Property - The Law Office Of Robert B. Buchanan

Property

Property division represents one of the two basic parts of a divorce settlement; the other is custody. It’s important to understand the basic law that controls the split of property. On it’s face, the law is simple enough. However, it can be complicated quickly when you combine the emotional aspect of divorce and figuring out how to divvy things up fairly. Read more below.

What Can We Teach You About?

Short Answer: Spouse A keeps Spouse A’s property; Spouse B keeps Spouse B’s property; and the marital estate is divided equitably between the parties. Generally, property acquired during the marriage is deemed marital; there are, however, numerous exceptions to this rule, which are outlined below. Equitable means fair, and can vary substantially depending on the circumstances of the marriage.

Longer Answer: In a divorce, property is divided into three estates: Spouse A’s estate, Spouse B’s estate, and the marital estate. Spouse A keeps Spouse A’s estate. Spouse B keeps Spouse B’s estate. The marital estate is divided equitably between the parties. There are two steps of analysis required by the court: (1) to what estate does the property belong; and (2) what is an equitable division of the marital estate.

Step 1: To what estate does the property belong?

All property acquired during the marriage is presumed to be part of the marital estate. In fact, the burden of proving property is not part of the marital estate, lies on the party claiming an exclusive right to the property. When the parties dispute the estate to which property belongs, the court will analyze whether the property falls within one of the eight categories of non-marital property that are laid out by the Illinois Marriage and Dissolution of Marriage Act (the “Act”). In the order that they appear in the Act, the categories as follows:

(1) property acquired by gift, legacy or descent;

(2) property acquired in exchange for property acquired before the marriage or in exchange for property acquired by gift, legacy or descent;

(3) property acquired by a spouse after a judgment of legal separation;

(4) property excluded by valid agreement of the parties;

(5) any judgment or property obtained by judgment awarded to a spouse from the other spouse;

(6) property acquired before the marriage;

(7) the increase in value of property acquired by a method listed in paragraphs (1) through (6) of this subsection, irrespective of whether the increase results from a contribution of marital property, non-marital property, the personal effort of a spouse, or otherwise, subject to the right of reimbursement provided in subsection (c) of this Section; and

(8) income from property acquired by a method listed in paragraphs (1) through (7) of this subsection if the income is not attributable to the personal effort of a spouse.

750 ILCS 5/503(a).

In addition to these categories, the court may also to determine whether the non-marital property was transmuted into marital property. Specifically, the Act states that “[f]or purposes of distribution of property pursuant to this Section…non-marital property transferred into some form of co-ownership between the spouses…is presumed to be marital property, regardless of whether title is held individually or by the spouses in some form of co-ownership….” 750 ILCS 5/503.

Step 2: What is an equitable distribution of the estate?

Pursuant to section 503(d) the Act, “… the court shall assign each spouse’s non-marital property to that spouse. It also shall divide the marital property without regard to marital misconduct in just proportions….”

Determining what is an equitable distribution of property is not a straight forward task. The Act requires the court to analyze “all relevant factors….” These factors include, but are not limited to:

 

(1) the contribution of each party to the acquisition, preservation, or increase or decrease in value of the marital or non-marital property, including (i) any such decrease attributable to a payment deemed to have been an advance from the parties’ marital estate under subsection (c-1)(2) of Section 501 and (ii) the contribution of a spouse as a homemaker or to the family unit;

(2) the dissipation by each party of the marital or non-marital property, provided that a party’s claim of dissipation is subject to the following conditions:

(i) a notice of intent to claim dissipation shall be given no later than 60 days before trial or 30 days after discovery closes, whichever is later;

(ii) the notice of intent to claim dissipation shall contain, at a minimum, a date or period of time during which the marriage began undergoing an irretrievable breakdown, an identification of the property dissipated, and a date or period of time during which the dissipation occurred;

(iii) the notice of intent to claim dissipation shall be filed with the clerk of the court and be served pursuant to applicable rules;

(iv) no dissipation shall be deemed to have occurred prior to 5 years before the filing of the petition for dissolution of marriage, or 3 years after the party claiming dissipation knew or should have known of the dissipation;

