Dissipation, Depletion, and Depreciation, Oh My!
Jana Aune Deach & Jim Vedder
Jana Aune Deach & Jim Vedder
This article was originally posted as a podcast on EvolvingFamilyLaw.com. Jana Aune Deach and Jim Vedder discuss how Minnesota addresses issues in the evolution of divorce and family law.
Jim: Jana, I thought maybe we could start first with dissipation. What is dissipation in a family law case?
Jana: That is an excellent question and one that many clients come in and want to ask about and try to understand. Did this happen in my case? Did somebody dissipate assets? And it is a very illusive term. If you look at Minnesota Statute 518.58, the court can look at various factors when coming up with the division of assets. They can look at who is the party? Who was primarily responsible for acquiring assets? Was there a party that really appreciated the assets? Was there a party that really depreciated the assets? Did somebody transfer assets, spend assets, get rid of assets either in contemplation of a divorce or during a dissolution proceeding? And under that statute, the court can basically put the parties back to the place that they were before the bad act happened. So, when you’re looking at the issue of dissipation, one of the definitions that the court has used previously is, basically, did somebody waste or expend funds foolishly? That’s one of the definitions the court has put out there. And that can apply in a lot of different situations. Is dissipation gambling? Is dissipation playing the lottery? Is dissipation doing something like drug use, if somebody is chemically dependent? If you spent tens of thousands of dollars on drugs, chronic alcoholism, is that dissipation? And these cases are extremely fact driven when it comes to whether a court is going to actually find dissipation or work under another theory that you brought up, such as depletion or depreciation. But I think what the court really focuses on, when you’re talking about dissipation, is if somebody knew a divorce was going to be imminent and they took an action such as transferring funds, moving funds, spending funds, giving money away, basically – maybe you take your whole family on a vacation (meaning your other family) and you spend $50,000. The court’s going to say, no, you dissipated assets; we’re going to charge you back.
Jim: So, basically, if you’re either contemplating divorce or in a divorce proceeding and you transfer, encumber, give away an asset without the other party’s consent, that would be a dissipation then.
Jana: That should be a dissipation, and I think most courts would find that that party did dissipate assets and they’re going to basically consider whatever money they took, spent, got rid of, wasted – they’re going to take that same amount of money and charge it to them as part of the property advance, so it’s as if they’ve already received it. The other side will then basically be made whole by the remaining assets.
Jim: That raises an interesting question, Jana, because you’ve raised the other concepts of depletion, depreciation. Depletion – how would that differ from a depreciation? To my understanding, a depletion doesn’t necessarily have to happen in contemplation of divorce, doesn’t necessarily have to be without the other party’s consent, but again, you have to do something that causes the marital estate to lose money in some respect. Would that be fair to say?
Jana: I think that’s very fair to say. I think, for the concept of depletion, what the court can look at is – let’s say somebody had an investment account and they weren’t telling their spouse that they were taking money out; maybe it was to pay bills; maybe it was to try to keep a business going; but you weren’t sharing that information and you weren’t getting the consent of your spouse to take those actions. You weren’t thinking of a divorce and you didn’t believe your spouse was thinking of a divorce, so there wasn’t any pending action or an ongoing action, but you basically did something that you shouldn’t have done and what the court can say is that you depleted that account. You took the money out. You used it for whatever purpose – I’m not going to say it’s a righteous purpose or an unrighteous purpose – but I’m going to not penalize your spouse for your actions and so I’m going to treat that as an advance to you. Your spouse is going to be made whole out of the remaining assets. So a couple different theories apply to their taking money out, even if it was, you know, you lost a job, your business went under, things aren’t going well. Even if the divorce has started, you have to meet certain basic living expenses – pay your mortgage, pay your car payment, put food on the table – those types of things. Sometimes a court can say, you had to do it for your necessary living expenses, so I’m not going to charge you back. Sometimes a court will say, you took that money; I am going to charge you back. We’re going to take that $20,000 that you spent, put it on the balance sheet on your side, and make sure your spouse is going to get sufficient assets on their side so that you’re basically both still receiving an equitable division of your assets.
Jim: So the court can kind of do the same thing under a dissipation or a depletion theory. It’s just kind of a different set of facts that you need to establish. And I guess one thing we haven’t talked about yet – overall, the court’s direction on property division is equity. What’s fair? And fair doesn’t necessarily mean 50/50, does it?
