There are a number of aspects that need to be dealt with during the divorce process. One of the most important is the division of the parties’ assets. Sadly it is not uncommon for one spouse to attempt to hide or dispose of their assets in an attempt to prevent them being shared with their former spouse. That is known as dissipating assets.
Where there is concern that one party may be attempting to dissipate their assets, there are a number of ways in which the situation can be addressed.
Topics to be answered in this article
What is the dissipation of assets?
Dissipation of assets means that one spouse has disposed of assets that ought to be taken into account when considering a fair financial settlement. That may have been done by selling, transferring, or otherwise disposing of those assets.
Some individuals attempt to dissipate their assets during the divorce process because they believe that by doing so, they will be able to prevent their former spouse being able to benefit from those assets in a financial settlement. However, there can be serious implications if a party is found to have dissipated assets without good reason.
Attempting to dissipate assets is not a wise move, not least because the courts are very well versed in the different ways in which individuals may try to dissipate their assets, and so dissipation of assets is unlikely to go undetected. If the court is satisfied that one party has dissipated assets, there can be serious consequences for that party. Aside from the various remedies set out below, the dissipation may be considered litigation misconduct.
What are the signs of asset dissipation
Of course, the parties cannot be expected to stop all expenditure while the financial settlement is resolved, as they will need to spend money on their day to day living expenses. It is therefore important to distinguish between what is normal expenditure and what may be an attempt to dissipate assets.
Warning signs that a party may be attempting to dissipate assets may include:
- Out of character purchases and unplanned spending
- Gifting substantial amounts to family and friends
- Spontaneous sales of property and investments
- Withdrawing large sums from savings
- Unusual or unexplained expenditure
- Unplanned or unusually expensive holidays
Often the main red flags to look out for are unplanned and abnormal spending. As a general rule, planned, essential and normal expenditure are not classed as dissipating assets.
What can you do if you think assets are being transferred or hidden?
Where a party has disposed of or is about to dispose of their assets in order to frustrate their spouse’s claims relating to the divorce, an application can be made for a freezing injunction under section 37 of the Matrimonial Causes Act 1975. In order for the court to grant a freezing injunction, the applicant will need to show that there is a real imminent risk of their spouse disposing of assets.
If the court is satisfied that a party intends to dissipate their assets, it can make a range of claims in order to prevent that from happening. Those can include freezing the spouse’s assets or ordering them to pay money into court or to their solicitor to prevent it being disposed of. A freezing injunction is a type of injunction which prevents the spouse from disposing of any further assets.
The applicant is not allowed to open their spouse’s post or ‘spy’ on their bank accounts in order to obtain evidence of dissipation. They can only rely on evidence that they are permitted to access, or which has been disclosed by their spouse as part of the divorce process.
The spouse is usually not notified of the application until after the order has been made. Usually an initial order is made which is in force for a set period of time, after which the party who has dissipated the assets has an opportunity to defend the order.
Making an application for a freezing injunction is high risk, because if the application is unsuccessful or if the court considers that it was made in haste, the applicant could be ordered to pay their spouse’s costs in defending the claim. It is important to balance the risk of making the application against the risk of significant assets being disposed of.
What can be done if asset dissipation has taken place?
In the event that one of the parties has already dissipated assets in an attempt to frustrate their spouse’s claims in connection to the financial settlement, the court has the power to set aside the relevant transactions or notionally add the assets back into the pot.
The court’s aim will be to put the applicant in the position that they would have been in had their spouse not dissipated the assets. That may be done by awarding the applicant a larger share of the assets that still remain in the marital pot, if there are sufficient assets remaining.
If there are insufficient assets remaining in the marital pot, the court can set aside transactions that have already been made in order to recover assets that have been disposed of. That can be effective where the assets are able to be recovered, for instance if funds have been transferred to a family member who is holding them in a bank account.
There are however situations where it may not be possible to recover the assets, such as where funds have been dissipated by gambling. In situations where the assets are not able to be recovered, the court may order that they should be notionally ‘added back’ into the party’s assets. That means that for the purposes of the financial settlement, the party will be treated as though they still have the assets that they have dissipated.
How can Goughs help?
If you have any concerns that your spouse may be intending to dissipate assets or has already done so, it is important to act quickly to ensure that they are not able to dissipate any further assets.
At Goughs, our Family Department have experience of helping prevent dissipation of assets. We can advise on what action can be taken and how strong your case may be, and help prepare a court applicant if that is necessary.
Please make contact with a member of our team who will be happy to help you consider your next steps.