Kevin and Kate separated after fifteen years of marriage.   Two months after their separation, Kevin took his girlfriend on an all expenses paid vacation to Hawaii. While there, he purchased several pieces of jewelry for her. When Kate learned of these expenditures she was furious and immediately contacted her attorney to see what action could be taken. 

Although the general rule is that property not in existence at the time of the divorce cannot be divided as marital property because it no longer exists, there is an exception to this rule.   When one spouse uses marital property for his or her own benefit for a purpose unrelated to the marriage at a time when the marriage is undergoing an irreconcilable breakdown, and it is used with the intention of reducing funds available for division between the parties, dissipation may be found.

At trial, Kate must prove that Kevin used marital funds for other than a family purpose with the intention of reducing the funds available for equitable distribution.  The burden then shifts to Kevin who must show the expenditures were appropriate.  If he cannot prove that the funds used were for marital or family purposes the court may give Kate a monetary award to make things equitable. While there are exceptions to the rule, gifts to third parties especially when they are not the parties' children or close family members, is generally considered dissipation.  

Dissipation is not easy to prove.  Before spending a lot of time and money on the issue, Kate and her attorney should consider the likelihood of being able to meet their burden of showing that 1) funds were used and were not used for a family purpose and 2) the funds were used solely for the purpose of reducing the marital funds to be equitably divided.  Kate may want to start by reviewing credit card statements and bank account withdrawals to see what funds were used and where the funds were used.  Kate and her attorney may also want to consider whether it is worth the expense of retaining a forensic accountant to help identify missing or used assets but before incurring such an expense they should weigh and balance the likelihood of being able to prove that the funds were used solely to reduce the assets to be equitably divided.  If the funds were used for any other purpose, then no dissipation can be found.    

For more information read: What Is Dissipation Of Assets In Divorce And What, If Anything, Can You Do About It? By Jeff Landers, November 1, 2016 Forbes.com

Your tax returns provide us with information about your income and the source of income, income producing assets, and your investments, as well as whether you over or under withhold taxes from your paycheck.  This information enables us to provide better advice in regard to division of assets and payment of support. Review of your tax returns is an integral part of your family law case; the attorneys at Hess Family Law ask that you provide us with your past tax returns.  How many years of returns will depend on the issues in your case, but almost always we want at a minimum the past three years.

We can obtain copies of tax returns through the court discovery process if you do not have them.  Other ways of obtaining copies of your tax return may include asking your tax preparer to provide copies, or obtaining copies from the IRS.  To obtain a copy of your previously filed and processed tax return with all attachments, including Form W-2, you should complete Form 4506, Request for Copy of Tax Return, along with a $50.00 fee for each tax return requested.  You have to allow 75 calendar days for the IRS to process your request.  Tax Returns are generally available for returns filed for the current and past six years.  On jointly filed tax returns, either spouse may request a copy and only one signature is required.

Oftentimes we don’t want to wait 75 days for the tax return to arrive, and/or it is cost prohibitive to pay $50 per tax return.   The solution may be to order a Tax Return Transcript instead of the actual Tax Return using Form 4506-T.  You can request your tax return transcript online directly from the IRS rather than making a request by mail.  For a short time the IRS allowed individuals to obtain immediate transcripts of prior tax returns, by online download.  However, due to security measures the ability to download a copy of your tax transcript has been suspected.  It should take between 5 and 10 days to receive your tax transcript through the mail. Click here to learn how to obtain your tax transcript.   

If you have a child applying to college or currently in college then you have probably assisted them in applying for financial aid.  There are two major financial aid forms: the Free Application for Federal Student Aid (FAFSA) and the CSS Profile.   The FAFSA requires financial information only from the custodial parent, which for purposes of the FAFSA application is defined as the parent that the child lives with more than 50% of the time. This applies to students whose parents are divorced or have been separated for at least six months prior to filing the FAFSA application.   However, if the custodial parent remarries, the stepparent’s financial information must be included for financial aid purposes.  Additionally, any child support that a parent receives is considered income for both the FAFSA and CSS Profile.

Divorced or separated parents should note that most but not all colleges that require the CSS Profile expect the noncustodial parent to complete a noncustodial Profile form. Both the custodial and noncustodial parents’ income is considered.  However, the total family contribution from both parents is usually slightly less than if the parents were still married, because colleges take into consideration the added cost of maintaining two households.  If both parents income is considered by the college then a stepparent’s income is not usually included; however if the college only requires the custodial parent to report income and that parent is remarried, the stepparent’s income will also be considered. 

If a 529 college savings plan is owned by the non-custodial parent, you may want to consider changing the account owner to be the custodial parent. A 529 plan that is owned by the custodial parent is reported as a parent asset on the FAFSA (worst case impact, a reduction in aid equal to 5.64 percent of the account’s value) but distributions are ignored. If the 529 plan is owned by the non-custodial parent, it is ignored as an asset, but distributions count as untaxed income to the beneficiary on the FAFSA (reducing aid eligibility by as much as 50 percent of the distribution). Having a 529 plan owned by the custodial parent will reduce the impact on eligibility for need-based aid.

Generally speaking, a child of divorced parents will qualify for more financial aid if the custodial parent is the parent who earns the lesser income.  This may be a factor that parents want to consider when determing custody of their older almost college bound children.  However, if parents live in different school districts and the children attend public school it may be suspect for the custodial parent to live in one school district and the minor child attends school in the non-custodial parent’s school district.  Also, know that you may be asked to provide a court order demonstrating custody and/or a custody agreement so you need to make sure you take care of obtaining agreements and court orders before applying for financial aid. Attorney Geraldine Welikson Hess and Hess Family Law can assist clients with any initial or modification of custody needs.

While January has traditionally been the month when FAFSA applications can begin to be filed, starting with the 2017-2018 school year the FAFSA application can be completed as early as October 1st of the previous year.  Click here for more information regarding changes to the FAFSA during 2016.  If you have questions about the FAFSA or CSS Profile you should contact a financial aid expert or FAFSA directly.  

Sources: Paul Bishop February 12, 2016 Want More Financial Aid?  Get a Divorce 

Emma Johnson September 9, 2015 College Financial Aid Advice for Divorced Families