How much info do you share with a spouse?

All in the Family

Dan Stefani

Dan Stefani is a principal at Katz & Stefani and primarily handles family law matters that require detailed analyses of complex transactions and business valuations. His work on behalf of mainly high net worth clients, as well as spouses of high net worth individuals, involves valuations of closely held corporations, partnerships and other entities, child custody and support issues as well as paternity and domestic violence.

August 2016

Hot off the press is the case of In re Marriage of Schneeweis, 2016 IL App (2d) 140147. There the 2nd District Appellate Court affirmed the trial court’s ruling that a husband dissipated much of the marital estate by using marital funds to engage in high-risk securities trading, without telling his wife the details. However, this occurred several years before his wife ultimately filed for divorce. This decision could cause many litigants problems, given the fact that most married couples, even while happily married, do not fully communicate with respect to their finances.

Dissipation is one of the factors that a trial court must consider in allocating marital property equitably. Dissipation is defined as the “use of marital property for the sole benefit of one of the spouses for a purpose unrelated to the marriage at a time that the marriage is undergoing an irreconcilable breakdown.”

In this case, the husband worked during most of the marriage in sales and management positions — not in any way in investment services, despite obtaining a license to trade just after college.

The husband made all of the parties’ investment decisions throughout the marriage, which began in 1993. In November 2009, the wife filed for divorce. The trial court found that the marriage began undergoing an irreconcilable breakdown in June 2005 and, curiously, the husband did not contest this finding on appeal, which could have mitigated the amount of dissipation.

In July 2005, the parties refinanced their home and the husband opened a home equity line of credit in his own name without his wife’s knowledge. He also opened a savings account without the wife’s knowledge and transferred monies drawn on the home equity line of credit into that account.

In 2005, the parties’ investments were managed by reputable third-party institutions. In late 2005, the husband told his wife that he wanted to quit work. She told him that he should not quit his job until he found a new job. In January 2006, the husband exercised certain stock options and transferred monies into a newly opened account without informing his wife.

In October 2006, he quit his job and planned to begin trading securities in his own account in order to provide for his family. He told his wife his intentions on the same day he quit his job. Thereafter, the husband began making day trades. The wife testified that she did not know what her husband was doing when he said he was “trading,” and he kept her out of their home office where he worked. He never discussed with his wife the extent of any losses incurred through his day trading.

In early 2007, the husband enrolled in a two-year program of online courses with a company called Investools. He spent hours on the telephone discussing potential investment strategies with personal trading coaches. He ultimately completed the two-year program.

In mid-2007, the husband transferred more than $1 million of the parties’ personal assets — including almost $400,000 from his retirement account — into his trading account. From June 2007 through August 2008, he continued high-risk trading, funding his trades through increasing margin debt. The stock market then declined and in late 2008 there was less than $200,000 left.

The trial court issued its judgment in January 2013 and found that the husband dissipated more than $890,000. Specifically, the trial court found that the husband “commenced in the course of speculative, high-risk investing without the necessary acumen and experience.”

It further found he dissipated marital assets “in that he caused or allowed the devaluation of the marital estate through his unwise trading practices and his incurring of significant debt without his wife’s knowledge.”

On appeal, the husband argued that while he failed to discuss his trading activities with his wife, his conduct did not amount to dissipation because he did not intend to lose money — rather, he was simply caught in a stock market crash. The appellate court rejected this argument based, in part, on the fact that intent is only one factor the court may consider when determining dissipation. Since intent was not dispositive in finding dissipation, even if his intent was to make a profit, his actions could still constitute dissipation. The court further diluted the importance of intent by noting the definition of dissipation does not include any reference to the dissipating spouse’s intent.

What is troubling to me about this decision is that the wife had ample indication of what was going on as early as 2006 when her husband quit his job and told her that he would be day trading. She could have filed for divorce then, but she did nothing for another three years. She also had access to joint tax returns during that time period. It is also a bit of an inconsistent way of looking at things — had the husband been successful in day trading activities, certainly those assets would be found as marital and equitably divided.