(3) the value of the property assigned to each spouse;

(4) the duration of the marriage;

(5) the relevant economic circumstances of each spouse when the division of property is to become effective, including the desirability of awarding the family home, or the right to live therein for reasonable periods, to the spouse having custody of the children;

(6) any obligations and rights arising from a prior marriage of either party;

(7) any antenuptial agreement of the parties;

(8) the age, health, station, occupation, amount and sources of income, vocational skills, employability, estate, liabilities, and needs of each of the parties;

(9) the custodial provisions for any children;

(10) whether the apportionment is in lieu of or in addition to maintenance;

(11) the reasonable opportunity of each spouse for future acquisition of capital assets and income; and

(12) the tax consequences of the property division upon the respective economic circumstances of the parties.

750 ILCS 5/503(d).

As is clear from the extensive nature of the factors to be considered by the court, the determination of what is equitable, can be very nuanced and analytical.

Short answer: Probably not. The division of property in a divorce proceeding is based on the notion of “equitable distribution,” meaning that the parties are awarded a just proportion of the property belonging to the marriage (the “marital estate”). Courts do NOT take into consideration marital misconduct (e.g. cheating) when determining what is equitable.

The division of property in a divorce requires an analysis as to which property belongs to Spouse A, which belongs to Spouse B, and which belongs to the marital estate. Spouse A is entitled to Spouse A’s property, Spouse B is entitled to Spouse B’s property, and both spouses are entitled to an equitable (i.e. fair) distribution of the property of the marital estate.

Determining whether property belongs to Spouse A, Spouse B, or the marital estate, requires a more nuanced analysis that will be covered in a future blog post.

As to the division of the marital estate, the relevant law states that the court “shall divide the marital property without regard to marital misconduct in just proportions considering all relevant factors….”

“Well that doesn’t seem fair,” you say. “What if my husband spent thousands of dollars during the marriage on his mistress?”

That is different. Now we are talking about not just the act of infidelity, but rather one of the spouses using marital funds for a purpose unrelated to the marriage. More technically, in that case, we are talking about what the courts call “dissipation.” Dissipation is the “use of marital property for the sole benefit of one of the spouses for a purpose unrelated to the marriage at a time that the marriage is undergoing an irreconcilable breakdown….”

If there is dissipation, the court will order that the money is returned to the marital estate before an equitable division takes place.

So, for example, let’s say that the marital estate is worth $900,000. During the divorce trial it is proven that Spouse A spent $100,000 on his mistress during the last three years. The court also finds that that an equitable distribution in the case would be a 50/50 split of the marital estate. Accordingly, Spouse A will be ordered to return the $100,000 to the marital estate thus raising its value to $1,000,000. The marital estate would then be divided 50/50 leaving $500,000 for each spouse.

Short Answer: It depends on when contributions were made to that particular fund. If contributions were made to the fund during the marriage then you are entitled to an equitable portion of those funds. An equitable portion is commonly 50%.

 

Longer Answer: 401k plans are analyzed under the same rules as all other property in a divorce. For a detailed breakdown of how property is analyzed, you can visit our previous post on the subject of division of property in a divorce. In a divorce, property is classified as belonging to one of three estates, the petitioner’s non-marital estate, the respondent’s non-marital estate, or the marital estate (property belonging to the marriage). Property can also be classified as having portions of multiple estates.

In terms of a defined-contribution retirement plan such as a 401k, it may be singularly classified as marital or non-marital, or there may be both non-marital and marital portions.

A 401k plan would be only marital if it were opened during the marriage and received funds which were also marital. In the vast majority of cases, wages and salary collected by one spouse during the marriage are considered marital. Therefore, your typical 401k opened during the marriage is 100% marital property.

A 401k plan would be classified as containing both non-marital and marital property if it received funds from both a non-marital and marital source.

For example, say Husband opens a 401k plan five years before he gets married and contributes $25,000, and his employer matches that contribution, so he has a total of $50,000 in his 401k. Husband then gets married and over the next ten years contributes $50,000, which is also matched by his employer, for a total contribution of $100,000 during the marriage. The husband now has $150,000 in his 401k plan.

