Ensure Fair Property Division in Illinois

Illinois is what is known as an equitable distribution state, so everything considered marital property is examined and divided via a “just division”. But what is “marital property”? In Illinois, almost anything acquired during the marriage is considered marital property, including retirement accounts or stocks that accrued funds during the marriage. Some other typical examples of marital property include vehicles, furniture, household appliances, the home, and checking accounts. This classification is true regardless of who in the marriage specifically holds the title to an item.

There are a couple of very specific items that are considered “non-marital” property, but just because they fall into that classification does not mean they are automatically left out of a judgment. The law states that property acquired through inheritance or a gift isn’t necessarily considered as marital property.

As you can imagine, it can get complicated. If you bought a house before the marriage for example, but at the time of refinancing added your spouse’s name, then your non-marital house would be considered marital property. Another commonly used example in non-marital property is inheritance, which if kept separate and in a bank account to your name, is non-marital. However, if you used that money to purchase something for the marriage or put it into a joint bank account, its classification might change.

Another notable exception to what is considered marital property is anything deemed non-marital in a prenuptial or post-nuptial agreement.

Dealing with the Marital Home

Generally, the family home the largest asset to be divided in a divorce and finding common ground on what to do with it can greatly simplify property negotiations.

The following are the three most common ways to deal with the family house: selling, buyouts, and joint ownership.

Sell the House

When one spouse can afford the home on his or her own or neither wants to stay in the house putting the house on the market is always an option. Things to remember:

• the mortgage needs to be paid off
• home equity lines of credit need to be paid
• capital gains tax will need to be paid

The main disadvantage of this option is the expense you’ll incur in the upkeep and sale of the house. This is especially true if the real estate market is not a seller’s market at the time of your divorce. Other than the expenses related to selling a home, there are a few other disadvantages:

• hiring a real estate agent
• agreeing on an asking price
• paying for repairs and upgrades

Selling a home is never easy and this is no truer than during a divorce. That does not mean it is not the right decision for you, but you should think hard about the challenges involved before making a decision to go down this path.

Agree to a Buyout

Another option for dealing with the marital home is for one side to agree to a buyout or trade. This means the equity of the house will be paid to the spouse moving out of the marital home with other marital assets. In order to do this, a third party must be brought in to access the value of the property. A buyout is a great option when there are other assets to divide from the marital estate. Some things to consider before entering a buyout scenario:

• the buyer may end up paying too much if the house depreciates
• the seller may end up losing out on future appreciation of the property

Give Up Other Assets
The most common way to execute a buyout is when one spouse gives up other marital assets, such as retirement funds or investments. Once an agreed upon home value is calculated the spouse keeping the marital home will give up other assets equivalent to half the home value.

Buyout Payments Over Time
A second way to accomplish a buyout is by making payments over time. After the value of the marital home has been assessed, buyout terms would be included in the divorce and division of property agreement. Under these circumstances, the house would still be under co-ownership until the final buyout payment is made.

In Lieu of Spousal Support
The third most common scenario happens when spousal support is involved in the judgment. A spouse could choose to give up the house instead of support payments, or in exchange for lowering the payments.

Remember, at this phase in the process, you are in control and if you can agree upon an equitable scenario a judge will approve the property division.

Co-Own the House

Another option for dealing with the home is to agree to co-ownership. This scenario is admittedly unusual unless one spouse is buying out the other spouse over time. There are some long-term disadvantages to co-owning the house:

Credit Reporting
When both parties own the property, even though only one party lives in the property, the mortgage will still be an open expense on both party’s credit reports. Such a large debt on your credit report can make it more difficult to obtain financing for other purchases.

Upkeep Costs
Just like the mortgage, the upkeep for the property is still the responsibility of both spouses. Tracking who pays for what, especially when not living in the house, can turn into a confusing hassle.

Taxes
Then there is the issue with regard to the interest deduction. When it tax season rolls around, even though both parties will be paying for the mortgage only one party will be able to claim the interest deduction.

Other Notable Risks
There are a few other risks in regards to co-owning a property after a divorce. In the event your spouse passes away, you will need to create a living will, which adds more cost. Second, if your spouse declares bankruptcy, you would have very little recourse to protect yourself.

As should be clear by now, there are many risks associated with co-ownership, but it is always an option. If you’re heading down this path, make sure to carefully consider all of the potential pitfalls.

Automobiles and other Vehicles

When dividing family cars the first step is identifying fair market value for each car using resources like Kelly Blue Book. This also means that if there is a difference in the Blue Book value, one spouse would be owed the difference.

For the sake of example, say a married couple owns two cars: a 2010 Ford Focus 4D Sedan and a 2011 Toyota Highlander SE Sport Utility. At the time of writing, the Ford is worth approximately $4,100 and the Toyota $17,200. In this case, whoever gets the Toyota, the higher value car, will owe about $11,000 in other assets to make up for the difference.

Household Items

Items like clothing, jewelry, and other personal effects are considered a household item. In most cases the owner of the items keeps them. If you are already living separately it is likely you have already separated these items. Other items included in this category include furniture, appliances, kitchen items, tools, electronics, etc.

Speaking honestly, the easiest way to save money when going through a divorce is to do this part without an attorney. It does not make sense, economically, to have two lawyers argue over a nightstand.

