What Qualifies as Community Waste During a Divorce
For better or for worse, for richer, or poorer… Sometimes, “for poorer” is not arrived at with both spouses’ knowledge. “Waste claims” typically apply to an overspending spouse enjoying shopping sprees or placing risky sports bets in amounts higher than your anticipated limits. However, the standard for waste is not just reckless or careless spending. The waste standard is more complicated. For it to be waste, the financial disregard must be done without the knowledge of the other spouse.
Often, the “innocent” spouse is fully aware that their partner is not a responsible spender. In these cases, it generally does not meet the waste claim’s legal standard. But, when the spouse is spending on things like hidden affairs, secret gambling addictions, and/or major negative business risks you may have the opportunity to pursue a waste claim and seek reimbursement in your divorce.
Examples of Community Waste
Here are a few examples of community waste that put the other spouse in financial jeopardy:
- The husband who spends all the parties’ retirement savings on an affair.
- The wife who loses hundreds of thousands of dollars with her gambling addiction.
- The husband who foolishly goes on a spending spree because he believes, incorrectly, that he can discharge it all in bankruptcy.
- The spouse who spends every available dime on their meth addiction.
- The spouse who refuses to stop drunk driving and causes the unthinkable.
In each of these situations, an innocent party has suffered or may suffer a significant financial harm and each spouse is rightly concerned about the consequences that might befall them. Arizona is a community property state, and that means both spouses are equally responsible for one spouse’s debts and liabilities, i.e., if the wife runs up a gambling debt, the husband shares in that debt; if a husband hits someone while drunk driving, the victim can sue both the husband and wife.
Divorcing a wasteful spouse is not your only option.
Some innocent spouses in these situations very much want to remain married but are worried they must seek a divorce to protect themselves financially. That is not true. Arizona law offers two options to allow couples to opt out of community property laws and remain married: The post-nuptial agreement and a legal separation.
A post-nuptial agreement, like its sister, the pre-nuptial agreement, is an agreement between the parties regarding how their finances will be handled. As part of a post-nuptial agreement, the parties can opt out of community property laws.
A legal separation, in terms of issues, procedure, and intensity, is the same as a divorce. All the property must be divided, any desire for child or spousal support must be established, and what happens with custody of the children must be ordered. But at the end of the day, the parties are still married.
Types of Community Waste Claims
A.R.S. § 25-318(A) is the law that requires the family court to divide the community estate “equitably.” The Legislature added the court’s authority to determine waste when it wrote, “This section does not prevent the court from considering … excessive or abnormal expenditures …” See A.R.S. § 25-318(C).
Most waste claims generally fall under one of the 3 A’s: Adultery, Alcohol, or Addiction. But waste claims are not limited to affairs, gambling problems, alcoholism, or drug addictions. For example, in Hrudka v. Hrudka, 186 Ariz. 84 (App. 1995). the wife was found to have committed waste when she lost $600,000 in artwork and other valuables that were exclusively in her possession. In Lindsay v. Lindsay, 115 Ariz. 322 (App. 1977). the husband committed waste by not sharing with wife the proceeds of the sale of an airplane. In Gutierrez v. Gutierrez, Husband loaned his sister $62,000 without wife’s knowledge.
Legal Standards for Waste Claims
As the above examples show, there is no cookie-cutter example of what constitutes marital waste. Rather, the community waste claim can cover a broad range of financial situations. The focus, then, is not on the type of activity; rather, the person pursuing the waste claim must show that the expenditure is abnormal or excessive.
Gutierrez provides the standard for waste claims: The spouse claiming waste must provide sufficient evidence to show waste occurred. The burden then shifts to the other spouse to prove that the expenditures benefited the community.
What happens if a waste claim is successful? The Court essentially reimburses the innocent spouse for the wasteful spouse’s overspending by awarding that spouse a larger portion of the community property. Martin v. Martin, 156 Ariz. 452, 457–58 (1988). Additionally, under Meister v. Meister, 252 Ariz. 391 (App. 2021), if the person defending against a waste claim can show the community benefited from the abnormal expenditures, then the Court cannot consider that waste.
Bobrow Claims and Business Valuations
History of Community Property in Arizona