Of the $150,000, the $50,000 contributed before the marriage is considered non-marital property. This property can only be claimed by the husband. The $100,000 contributed during the marriage is considered marital property to which Wife is entitled an equitable portion. While not always, an equitable portion is commonly placed at 50%, although this number should be scrutinized closely based on the relevant factors.

The above is example is admittedly overly-simplified. There is an additional analysis that must take place. Illinois divorce law lays out how property is classified when there has been commingling of non-marital and marital funds. This analysis requires a determination of whether there was a “loss of identity” of the contributed funds, and whether new property was acquired as a result of the commingling. This characterization of the commingling could have significant implications as to the size of the marital portion of a 401k retirement plan. For further reading, check out section 503 of the Illinois Marriage and Dissolution of Marriage Act.

In a divorce, property is classified into one of three categories, or estates: Spouse A’s non-marital estate, Spouse B’s non-marital estate, and the marital estate. How property is classified determines how it will be divided, if at all, by the court. Each non-marital estate will be assigned to its respective owner and the marital property will be split equitably.

In many cases a house is the principal asset of the parties and its classification is very important to the final distribution of property. In practice, the house could belong to any of the three categories depending on various factors.

The most common and straightforward classification of a house is as follows. John and Sue are engaged. Neither one of them owns a house. The couple gets married. After the wedding they open a joint checking account and combine their individual savings and checking accounts. They find their dream house, make an offer, its accepted, and they sign a contract, and make the down payment with funds from their joint bank account. A couple months later, they close the deal and take the house in either joint tenants or tenants in the entirety (that is, both of their names are on the deed). They then pay the mortgage out of their joint checking account.

In this example, the house is marital property. The court will determine the equity in the house and it will be split between the parties equitably.

The next example is similar but varies in that the source of the down payment is different. John and Sue are ready to the knot. Neither own a house. They get hitched. They decide to buy a house and sign a contract for a townhouse in the suburbs. Sue pays for the down payment out of a checking account that she opened when her aunt and left her $100,000. Both of their names go on the deed and they pay for the mortgage out of a joint checking account.

Is part of the house Sue’s non-marital property? Probably not. The entirety of the house will be classified as marital property. Although Sue paid for the down payment with her own money the court will view this payment as a gift to marital estate. The court will do this because other facts indicate that it was a gift. For example, both of their names were put on the deed and marital funds were used to pay the mortgage.

The last variation on our hypothetical is different. Here, Sue mortgages a house before she meets John. The house is in Sue’s name alone. She has a good paying job. When John and Sue tie the knot, Sue has paid off the majority of her loan but still owes $50,000 on the house. The couple proceeds as in previous examples by putting all their money into a joint checking account. From there, the couple writes a check to the bank to pay off the house loan.

In this example, the house would be classified as non-marital property. The house was purchased before the marriage, it is in Sue’s name alone, and no transfer was made after the marriage to put John’s name on the deed. The payment by the marital estate alone is not enough to convert it to marital property.

What happens then to the $50,000 that was contributed by the marital estate? The court will order that the marital estate is reimbursed by Sue in that amount, and it will be split equitably by the parties.

Whether you are ready to divorce or already divorced, it’s important to understand what you may be entitled to.

To receive your ex-spouse’s Social Security benefits the following criteria must be met:

  • You were married to your ex-spouse for at least 10 years

  • Your ex-spouse is receiving (or will be receiving Social Security benefits)

  • You aren’t currently married

  • You are at least 62 years old

There are a couple exceptions to the criteria which may make you eligible, such as:

  • If your marriage did not last 10 years, but you are caring for your ex-spouse’s child who is less than 16 years old or is disabled.

  • If you are not 62 years old, but you are caring for your ex-spouse’s child who is less than 16 years old or is disabled. You may claim at any age if you fit into this exception.

  • You remarried, but are no longer married due to an annulment, divorce, or death.

