When parties file for divorce, their financial relationship changes. For instance, each spouse’s individual income and expenses become separated with some exceptions. However, courts don’t want parties to walk away from their financial obligations or squander assets while the divorce is pending. As a result, the “automatic orders rule” goes into effect when the action is filed to temporarily protect the parties’ finances by requiring them to maintain marital property and preventing them from dissipating marital assets during divorce.
The automatic orders rule provides that a spouse cannot sell assets, empty bank accounts or frivolously spend money. Further, neither party can incur unreasonable debts or encumber marital assets except in the usual course of business, to pay customary or usual household expenses or pay reasonable attorney’s fees in connection with the divorce action.
If a spouse does squander marital assets, there are consequences. For instance, in a recent client matter, we discovered evidence that our client’s spouse had underreported income and dissipated marital assets while the divorce was pending. The court ordered the offending spouse to return 50% of the value of the dissipated assets to our client. Further, the court granted us additional financial discovery to determine whether more waste had occurred than what we uncovered based on our initial review of the finances. This extra discovery was on top of the offending spouse’s continuing obligation to provide records of any changes in value of the assets during the divorce action.
Wasting assets also can have a detrimental impact on property distribution. New York law provides for equitable distribution of marital property, not equal distribution, meaning that the court can consider various factors in determining what would be fair to the parties in dividing assets. The law sets forth 14 factors and one of these is the wasteful dissipation of assets by either spouse. Thus, the offending spouse may end up losing their rights to property based on their actions.
Finally, if a party is dissipating assets, the judge may hold him or her in contempt.
To protect your rights, it is important to work with an experienced matrimonial attorney. If you are considering a divorce, contact us to help you get the best result possible in your divorce.