“My husband is going to liquidate his 401(k)…” “My wife says she is going to clean out our savings account…” We hear this quite often from clients who are either on the brink of filing for divorce or who are in the thick of it. The thought of being on the brink of losing what you have worked hard to accumulate can be a scary proposition. There are ways to protect assets during the divorce proceedings, but while it may be easy for the Court to enter an Order restraining the parties from disposing of or encumbering their property, it can often be difficult to ensure compliance from the third party who actually has possession of the asset. Protecting marital assets during divorce is an important lesson.
There are a number of different types of assets that are part of most clients’ financial portfolio, including but not limited to cash, retirement/investment accounts, mortgages, etc. In all of these cases a third party actually maintains those accounts – banks, financial advisors, other large institutions. Loss of those funds would be deeply problematic and attorneys and Family Part Judges are well aware of that and often add the following language to Court and Consent Orders: “The parties are restrained from dissipating, transferring, selling, encumbering, mortgaging, assigning, gifting and/or otherwise disposing of any assets of the marriage…” In fact, such language came specifically from an Order entered by the Trial Court in 2010 in a dissolution matter now the subject of an unpublished Appellate Division decision.
Take the case of the Durranis, who had done quite well for themselves during their marriage, accumulating significant wealth and luxury vehicles, including two Ferraris. The luxury cars were in storage and after filing for divorce, Ms. Durrani’s attorney requested that the cars should be held by the company storing them (the third party known as W.W.C.). W.W.C. was also asked not to dispose of the vehicles without her consent. In July 2010, the Trial Court entered an Order, prohibiting either party from dissipating, disposing of, or otherwise encumbering their property, which included the Ferraris. A copy of the Order was sent to W.W.C. following month, so Ms. Durrani was under the impression that the company had received it and it was were with the terms. But almost two years later, Mr. Durrani had allowed a balance to accumulate with W.W.C., and then requested that the vehicles be released to him. In January 2012, Mr. Durrani’s representative picked up the cars from W.W.C., and the Ferraris were never seen again.
If the cars remained at W.W.C., or could otherwise be located in the United States, Ms. Durrani would have received possession of them pursuant to the Judgment of Divorce, filed in April 2013. However since they couldn’t be located, Ms. Durrani filed suit against W.W.C. and Mr. Durrani’s lawyer at the time the restraints were entered. W.W.C. filed a Motion to Dismiss the Complaint, which was granted by the Trial Court (as a Motion for Summary Judgment). The Court found that the July 2010 Order was not binding on W.W.C. because it wasn’t a party to the dissolution matter. In releasing the Ferraris to their legal owner, W.W.C. did not engage in any activity that was prohibited by the Order.
The Appellate Division affirmed the lower court’s decision, agreeing that the July 2010 Order was not binding on W.W.C., but even if it was, releasing the vehicles to Mr. Durrani did not violate any of the activities prohibited by the Order. In fact, W.W.C. was required to release them by its own legal obligation to its customer. To hold otherwise would require a third party, like W.W.C., to indefinitely maintain someone else’s property even when their services have not been paid for.
While this is an unpublished, and thus a non-binding decision, the Trial Court and Appellate Division decisions were based on published case law that defines who can be subject to a Court Order or Consent Order. This case shows that requests for restraints, and Orders actually providing for the restraints must be carefully worded. Actions thereafter must be carefully documented, and expectations must be managed. While some institutions may choose to voluntarily cooperate with the Order, others (like W.W.C.) may be prohibited by law from doing so. It would then be up to the individual parties to ensure that they don’t run afoul of the Order’s terms and that enforcement actions are brought against the offending party to the divorce, and not to the third party.
To learn more about protecting marital assets prior to and during your divorce, contact Jacobs Berger, LLC, today.