During marriage, neither spouse is supposed to devalue the community estate by wasting of assets. “Wasting” means spending community money for a non-marital purpose. The classic case has been the spouse who changes his lifestyle, often in the process acquiring a friend to whom the spouse gives money, pays expenses or buys gifts. The other spouse neither knows of these actions nor would approve of them if they were known. But the non-wasting spouse can attempt to recoup losses by negotiation or in court.
How to Detect Wasting
There are many ways to waste the community estate, and therefore many ways to detect waste. Some of these clues are:
- A spouse begins to spend more time out socializing, perhaps drinking, clubbing, gambling or traveling.
- The spouse maintains a post office box or mail drop to receive credit card and bank statements to conceal wasting of assets.
- The amounts of the spouse’s expense reimbursements from work substantially increase.
- The spouse buys “toys,” such as cars, expensive clothes or jewelry.
- Investments, according to the spouse, unexpectedly have lost considerable value and therefore should be sold, often to a friend who will later sell the property and split the proceeds with the wasting spouse.
The best way to establish these, and other types of wasting of assets, is to examine credit card and bank statements, tax returns, and financial statements the wasting spouse has presented to banks. An attorney can issue requests that these documents be produced or, alternatively, obtain them directly from the issuing companies by subpoena.
Wasting Assets Through A Business
Although a spouse certainly can dissipate the community estate while not self-employed, business owners have more control over money and therefore opportunity to commit more egregious acts of waste. If a business owner wastes business assets, he has failed to act in good faith toward the other spouse. An older case, In re the Marriage of Czapar (1991), shows the extent to which wasting can occur when a business owner is doing the wasting.
The husband in that case owned a plastic extruding company. He and his wife were separated for several years. During that separation, the husband had the company pay for many of his personal expenses, including meals, vacations, a video recorder, estate planning and accounting services and personal insurance premiums. The court noted that, in particular, that the husband had the company buy a Porsche even though the company already owned a Porsche. Ultimately, the company sold the Porsche for a loss. The husband also made a charitable contribution of $8,500 to his Alma Mater without his wife’s knowledge or consent.
The court highlighted the husband’s waste of the community estate by observing that the husband had his company hire his girlfriend. Although the girlfriend had no experience in marketing, her job was to develop new markets for an airless inner tube tire. The girlfriend previously worked as a high school counselor. The plan was to enlist students as a sales force to market the tire. The court found that the plan yielded “virtually no sales.”
Remedies for Wasting of Assets
California law requires that, with a few exceptions, the community estate be divided equally between the spouses on divorce. The courts reason that if a spouse wasted community assets, the that spouse had the right to do whatever he wanted with that spouse’s half, so that spouse should pay to the other spouse the other half of the amount wasted. But if the money is gone, the courts fall back on adjusting the property division to give the innocent spouse property valued at half the amount wasted. Hopefully, there is sufficient property for the non-wasting spouse to be compensated for the waste.
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