouse spent $200,000 on an affair, it could be determined that your total assets should have been worth $1.2 million without that extra spend. You might be entitled to $600,000 (and your spouse the remaining $400,000), which would be half of your marital estate prior to the marital waste. Determining marital waste can also be expensive. A lack of transparency can increase the cost of discovery by requiring forensic accountants or other experts to help unravel unusual transactions. You might find it harder to come to a settlement agreement, making it necessary to litigate and drive up the cost of your divorce.

Personal Spending Can Cost You in the Divorce

One of the most unusual divorce cases I’ve handled involved a spouse who, during the divorce proceedings, spent $150,000 of marital funds on gender-affirming procedures in another country. While this decision was deeply personal, the timing created significant financial and legal challenges. After a drawn-out and costly court battle, spending on the procedure was classified as marital waste, and the $150,000 was deducted from the spouse’s share of the marital assets. This example underscores the importance of considering the financial and legal consequences of personal decisions made during a divorce.

Final Word

Marital waste can complicate an already challenging divorce process, but with careful planning and professional guidance, it’s possible to avoid these pitfalls. Once your divorce is final, you can choose how to spend your money, but extravagant transactions ahead of and during your divorce can have serious consequences. Always think strategically about your financial decisions during this time, and consult your attorney, who can help you avoid potential complications.