The concept of marital waste pervades divorce law, as the basis for a potential deviation from what otherwise might be considered the just and fair result, under the presumption of equal property division contained in Wis. Stat. section 767.61 or support determinations made under statutory guidelines in Wis. Stat. section 767.511 (child support), Wis. Stat. section 767.531 (family support), and Wis. Stat. section 767.56 (maintenance). However, the concept is amorphous and somewhat elusive in application. Case law and statutes provide some guidance, but as with many other family law issues, determinations of waste tend to be more fact driven than based on hard and fast rules regarding what constitutes a waste of marital assets and what does not.
This article describes Wisconsin courts’ treatment of marital waste in various contexts, and suggests strategies for effectively representing divorcing clients who might have wasted marital assets, or who believe their spouse wasted assets and are seeking increased compensation via support or the division of marital assets and debts.
What Constitutes Marital Waste?
Section 767.63 of the Wisconsin Statutes specifically mentions, but does not define, “waste” of marital assets. It states in relevant part that in a divorce action, “any asset with a fair market value of $500 or more that would be considered part of the marital estate of either or both of the parties if owned by either or both of them at the time of the action and that was transferred for inadequate consideration, wasted, given away or otherwise unaccounted for by one of the parties within one year prior to the filing of the petition or length of the marriage, whichever is shorter, is rebuttably presumed to be property subject to division under s. 767.61 and is subject to the disclosure requirement of s. 767.127.”
Sara L. Gehrig, Minnesota 1990, is a partner in Nowlan & Mouat, Janesville, and concentrates her practice in civil litigation, especially in business, school, and family law. In addition to Wisconsin, she is admitted to the Alaska and Idaho bars and the federal district courts in each state. She also teaches an ethics of criminal justice system class at Upper Iowa University.
Case law is more helpful. It defines waste, sufficient to alter an equal property division, to have occurred if one of the parties has intentionally squandered or destroyed marital property.1 Further, case law informs that the language of Wis. Stat. section 767.63 does not prevent a court from including, in the property division, assets transferred or otherwise disposed of more than one year before the commencement of the divorce proceeding.2 Other cases, including cases involving addiction and criminal conduct, apply similar concepts, without using the term waste, to justify deviation from a presumptively equal property division or statutorily indicated support.
Case law discussion includes three general categories of marital waste: substance abuse-related conduct that might or might not be criminal; other criminal conduct; and wasteful conduct that is not criminal, such as making risky investments.
Substance Abuse – Addiction or Voluntary and Unreasonable Act?
Wisconsin appellate courts have addressed the double-edged sword of addiction, and the consequences of addiction, including criminal convictions and incarceration, with mixed outcomes.
Addiction. In Hacker v. Hacker,the Wisconsin Court of Appeals reviewed rulings that drastically reduced maintenance owed to a spouse who became and remained unemployed as a result of alcoholism and criminal convictions for operating a motor vehicle while intoxicated (OWI).3 During this time, she also underwent numerous intensive inpatient treatment programs, none of which succeeded in bringing her alcoholism permanently under control.4
The appellate court, after noting that the circuit court treated the wife’s continued drinking as “a species of waste,” reversed the circuit court’s reduction of support, stating that the circuit court’s ruling did not adequately address the wife’s needs.5 The court noted that alcoholism is a disease that, like other diseases, can limit or destroy an individual’s earning capacity. Although an alcoholic spouse’s refusal to obtain recommended treatment can be a relevant factor in a maintenance decision, the wife in this case did not refuse treatment; instead, the treatment was not successful.6
Voluntary and Intentional Act. In Modrow v. Modrow, however, the court of appeals affirmed a circuit court’s refusal to reduce the support obligation of a man convicted of a fifth-offense OWI conviction, despite his inability to obtain gainful employment while incarcerated, stating his predicament was the result of a voluntary and intentional act.7 Consequently, his child support payments remained at the guideline amount based on his pre-incarceration wages, and the court offset the wife’s equalizing payment to him with unpaid support.8
Case law defines waste, sufficient to alter an equal property division, to have occurred if one of the parties has intentionally squandered or destroyed marital property.
