Can My Spouse Sell Assets During Our Divorce? | Burns & Levinson LLP

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Many divorcing spouses worry about the possibility of their spouse selling assets during a divorce and leaving little or nothing to be divided. It can be particularly problematic if a spouse was financially controlling or secretive, or handled all the finances during the marriage with the other having a limited idea of the full financial picture. One could sell assets that the other doesn’t even know exists. Or, a spouse might transfer money or property to a family member to try to prevent it from being accessed by the other spouse, anticipating that the family member will transfer it back after the divorce is final.

But will the Court really allow a spouse to cause financial harm to the other by allowing assets to be sold or transferred in this way? Probably not, due to Supplemental Probate and Family Court Rule 411. This is sometimes referred to as the “Automatic Restraining Order” or “Rule 411.”

This article will discuss how Rule 411 works, and what Rule 411 does (and does not do) to protect marital assets for equitable division during the divorce process.

Rule 411 Goes Into Effect When a Complaint Is Filed or Served

Once the spouse who files for divorce (the Plaintiff) has filed, they are prohibited from selling assets (among other restrictions). Rule 411 goes into effect for the Defendant spouse once they are served with the complaint for divorce. A copy of Rule 411 is issued by the Court with the summons and is required to be served with the complaint for divorce so that the Defendant is aware that they are prohibited from selling assets once a constable serves them with the complaint for divorce and summons issued by the Court, or once they sign the summons in front of a notary.

Rule 411 Prohibits More Than Simply Selling Assets

Both parties are also prohibited from transferring, encumbering, concealing, assigning, removing, or “in any way dispos[ing] of” assets. For practical purposes, this means that divorcing spouses can’t take other steps to divest themselves of assets, such as: gifting assets to a family member, obtaining loans for which property is provided as security such as a mortgage or auto loan, or assigning an interest in property to a third party.

Rule 411 Applies to Real and Personal Property

Real property includes each and every piece of real estate in which you have any interest: your house, your vacation home, your rental real estate, and your timeshare. Personal property can be tangible (such as a car) and intangible (such as a bank account).

In broad strokes, “personal property” means all types of property you might own that are not real property: your bank, retirement and investment accounts, your stock options, your deferred compensation, promissory notes you hold, your business interests, your life insurance policies, your annuity, your car, your boat, your snowblower, your RV, your jewelry, your artwork, your tools, your antiques, your furniture, your livestock, your stamp collection, your pets, and any other assets you own.

For practical purposes, Rule 411 applies to everything you own.

There Are Exceptions To Rule 411

As Rule 411 means that you can’t sell, transfer or dispose of any assets you own, you may wonder how you and your family are going to pay your expenses during divorce proceedings. It is important to note that there are exceptions, including an exception permitting the use of assets to pay for reasonable living expenses.

  • You Can Sell/Transfer/Encumber Assets As Required for Reasonable Expenses of Living. This means that, if you have to borrow from your 401(k) in order to make your mortgage payments, you can do so. You can also sell assets and use the proceeds to pay other reasonable living expenses.However, “reasonable” is a subjective term. So, if you sell assets to pay living expenses, and your spouse decides to argue your expenditures were “unreasonable,” the judge would have to decide what “reasonable” and “unreasonable” mean in the context of the typical living expenses during your marriage.

    If you’re selling or borrowing assets in order to maintain the status quo as far as the amounts and types of expenses that were paid before you or your spouse filed for divorce, you’re probably not violating Rule 411.