  • You remarried after you turned 60 years old and your ex-spouse is deceased.

However, the caveat is that Social Security will not pay you double the benefits. This means that you will receive the greater of your benefit and half of your spouse’s benefit.

For example, Lucy and Bob were married for 30 years. Lucy is 65 years old and receives $1000.00 in Social Security benefits monthly. Bob is 67 years old and receives $200.00 in benefits monthly. Half of Lucy’s benefit, $500.00, is greater than Bob’s. Therefore, Bob could receive $500.00 a month instead of his $200.00 a month.

Social Security will not give Bob his $200.00 plus half of Lucy’s. It will give him one or the other.

Lucy cannot receive half of Bob’s benefit because her $1000.00 is greater than Bob’s $200.00.

Now let’s imagine that Lucy is 60 years old and Bob is 65. In this instance, Bob would have to wait until Lucy turns 62 to start receiving half of her benefits.

Perhaps the situation is more like this: Lucy is 54, Bob is 63, and their adopted child is 12. Even though Lucy is not 62 years old, she can still receive half of Bob’s benefit since she is caring for his child.

A sometimes tedious requirement in the divorce process and the child support process is the financial disclosure statement. This statement is essential to an equitable distribution of the assets, setting of child support, and determination of maintenance, as it outlines all of the income, expenses, and property held by each spouse.

Currently, the form can be found online at the Cook County Clerk of Court website: http://12.218.239.52/Forms/pdf_files/CCDR0604.pdf. If your case is outside of Cook County, check your court’s respective clerk of court website. For this blog post, we will refer to the Cook County Disclosure Statement, but as of January 1, 2016, all of Illinois will use the same standardized form.

The financial disclosure is made mandatory by Local Rule 13.3.1, which is why you may hear the form referred to as a 13.3. If you’d like to read the rule, it can be found at: http://www.cookcountycourt.org/Manage/RulesoftheCourt/ReadRule/tabid/73/ArticleId/40/13-3-1-M0andatory-Disclosure.aspx.

First and foremost, it is crucial for you to understand that this form is an affidavit. By signing the form, you are swearing that everything is accurate to the best of your knowledge. If the court finds that you have lied on the financial disclosure, you will severely damage your credibility with the judge and your attorney. Your attorney may even withdraw from the case.

The financial disclosure form will ask you to state all of your monthly expenses, these include but are not limited to things like your mortgage payment, water bill, grooming, car insurance, and health expenses. Additionally, it will ask about your expenses related to your child. This is where it gets a little confusing.

Regardless of whether you were the breadwinner or bill payer in your marriage, you had expenses and you should list them. It doesn’t matter that your spouse provided you with spending money, it matters that these were expenses directly related to you. You should not include your spouse’s expenses like how much he or she spends on grooming or clothing every month. Your spouse will include those on his or her own financial disclosure form.

If you have yearly expenses, you can divide them by 12 and list them as a monthly expense. The more detail and explanation, the better. Often times, you will run through several drafts of this disclosure with your attorney until he or she feels that it is accurate and complete. At Johnsen and Buchanan, we prefer to have our clients not only fill out the form, but also include notes and explanations on the first draft. This gives us a better idea of their financial situation and how to accurately include the information on the disclosure.

The financial disclosure statement will also ask you about any retirement plans, bank accounts, real estate, and other property valued at more than $500.00. It helps to have account statements, your income tax returns, insurance, and property information at hand when filing out this statement. As you will have to exchange your tax returns with the opposing party in the future, it is best to have them at hand from the very beginning.

The Local Rules state that the financial disclosure must be exchanged not later than 30 days after the initial pleading by the Petitioner (the person starting the action) and not later than 30 days after the Respondent has filed their appearance, OR not less than 7 days before a hearing, whichever is first. The Court may impose sanctions for failure to comply with these rules.

Unlike many other documents during the divorce process, the disclosure statement does not get filed. The certificate of service is filed with the court, and both the certificate of service and the financial disclosure are sent to the opposing party. Once the financial disclosure is sent to the opposing party, the discovery process may begin.