Although acknowledging that alcoholism is a disease, the circuit court noted that the husband voluntarily chose to operate a motor vehicle while intoxicated, and the court found that decision to be unreasonable. The appellate court agreed, noting that in light of the husband’s history, he should be held to have reasonably anticipated that further OWI conduct would result in incarceration and interfere with his ability to support his children. A parent remains obligated to make reasonable choices that will not deprive his or her children of the support to which they are entitled.9
Similarly, in State v. Dumler,the Wisconsin Supreme Court held that incarceration is appropriately considered as a factor in the modification of child support.10 However, the supreme court also held that the circuit court did not err in refusing to reduce child support payments while a father was incarcerated for fifth-offense-OWI and cocaine-possession charges. In its analysis, the reviewing court distinguished incarcerated persons, who cannot maintain gainful employment, from “shirking” cases, in which nonpayment of support is voluntary, but justified its holding on the basis of a parent’s responsibility to support his or her children, which continues during incarceration.11
Other Criminal Conduct – Solicitation to Commit Homicide and Embezzlement
Appellate courts have had less difficulty allocating responsibility for other types of criminal activity. For example, in Voigt v. Voigt, the court of appeals heldit was appropriate to impute income to a husband incarcerated for solicitation to commit homicide and to invade the husband’s inherited assets to avoid hardship to the wife.12
Incarceration is an appropriate factor to be considered in setting a support award based on the effect it has on the payor’s employability due to what may be voluntary and unreasonable acts. Circuit courts should consider whether the crime was intentional in nature, the likelihood of its effect on the payor’s future income, the payor’s assets, how the children’s needs will be met during the payor’s incarceration, and any other relevant factors. A finding of “shirking” is not required; imputation of income is appropriate if the party’s decision was unreasonable in light of the party’s support or maintenance obligations.13
In Sokaogon Gaming Enterprise Corp. v. Curda-Derickson, the court of appealsaddressed restitution debts owed as a result of one spouse’s embezzlement, with regard to not only the rights of the innocent spouse against the husband but also the creditor’s rights to satisfy its restitution judgment from the wife.14 At least under some factual scenarios, an innocent spouse who did not participate in torts committed during the marriage has no liability to a third party for damages resulting from such conduct, and so the circuit court appropriately treated the debt as nonmarital.15
Intentional, Noncriminal Conduct
The relevance of marital waste without the added complication of substance abuse, criminal conduct, incarceration, or a third-party victim/creditor truly appears to be in the eye of the reviewing court beholder.
In the view of the circuit court in Hauge v. Hauge, a $200,000 debt resulting from improvident investments in Arabian horses constituted marital waste and should have been treated as a nonmarital debt allocated solely to the husband, who exercised exclusive control over the investments.16 The appellate court reversed, finding that the husband’s conduct did not rise to the level of intentionally squandering or destroying marital assets and noting that the husband had initially profited from the investments and had professional assistance in making the investment decisions. The court also said that, had the investments been successful, the husband would have been required to share the proceeds with the wife.17
In contrast, in Derr v. Derr, the court of appeals affirmed the circuit court’s finding that the husband wasted $45,000 of the marital estate as a result of losses in day-trading activity.18 Again, the incurring spouse exercised full control over the investments. The court permitted the waste claim despite the fact that the investment activity took place more than a year before the parties filed for divorce, extending the potential reach of Wis. Stat. section 767.63 claims.19
In Noble v. Noble, thewife accused the husband of committing marital waste because he allowed his family members and partners to borrow funds from a partnership to purchase properties, allegedly for the purpose of excluding the properties from the marital estate.20 The appellate court affirmed the circuit court, which declined to find waste, holding that a spouse has no duty to take advantage of financial opportunities to increase the value of the marital estate during a pending divorce.21
Circuit courts deciding divorce cases have a great deal of discretion and results are extremely fact driven. However, courts have found some arguments more persuasive than others.
Section 767.63 Waste Claim. A spouse alleging waste under Wis. Stat. section 767.63 must show that his or her spouse intentionally squandered marital assets. Key to such a finding is control by the other spouse of the expenditure, and, of course, that the expenditure resulted in no value or benefit to the marital estate.
A spouse defending a waste claim brought under Wis. Stat. section 767.63 should present evidence, including expert testimony if relevant, regarding the reasonableness of the investment, and, if applicable, former investment success and the benefits that accrued to the marital estate as a result of former investments’ success to show that if assets were lost, they were not lost intentionally or irresponsibly.
Statutory Factors Claim. Spouses arguing for an unequal division of marital property or other deviation from statutory indicators or guidelines on support based on waste-like conduct should make arguments based on the statutory factors applicable to their circumstances.
In the context of property division, Wis. Stat. section 767.61(3)(d) may be particularly helpful: the contribution of each party to the marriage, giving appropriate economic value to each party’s contribution in homemaking and child-care activities. A spouse who is engaged in a pattern of criminal conduct, or who is choosing to use controlled substances, is arguably not contributing fully to the marriage. The catch-all provision, subsection (3)(m), can also be used to argue that, for example, money spent on criminal-defense attorney fees should be considered a debt solely of the party who engaged in the conduct necessitating representation.
A parent remains obligated to make reasonable choices that will not deprive his or her children of the support to which they are entitled.