Jana: It does not. And that is one of those, to me, it’s such a philosophical concept. What is fair? Because if you ask the wife what’s fair, if you ask the husband what’s fair, if you ask the judge what’s fair, you’re going to get three completely different answers. So what is fair? It’s up to the court to say, I’m going to make a fair and equitable division of these assets. But that does not mean an equal division. Now, I think, in theory and in practice, in the vast majority of the cases that we handle, it is a 50/50 division. You’ve got your typical family – somebody’s working, maybe both parties are working, you’re acquiring assets together, it’s the true marital partnership –you’re going to have assets divided 50/50. However, sometimes those cases come along where maybe somebody really put forth way more effort than the other party to acquire assets or to appreciate the assets, and maybe in that situation the court says, well, I’m going to give that person a little bit more than 50 percent. You also may have the case where a spouse depreciates assets, with either really bad investments, gambling, or maybe doing some other things, where the court says, you know what? You depreciated the assets in this case and so you’re going to get less than 50 percent.
Jim: So that’s kind of the final of the three Ds – depreciation, depletion, dissipation. And I know that depreciation gets factored in as part of that equitable analysis. The court is to look at who appreciated, who depreciated, the things that you had listed earlier. And that’s separate and distinct from a dissipation claim, where you’re really focusing on these very specific facts of did they do it in contemplation of divorce or during the divorce without the other party’s consent and not for the usual course of business. Just out of curiosity, how is this not fault or marital misconduct? Because doesn’t the statute say we can’t have marital misconduct factored in as part of the analysis?
Jana: It does. Minnesota is a “no fault” divorce state, meaning the court cannot take a look at somebody’s marital misconduct and say, well, because of your bad actions here, this is how I’m going to penalize you. But how the courts get around that is the language in the statute that says I can make an equitable distribution of your assets. And so, looking at everything in whole, they’re not necessarily saying because of these bad things you did, you get less than 50 percent, but from a fairness and equity perspective, they can take those words that are in the statute and say, I’m going to divide assets this way because that’s what’s fair, based on the facts that have been presented and the evidence in the record.
Jim: You know, it’s kind of interesting, Jana. You and I were talking about some cases that have come down fairly recently before we came on today and one case that strikes me was this case recently where a lawyer had been paying money into one of these scams where somebody had either emailed or called him and said, you know, give us $100,000 and then we’ll give you our $500,000 settlement, and he kept doing it and the trial court initially called it a dissipation, and then the court of appeals, in an unpublished decision, said it’s not really a dissipation, but they didn’t really call it a depletion either. It stated the depreciation on it, but really, in my mind, it was more of a depletion. What are your thoughts on that? Does it fall within what you would think a dissipation would be?
Jana: You know, it gets back to that language in the statute where it hinges on was this in contemplation of a divorce or during a dissolution proceeding. And so, if the court can’t get to that piece of it, it becomes harder to call it dissipation. Now, that case had some very interesting facts and, to be honest, I’ve had the same thing happen to certain clients where they get caught in a scam. They get a notification or an email or a call that says, hey, you’ve won this money. You need to pay the taxes and the fees and then we’ll send you your money. People fall for it. Smart people fall for it. This is just, unfortunately, something that this person got caught up in and, unfortunately, it happened more than once. He was told by the police, this is a scam; don’t keep sending them money. The wife knew about it in one instance where he had sent money in and so, based on all those factors, the trial court did say, this is dissipation. It was over $200,000 that got sent in based on this scam, where he just kept sending it in, hoping it would pay off and he was going to get all this money that he was promised. It didn’t happen. But you’re right. It’s on that borderline dissipation/depletion argument and I think the court came to the right result under either a dissipation analysis or a depletiation analysis, but the reality is that this person foolishly gave away over $200,000, and the other spouse did need to be made whole as part of this under the principles of equity and fairness.
Jim: That’s kind of a hard case because, in a certain respect, he’s the victim as well. He fell for this scam. But then, as you pointed out, he kept falling for the scam even after he had been told it is a scam. There’s another case that came out fairly recently that dealt with retirement accounts.