Do an audit of all of your household items, making a detailed list and then go through it line by line with your spouse. When couples have trouble communicating, going over the same list via e-mail may be the best option.

Dealing with Marital Debt

Joint debt or marital debt are typically items such as auto loans, mortgage(s) and credit cards which both parties are jointly responsible for. From a legal standpoint, this pertains to debts where both parties benefited from the asset or resource acquired from the loan during the marriage.

The best and quickest way to deal with joint or marital debt during a divorce is to pay off the obligations. This is typically accomplished with the proceeds from the sale of the family home or with other available assets. Not only is this strategy the easiest, but there are several other advantages: certainty, protection/improvement of your credit record, and a fresh start.

Other Options for Dealing with Marital Debt

There are two more options for dealing with marital debt: Continue to share the debt, or divide the debts with each party takes sole responsibility for their own debts.

Continued Sharing of Debt
The main advantage to this method is that no money is required upfront to pay off the debts immediately. However, there is a risk to your credit score should the other party decide or not be able to pay off their share.

Divide the Debt Equally
This method typically requires more work but brings with it the added security of complete control. Taking charge of your own debts means that there is no chance of being liable for decisions made by your spouse after you separate for the most part. We put that clause at the end because there is still some precedent of creditors going after both parties if one party defaults on payments. This is especially true of credit cards.

Overall the most common and significantly more advantageous route is paying off the debt. This may not be easy, but this path leaves both parties with a clean slate.

Dividing Retirement Accounts during a Divorce

Another item, which is often initially overlooked, is retirement accounts and benefits. When couples separate in Illinois the accumulated value of the retirement assets after marriage are considered marital property to be divided. Other than the house, this is likely the largest or second largest asset to divide.

There are three major types of retirement benefits that need to be considered when a divorce occurs: defined benefit (pension) plans, contribution (401K) plans, and social security benefits.

Dividing Pension Plans

A defined benefit plan or pension plan is something an employer offers an employee without the input of the employee. It is something an employee will get without any contribution. For the most part, defined benefit plans have disappeared unless you work for the government or you are an executive of a larger corporation.

The first step in dealing with a pension plan in a divorce is valuing it. This is not an easy task and typically requires hiring an actuary. The actuary will then define three items:

• the value of the monthly pension payments
• the percentage of the benefit to be considered a marital asset
  (for instance, if your spouse receives a pension, has been employed for 30 years and married for 10 of the thirty years, 33% of the payout should be considered a marital asset)
• define the amount of the pension the non-employee spouse is entitled

Decide How to Split the Retirement

After the value of the pension is determined a decision will need to be made on how to split the asset. There are two options:

Buyout the Non-Employee Spouse
The most common approach is buying out the non-employee spouse by the employed spouse forgoing other assets to give over. The advantage to this approach is getting to keep your entire pension benefit. However, the risk here is if the value of your pension decreases there is no way to recoup the lost amount.

Split the Asset at Retirement
Splitting the asset at retirement the other most common action taken to divide a pension in a divorce. This option is less common due to the added complexity. In cases where couples determine they want to divide the pension at retirement, additional paperwork and court orders are required. When couples go down this path they need to get a Qualified Illinois Domestic Relations Order or QI:DRO. This is a court order that will direct the retirement distribution to be split in the future based on an agreed upon percentage or judge order.

Splitting Contribution & 401k Plans

The majority of married couples will need to split a 401k, either one joint 401k plan or multiple 401k plans, but luckily splitting a 401k is much easier than a pension. The simplicity comes from the fact that a 401k often has a defined worth, but determining the value may still require an actuary.

After the value of the contribution plan is determined, agreeing on the method of splitting the asset is the next step. The same options for splitting pension plan exist when splitting contribution plans. The preferred method is splitting the asset now, into separate 401k accounts.

In some cases separating the asset will require a QILDRO, as described above before the 401k will roll over. Other times, a copy of the divorce paperwork is all that is required. This is situational based on the 401k plans.

Dealing with Social Security Benefits

Social Security benefits are generally not considered for division by the court in Illinois.

Securities & Investments

Under the new law, all stocks, bonds, mutual funds, and commodity accounts are marital property unless proven otherwise. That means they will need to be divided as well, but this can be difficult as the value of these assets can significantly fluctuate.

The new law tries its best to compensate for this difficulty by considering the vesting schedule of the stock, whether it was granted for “past present or future efforts” at a job, and the length of time between the grant of the option to when it can be exercised. This could mean a judgment under the law works on a “wait and see” model – also known as “deferred distribution”, meaning the option will be divided up later down the road when it’s exercised.

This might mean that a stock is determined to have “no value” until the time it’s exercised, in which case a prorated amount would be paid out to the other spouse.

Deferred Compensation

Contrary to popular belief, stock options are not the only form of deferred compensation. Other such examples include performance-based compensation, bonuses, as well as paid time off and vacation. These forms of compensation should be considered a marital asset when it comes to dividing property considering they were (most likely) awarded for work done during the marriage.

With regard to paid time off and vacation time, courts will only see these types of deferred compensation as marital property if the employee is likely to receive cash in lieu of using the time off. If the company will not pay the employee cash in exchange for the unused time off it should not be considered a marital asset.

 Cash & Cash Deposit Accounts

Just like deferred compensation cash and cash deposit accounts (checking and saving accounts) should be split. This includes cash accounts that are only in one spouse’s name.