Division of Property
Illinois works as an equitable division state for divorce proceedings. That means that all assets earned during marriage are defined as “marital assets” and all debts incurred during marriage are defined as “marital debts.” To illustrate this fact, consider the title of “marital estate” used in these definitions as a basket. Each spouse is entitled to put items into the basket and take items out of the basket. An example of an item going into the basket would be income. Other items may go in based upon how they were treated. For example, inheritance money doesn’t normally go into the basket, but any money used to fix up a home is absorbed into the property value that goes into the basket.
During the divorce process, the challenge is determining what belongs in the basket and how to ultimately divide up its contents. Matters get further complicated when items such as pensions and 401ks go into the basket due to IRS penalties activated upon account cash-outs.
One category that does not go into the basket is non-marital property, which is defined as property (or the property’s value on the day the couple married) owned solely by one spouse. For example, if the wife owned a house prior to marriage, the value of that house up to the date of marriage is considered non-marital separate property. Inheritances and gifts are often viewed as non-marital property.
As you might imagine, allocating the marital and nonmarital assets and debts between spouses can be a major source of contention during a divorce.
Part of the reason that disagreement arises is due to the many different types of assets a couple can own. There are also difficulties involved in splitting certain property. These assets may include:
- The marital home and any other real estate
- Cash and money in your bank accounts
- Personal property – like cars, furniture, and electronics
- Investments – like stocks, mutual funds, and bonds
- Retirement accounts
- Insurance policies – like life insurance
- Rents and profits from property
- Businesses you own, and
- Intellectual property – like licenses or patents.
Now, in the event that a couple cannot decide how to divide these assets, the court will do so in accordance with state law. Illinois is an “equitable distribution” state, which means the court won’t simply divide marital property evenly. Rather than splitting everything 50/50, they look at each party’s current situation and future needs. The court uses the factors listed below when dividing marital property.
Illinois law sets out 12 factors to determine how property should be split:
- Each Party’s Contribution – The benefit to the marital estate whether that be employment earnings or through homemaking.
- Value of Property Assigned – Looking at how much each party is taking to prevent either party from getting a disproportionate share of assets or debts.
- Length of Marriage – The amount of time put into the marriage.
- Relevant Economic Circumstances – Understanding each party’s current financial position
- Outside Income – If either party already pays or receives maintenance or child support.
- Agreements – Prenuptial and postnuptial agreements.
- Personal Considerations – Each party’s age, health, station, occupation, income, skills, employability, estate, liabilities, and needs.
- Parental Expenses – The time and money required to continue to raise any children.
- Maintenance – The value of maintenance awarded to a party or assets awarded in lieu of maintenance.
But, note that the court does have some flexibility in dividing the assets. For example, one spouse may be awarded the marital home in exchange for the other spouse receiving a greater portion of money in savings. This is due to the fact that it is not always possible to easily divide properties without resorting to the sale of the asset and then splitting the proceeds.
What Is Marital Property?
One of the first issues that a couple may encounter during property division is confusion over what assets qualify as marital property This is important because non-marital property, referred to as separate property, stays with the spouse that acquired it.
That said, generally speaking, marital property covers everything that you and your spouse own or acquired together during the marriage. This includes all assets earned or bought during the marriage, regardless of where the purchasing income came from. In other words, this rule will apply even if only one spouse was working or otherwise generating the income used to acquire the assets.
Marital assets include items that may have been property acquired during the marriage even if the title to the property is not held jointly by the parties. This classification also covers any debt that was taken on during the marriage, regardless of which spouse incurred it.
Unless there is an agreement to the contrary, property that a spouse owned before the marriage is considered nonmarital property. Nonmarital property can also include inheritance and gifts made specifically to one spouse.
Issues That Complicate Property Division
Once all property has been classified as either marital or separate, there are a few other issues that can arise.
In some instances, separate property and marital property can get commingled. For example, a home may be purchased from both a shared bank account and an account that one spouse owned before marriage. In order for the judge to properly divide this asset, the couple must be able to trace the source of the assets that purchased it.
This isn’t always easy and can get even more complicated if the value of the asset increased during the marriage. Further, an additional challenge would be if repairs to a property asset were funded from separate property. For that reason, it’s best to have an attorney involved that knows how to investigate these matters.
Retirement plans, such as pensions, can also complicate the division of assets. This is particularly true if one spouse was working or otherwise contributing to the plan before the marriage. These matters become even more challenging when it comes to determining the present value of the asset.
Further, the fact that many cannot be cashed out without incurring a penalty may make division or transfer more difficult.
For that reason, these assets often require some long-term planning. Further, the benefits provider may also have certain steps that must be followed. An example would be requiring a qualified domestic relations order (QDRO) to transfer or divide the policy. A QDRO is a legal order subsequent to a divorce or legal separation that splits and changes ownership of a retirement plan to give the divorced spouse his or her share of the asset. These must be approved by both the court and the benefits provider and can be very technical in nature.
If one spouse owns a business, this will need to be dealt with in the divorce as well. However, if the business was started before the marriage, this can make valuation complex.
That said, value calculations are based on a number of factors. Most often, our firm will work with an expert CPA level business valuation expert to determine the values of business property, as well as perform forensic examinations of the income, assets and liabilities of a corporate interest.
Our family law firm has extensive experience with these complicated property division matters. Michael Roe has decades of experience with cases involving business valuation issues, and his academic history includes MBA-level graduate studies in finance, corporations, and accounting. As part of our representation, we will fully investigate your situation and, through the use of appraisers and other experts, evaluate the valuation of your property.
Like everything involved with the divorce process, there are exceptions to these rules and assets owned prior to marriage or acquired after marriage may fall under a grey area. Some non-marital assets can be converted to marital assets by the actions of the parties during the marriage.
The Law Offices of Michael F. Roe can help you through this difficult time. We are committed to helping our clients with the financial aspects of their case and ensure a fair and equitable resolution to the property issues. If you have any questions, please contact our office for help in understanding how Illinois’s laws pertain to your property. Call us at (331) 222-9161 or contact us online.