The strongest argument for consideration of earning capacity rather than actual income is that the conduct that reduced earnings was voluntary and unreasonable. Any criminal conduct is, arguably, both voluntary and unreasonable. Earning capacity is a factor courts are required to consider in setting child support.22 Although the earning capacity of a payor spouse is not enumerated in the statutory factors of Wis. Stat. section 767.56, governing maintenance, the argument can be raised in the catch-all factor, subsection (10), and pursuant to case law construing the statute.23
The other strong argument for imputing income to payors who are willing, but currently unable, to work, such as incarcerated payors, is that dependents’ need for support is not diminished by the payor’s improvident decisions. Needs of dependents are implicated in Wis. Stat. section 767.51(1m) in setting child support and case law construing the factors set forth in Wis. Stat. section 767.56, which governs maintenance.24
When defending against such a claim, if the alleged waste involves substance abuse or criminal behavior resulting from addiction, the best argument is that addiction is a disease analogous to any other disease that reduces the afflicted person’s earning capacity.25 This is a pure needs-based argument. This argument is not always found controlling or persuasive in the context of payor spouses incarcerated for crimes arising from substance abuse issues, even when the immediate financial needs of the alcoholic spouse are under consideration.26 It is even less persuasive when focusing on the needs of dependent spouses and children of the incarcerated payors.27
It would be prudent to call an expert witness regarding the nature of addiction in any case involving a claim of waste against a party who has been convicted of crimes relating to substance abuse or has lost a job as a result of substance abuse or any other form of addiction. A party can testify regarding his or her own struggles with recovery, but without expert testimony, the party is relying on the life experiences and opinions of the circuit court in differentiating a disease from a voluntary and intentional act. The record of an expert witness’s testimony may also provide the basis for reversal on appeal, if the circuit court ignores uncontested expert testimony.
When representing the spouse who claims that the other party is not earning up to his or her capacity, a vocational evaluation can be extremely useful. Presumably, the evaluator could testify both to an actual earning capacity and to a hypothetical earning capacity (had the wasteful conduct, for example criminal activity, not occurred).
A review of appellate case law reveals many examples of short-term “wins” that were reversed on appeal. Judges in family law cases have a great deal of discretion; however, to be safe from reversal, those discretionary rulings must be based on the correct legal standard. Litigants should ensure that courts make the requisite factual findings, and cite the correct standard of law when making findings regarding all issues, including issues of waste in family law cases.
One person’s waste is another person’s best efforts, or at least excusable bad judgment. Case law can guide courts, but ultimately the determination lies with the reviewing court.
1 Hauge v. Hauge, 145 Wis. 2d 600, 604, 427 N.W.2d 154 (Ct. App. 1988).
2 Derr v. Derr, 2005 WI App 63, ¶¶ 63-66, 280 Wis.2 d 681, 725-26, 696 N.W.2d 170 (citing Zabel v. Zabel, 210 Wis. 2d 336, 565 N.W.2d 240 (Ct. App. 1997)).
3 Hacker v. Hacker, 2005 WI App 211, 287 Wis. 2d 180, 704 N.W.2d 371.
5 Id. ¶¶ 14-19.
7 Modrow v. Modrow, 2001 WI App 200, 247 Wis. 2d 889, 634 N.W.2d 852.
10 State v. Dumler, 2003 WI 62, 262 Wis. 2d 292, 644 N.W.2d 525 (citing Parker v. Parker, 152 Wis. 2d 1, 447 N.W.2d 64 (Ct. App. 1989); Voecks v. Voecks, 171 Wis. 2d 184, 491 N.W.2d 107 (Ct. App. 1992)).
11 Id. ¶¶ 11-49.
12 Voigt v. Voigt, No. 98-3234, 2000 WL 190053 (Wis. Ct. App. Feb. 17, 2000).
14 Sokaogon Gaming Enter. Corp. v. Curda-Derickson, 2003 WI App 167, 266 Wis. 2d 453, 668 N.W.2d 736 (citing Wis. Stat. § 766.55(2)(cm)).
16 Hauge, 145 N.W.2d at 603-05.
18 Derr, 2005 WI App 63, 280 Wis. 2d 681.
20 Noble v. Noble, 2005 WI App 227, 287 Wis. 2d 699, 706 N.W.2d 166.
21 Id. ¶¶ 17-25.
22 Wis. Stat. § 767.511(1m)(hs).
23 Sellers v. Sellers, 201 Wis. 2d 578, 549 N.W.2d 481 (Ct. App. 1996).
24 LaRocque v. LaRocque, 139 Wis. 2d 23, 406 N.W.2d 736 (1987).
25 Hacker, 2005 WI App 211, 287 Wis. 2d 180.
27 Modrow, 2001 WI App 200, 247 Wis. 2d 889; Dumler, 2003 WI 62, 262 Wis. 2d 292.