Preventing the dissipation of assets in divorce

Divorce can often stir up feelings of mistrust between former spouses, especially when it comes to considering the financial division of assets.  Sadly, it is all too common that one spouse will try and dissipate matrimonial assets, either prior to a separation or during divorce proceedings, in the hope of minimising the amount of money that they have to provide to their former spouse.

What is dissipation in the contest of a divorce?

Dissipation of assets in divorce means that one spouse has sold, transferred, or otherwise disposed of property that should be taken into account when considering the division of matrimonial assets to arrive at a fair financial settlement. 

Some of the common ways in which a spouse may try to dissipate assets include:

• transferring assets at an undervalue or for no value;
• gifting assets to friends or family;
• moving assets abroad or trying to hide assets in other ways such as investing in crypto currency;
• mismanaging their finances, such as gambling or getting into debt;
• extravagant spending that is atypical, such as luxury holidays and purchases; and
• large or unexplained cash withdrawals.

What can be done to stop dissipation?

The saying, ‘prevention is better than the cure’ is true when it comes to dissipation of assets in divorce.  Obtaining early expert advice is beneficial in most circumstances, however it is often vital in this situation. 

Our family law team has a wealth of experience and will be able to advise you on the best steps to take for your circumstances.  This may mean applying to the court for an urgent freezing order. 

A freezing order is a type of injunction made by the court which will prevent the unauthorised dissipation of the assets it relates to.  When making an application, it is necessary to explain the reasons why the injunction is needed. This usually includes details of the matrimonial assets, what assets are suspected to be at risk, and the reason for the belief that the assets are at risk. 

This order is typically applied for on an ex-parte basis, meaning that your spouse is not notified of the application until after the order has been made.  An initial order is usually only made for a brief period of time, with a further court date being set to allow them to respond to the order. 

The court will permit your spouse to access some of their assets while the order is in place.  This is to allow them to continue with their usual day-to-day living expenses, including the management expenses of any business they may own.

If your concern relates to the transfer of land, then an alternative option may be to obtain a caution at the Land Registry.  A caution can be registered against property by making an application to the Land Registry setting out the reasons for seeking it.  Once registered, it will mean that the land cannot be transferred without prior notification to you.

Taking proportionate steps

It is important to appreciate that not all assets that are transferred or sold will amount to a dissipation where legal action is warranted.  For example, if your spouse is selling land or property at a market value, then although that particular assets may no longer be available, a monetary sum will instead be available.  In these circumstances it may be more appropriate to seek that the balance monies from the sale are held pending resolution of the divorce.  Preserving the actual asset will most likely not be needed.

If your spouse is gifting an asset to a friend or family member then the value of that gift needs to be weighed up against the value of the overall assets available.  For example, it most likely will not be proportionate to seek a freezing order if your spouse intends to gift an asset which only makes up five per cent of the matrimonial assets available.  This is because there are sufficient assets left over to still allow for a fair settlement or division of assets to be achieved.

What if assets have already been transferred?

The court has the power to make adjustments in any order to reflect that one spouse may have been disadvantaged by the actions in dissipating assets of the other spouse.  Typically, the court will put the spouse who has been wronged into the position they would have been, had it not been for the dissipation. 

That is all well and good when there are still sufficient assets left to allow for this.  But, what if the dissipated assets make up the entire or a significant portion of the matrimonial assets?  In those circumstances, the court can look to set aside the transaction, which means it can cancel or revoke the transaction to bring the assets back within the matrimonial pot.  To do this, the court must be satisfied that the transaction occurred with the intention of defeating a matrimonial claim.  For any transfers that occurred in the three years prior to the issuing of proceedings, the court will assume, unless the contrary is proved, that the intention was to defeat the matrimonial claim.  This puts the onus on your spouse to prove that was not the case.

How we can help

If you are worried about your spouse dissipating matrimonial assets, or have noticed unusual financial behaviour, it is vitally important that you obtain urgent advice from one of our family law experts, please contact family law team on York 0190 716000, Wetherby 01937 583210 or Malton 01653 692247.