Jana: That is correct. We’ve had a couple of really recent cases that deal with this whole theory of depreciation, depletion and dissipation. There was another one where the parties had hit some financial trouble and the husband was taking money out of a retirement account and wife wasn’t aware of it. The divorce did start, and husband kept taking money out. In that case, the court said, you’ve depleted these accounts. It was well over $100,000 that was taken out of two retirement accounts by husband. In that case the court called it a depletion, so basically, husband was charged back by the trial court. On appeal, he made some interesting arguments. He took the position that, well, you can’t really call it a depletion because the accounts went down by market forces, so you can’t zing me for all of this. The court of appeals said, you know what? That’s a fair argument to make because, under statute, even though you might have a valuation date that sets the account with a value of X on that date, if something happened, you can always argue equitably for a different valuation date. So even if he hadn’t done anything wrong, on the valuation date, let’s say the account was worth $100,000. Because the markets go up and down, by the time you were either going to divide it or you were going to go to trial, it was maybe only worth $50,000. So they did remand it back to look on that issue of market forces. But essentially, husband wrongly removed that money and the court had to deal with it. They had to say, no, I’m going to charge you with that as an advance on your side of the balance sheet. We’re going to make wife whole out of other assets.
Jim: These are tough issues. You and I were talking recently about at what point does something become a dissipation or a depletion, and it occurred to me that somebody might gamble and your initial thought is, that would seem like a depletion or a depreciation or a dissipation, possibly. But then you wonder, what if that’s their form of entertainment? What if they go and spend $100 or $200 a month at the casino, but they’ve done it over ten years? You could be looking at $24,000, but they did that instead of going to the movies or going to a Twins game or a Vikings game or doing something. Is it fair to punish that person for that? I understand that’s a specific fact pattern, but even on the issue where the guy was getting scammed, if he truly had gotten scammed, you get punished because you fell for a scam? If you did it in good conscience, thinking you were doing something that was right? I’m just curious what your thoughts are on that.
Jana: Those are great points you’re making, and I think that’s where the trial court and attorneys involved have to really look at it and that’s why it’s so fact-driven. You make an excellent point – a prevailing thought would be, oh, you gambled? Well, you’ve dissipated assets. You threw money away. But you make a very good point – a lot of people I know like to go to the casino on the weekend and it is their form of entertainment. They have a good time. They might spend a couple hundred dollars and don’t think anything of it. Then you have to factor in, okay, how much was spent? Did they win? Were their winnings that were also a part of this whole gambling pattern? If they were basically making the estate whole or even providing money to the estate from gambling, are you going to still call that dissipation? And the time issue is so critical. If somebody did something ten years ago, maybe they liquidated an account and wife didn’t know about it. It’s ten years later. Can the court today say that was a dissipation? or a depletion or depreciation? If it’s recent in time, it’s so much easier for the court to say that was a depreciation or a dissipation, but if you’re looking at something that happened five years ago or ten years ago, it makes it much harder for the court to start putting labels on those actions instead of just, hey, you were married. I’m not can’t undo what happened in your marriage. Decisions that were made, if you weren’t even necessarily part of that decision, there’s only so far a court can go in what they can do to try to get to the point of equitable division.
Jim: I think that’s just a fascinating thing that you just said, because going back to the gambling example, let’s say that you do have winnings. Now do you say that person who had the winnings gets all of that? If they would have been charged with the depreciation, ought they not to get their winnings? Similarly, on a depreciation you could say, for instance, a business owner makes bad decisions and the other side says, well, they ought to be responsible for that. What about the business owner who grows their business? And she says, well, wait a minute, I grew the business. Shouldn’t I get more of that, since I was the one who did it day in and day out? I’m sure you’d hear a very different argument if you were talking appreciation of the estate as opposed to depreciation.
Jana: I agree. Then the other party is saying, hey, this is marital effort. I supported you in your role as the head of this business and growing it, and by my actions at home or what I was doing, I allowed you to be able to go forth and be successful and grow the estate. Therefore, I should get my share.
Jim: I have to tell you, Jana, these are interesting concepts and discussion here. I’d like to continue this further as we progress on these blogs because I think there’s a lot more to be discussed in this area.
Jana: I agree. There are an endless streams of cases that touch on these issues and it’s very interesting to see how the court has ruled in each of them.
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