  • You Can Sell/Transfer/Encumber Assets in the Ordinary and Usual Course of Business. Rule 411 permits selling, transferring and encumbering assets in the ordinary and usual course of business. So, if your business involves buying houses, rehabbing them, and selling them at a profit, it is probably fine for you to continue with those business activities after you file for divorce. You should consider consulting an experienced divorce attorney to ensure that your business activities are likely to meet this exception.
  • You Can Sell/Transfer/Encumber Assets in the Ordinary and Usual Course of Investing. If you have a stock account and actively buy, sell and trade shares to earn money, it is probably fine to continue doing so after you file for divorce.
  • You Can Sell/Transfer/Encumber Assets for Payment of Reasonable Attorney’s Fees and Costs in Connection With the Divorce Action. Rule 411 recognizes that you will need to be able to pay your attorneys to continue to have legal representation in your divorce, and that you may not be able to pay for them from your income alone. You are allowed to sell, transfer or encumber assets to pay your divorce-related legal fees.
  • You Can Sell/Transfer/Encumber Assets if Your Spouse Agrees in Writing. If your spouse agrees to the sale or transfer of an asset in writing, Rule 411 permits you to proceed with the sale or transfer. The writing should probably be signed by you as well as your spouse, and ideally incorporated into a Court order. You should consider consulting an experienced divorce attorney to ensure that any sale or transfer of property with the agreement of your spouse is papered appropriately to ensure this exception will be met.
  • You Can Sell/Transfer/Encumber Assets by Court Order. The Probate and Family Court always has the authority to permit a sale or transfer of an asset that would otherwise violate Rule 411. For example, if your car is totaled and you need to buy a new one, but your spouse won’t agree, you can always ask the Court to enter an order permitting you to do this. You should consult your divorce counsel to determine the best way of doing so.

Rule 411 Prohibits More than Selling, Transferring and Encumbering Assets

Until you are divorced by the Court, even if you’re separated, your spouse is still your spouse, and Rule 411 prohibits other actions that could harm a spouse while the divorce is pending.

  • You Cannot Incur Debts That Burden Your Spouse’s Credit. After you or your spouse file for divorce, you are prohibited from incurring debts that burden the other spouse’s credit. This would include further borrowing against a credit line secured by your marital home, or unreasonably using credit cards or cash advances against credit or bank cards.
  • You Cannot Change Beneficiaries on Life Insurance Policies and Retirement Accounts. Unless your spouse agrees in writing or the Court orders otherwise, you must maintain the status quo. This includes removing your spouse as a beneficiary and putting your children as beneficiaries instead. Similarly, you cannot change the beneficiaries on your retirement and pension plans and accounts.
  • You Cannot Remove Your Spouse or Minor Children From Coverage Under Insurance Policies. After you or your spouse files for divorce, you cannot remove your spouse or children under eighteen from insurance coverage. This includes medical, dental, life, automobile, and disability insurance. You are also required to maintain all existing insurance coverage in full force and effect, which means that you should continue to pay all policy premiums.

Rule 411 Is No Longer Effective Once You’re Divorced

Once a judgment of divorce is issued by the Court, Rule 411 is no longer in effect, and you can sell, transfer, conceal, assign, remove or dispose of your assets however you’d like.

But What If We’re Separated and Planning To File a Joint Petition for Divorce?

Sometimes spouses decide to file a joint petition for divorce, working together to resolve all divorce-related issues, sign a written separation agreement, and file it jointly, requesting that it be incorporated into a Judgment of Divorce. Since neither spouse files a complaint, Rule 411 never applies, and neither of you is prohibited from selling or transferring assets.

If you have retained counsel or a mediator and are planning to divorce, but suspect that your spouse may be selling assets, you should consider filing a complaint for divorce right away to have the protection of Rule 411.

If You’re Anticipating Divorce, You Should Probably Refrain From Selling Assets, Even if Neither of You Has Filed for Divorce

Even though Rule 411 doesn’t technically apply if you’re mediating a divorce or otherwise trying to settle the divorce without Court intervention, you should probably act as though it does in case mediation is unsuccessful and either spouse decides to get the Court involved. Judges typically do not look favorably on selling or gifting assets or removing your spouse from your employer-provided life insurance when you are clearly contemplating divorce.

If you have any concerns your spouse might sell or conceal assets, or otherwise prevent assets from being included in your marital assets to be divided at the time of divorce, you should consult an experienced divorce attorney. Although Rule 411 is there to protect divorcing spouses, experienced counsel can ensure that you are able to fully benefit from that protection.

 



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