October 2015 Bar Bulletin
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October 2015 Bar Bulletin

Waste of Marital Assets/Fraudulent Transfers in Dissolutions

By J. Blake Hilty and Kim Schnuelle


Brenda, a friendly and trusting school teacher, comes into your office. Her marriage has been strained for quite some time and her husband, Stan, frequently comes home severely intoxicated. He has a history of leaving town for weeks at a time. Brenda assumes Stan stays at the family vacation cabin where she cannot reach him. Brenda has traditionally allowed Stan to handle all the finances.

However, after discussing this financial arrangement with her friends, Brenda decides to review the parties' assets for a better understanding of their retirement planning. She was instantly shocked, as she discovered nearly $100,000 has been dissipated over the past year.

Brenda's mind begins to race. Stan took several trips to Las Vegas and Brenda is worried that he may have a gambling problem. In addition, Stan's unemployed brother, Frank, suddenly has a new Fiat and moved into an upscale apartment. Brenda now has concern that Stan is funneling assets to his brother to hide them from the community.

Lastly, when Brenda recently visited the family vacation cabin for the first time in a year, she found it strewn with trash, holes in the walls and dark stains on the hardwood floors. Brenda wants to file for divorce, but is at a loss for how to proceed. What, if anything, can be done about the missing community funds and destroyed property? What advice can you give her?

Initially, when waste of assets is a potential issue, it is important to confirm whether funds are in fact missing. If so, the next task quickly becomes finding the funds through discovery. This can be accomplished through interrogatories, requests for production or admission, subpoenas or depositions. It is possible that an expert may be needed to trace missing funds. In Brenda's case, if her suspicions are correct and the funds were not simply moved to another community account, the prudent practitioner will investigate whether Stan improperly wasted community assets.

As a general rule, either spouse, acting alone, may manage or control community property except in certain enumerated circumstances.1 However, a spouse is required to act in good faith when managing community property and "a disposition of community funds is within the scope of a spouse's authority to act alone only if he or she acts 'in the community interest.'"2

A court is required to divide the property and liabilities of a divorcing/separating couple in a just and equitable manner, but "without regard to misconduct."3 "Misconduct" consists of "immoral or physical abusive conduct within the marital relationship and does not encompass gross fiscal improvidence, the squandering of marital assets or ... the deliberate and unnecessary incurring of tax liabilities."4

The distinction between misconduct and waste is critical to a court's ability to consider a spouse's actions when dividing property and debt. For example, a father's conviction on three counts of second-degree child molestation regarding his stepdaughters was "marital misconduct" and an improper basis for a skewed community property division in favor of the wife.5 Likewise, it was improper for a court to consider a wife's receipt of a permanent protection order that caused the husband to lose his employment in allocating a disparate portion of the community assets to the husband.6

However, in exercising a court's discretion, "consideration of each party's responsibility for creating or dissipating marital assets is relevant to determining what is just and equitable.""7 Thus, it is proper to consider certain marital financial conduct in formulating a just and equitable allocation of debts and assets. "[T]he fact that 'fault' is no longer a relevant query does not preclude consideration of all factors relevant to the attainment of a just and equitable distribution of marital property.""8

Dissipation of assets may occur via fraudulent transfer, concealment or through waste based upon the profligate spouse's behavior.

Fraudulent Transfer or Concealment

In Brenda's case, it is possible that Stan has fraudulently transferred or concealed community assets by placing them in his brother's control. In determining a property and debt division, a court may consider a spouse's waste or concealment of assets.9 If Brenda can prove Stan wasted or concealed assets, a trial court might award additional property to Brenda.

For example, in Marriage of Wallace,10 a husband quitclaimed property to his father and other relatives without his wife's knowledge, admitted to hiding the full extent of his assets at trial, and claimed a relative was the full owner of a contested valuable piece of land at trial. In the trial court's disproportionate award of property to the wife, it awarded real property to the wife at zero dollars notwithstanding the fact that one of the real properties was assessed at more than $800,000.

The husband appealed claiming bias, a violation of the appearance of fairness doctrine, and an improper reliance on marital misconduct. The trial court decision was upheld, as it was not an abuse of discretion to value the property at zero dollars when the husband's position at trial was that he did not own the property and that he had quitclaimed the property without his wife's consent in violation of RCW 26.16.030(3).11

In the event a court finds that fraudulent transfers occurred, but it does not have the ability to untangle the transfers, it may choose instead to rectify the situation through a larger maintenance award. In Marriage of Morrow,12 the court found that the trial court could not make a "just and equitable" division of property due to the husband transferring assets to third parties and liquidating retirement funds such that the court could not divide them.13

The Court noted that when assets are insufficient to permit just and equitable division because of a spouse's financial improvidence, it may award additional maintenance. Based on the husband's financial conduct, the court ordered $2,200 per month in lifetime maintenance to the disabled and disadvantaged wife.

While the remedies available in a dissolution action are typically sufficient to account for a fraudulent transfer14 or concealment of assets as part of a final property and debt division, an issue may also arise when a post-dissolution obligor refuses to pay a debt or transfer an asset after the divorce. In this scenario, the Uniform Fraudulent Transfer Act, RCW Chapter 19.40, may provide some relief to the obligee in the face of such bad faith actions.15

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