When dividing property and assets during a divorce, you and your spouse may disagree on certain issues, such as which assets are marital property, who gets to keep the marital home, and how much a family business is worth. Property division is often very complex – especially in high-net-worth cases – therefore requiring the involvement of an experienced family lawyer as well as other financial professionals. In this podcast, DuPage County divorce lawyer Chuck Roberts discusses common concerns couples have regarding the division of marital property in Illinois.
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Hosted by: Diana Shepherd, Editorial Director, Divorce Magazine
Guest speaker: Chuck Roberts, Divorce Lawyer
Chuck Roberts is a family and divorce lawyer in DuPage County. With 33 years of experience handling every aspect of high-stakes divorce and custody litigation, Chuck has gained a reputation in the community for his ability to handle the most complex of cases. His firm – Momkus McCluskey Roberts, LLC – offers traditional and alternative forms of dispute resolution, including litigation, arbitration, mediation, and collaborative law. To learn more about Chuck and his firm, visit www.momlaw.com.
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Read the Transcript of this Podcast Below.
Who decides what is marital and what is separate property, and what if one spouse doesn’t agree?
Chuck Roberts: The determination, ultimately, if the parties are unable to work it out, is going to be made by the court. Many times there are single items of property that we are unable to reach an agreement on. And so, rather than have to put the whole marital estate and non-marital estate before the court, it may be limited to one or two items. Sometimes that situation can arise and situations where perhaps someone has inherited some funds, and those inherited moneys are commingled with other joint bank accounts, or monies used to improve property that belongs to one spouse before the marriage.
There are different issues that arise, but the ultimate determination here has to be made by the judge. We find that the vast majority of those items can be worked out before we ever get to the point of being in court, but if we’re unable to do that, that’s what the judge is there for.
In Illinois, are assets typically split 50-50 in divorce? How does that work?
Chuck Roberts: The 50-50 is certainly a starting point, but there are a number of factors that the court is going to ultimately have to consider in dividing the marital estate. The ultimate division of marital property is to be done on an equitable basis. If we take 50-50 as a starting point, there are then issues that the court has to take into account in making its determination in the allocation of that property.
If only one spouse worked outside the home during marriage, are contributions to that spouse’s retirement account considered marital or separate property?
Chuck Roberts: The law’s really clear that retirement accounts, pension plans, and other things employment related that are accumulated during marriage are marital property. It doesn’t really matter whose name the retirement benefit is held in. If it was accumulated during the marriage, it’s going to be divided by the court as marital property. If you have a more traditional situation where perhaps in this case a wife worked and the husband stayed at home or the husband worked and the wife stayed at home, it doesn’t matter that the pension plan is in the name of one party or the other. The court is going to divide it.
Does a premarital or prenuptial agreement override normal property division rules?
Chuck Roberts: It certainly can, but the factors that the court takes into account in dividing the marital estate really don’t apply if the parties have agreed before their marriage how that estate is to be divided in the event something goes wrong with the relationship. We see all different kinds of provisions that are agreed to in that premarital agreement context. It’s possible for the parties to agree that retirement assets that are accumulated during the marriage are going to be left in the name of the party who holds them.
It’s sometimes possible that non-marital property that’s improved with marital funds doesn’t convert to marital property. There’s all types of provisions, and parties are freely able to circumvent the provisions of the Illinois statutes in a premarital agreement as long as certain tasks are met. One of the principle tasks that the court looks at is that both parties need to be represented by an attorney when the agreement is entered into and there needs to be a full disclosure of the income, assets, taxes, and expenses of each side in that premarital context.
If spouses can’t decide who gets to keep the marital home after divorce, what factors will the judge take into consideration when determining this?
Chuck Roberts: There are a couple of things that the court is going to take into account. One of the issues that the judge is going to want to be appraised of is, what’s the situation with the children of the marriage? Are there children, and if so, are they of school age? How many more years do they have to go before they graduate from high school? Are there particular needs that the kids have that are met by the school district that they presently live in? Is it important and in the best interest of the children to keep them in the existing school district, or is it a situation where the children might be able to easily relocate and not face any particular adverse consequences from a relocation?
The court wants to know about the liquidity of the estate. Is there enough money in the estate to pay the spouse who’s going to give up their rights in the house for their interest? Does the spouse who might take the house have the ability to refinance any debt that’s secured by the property? It wouldn’t necessarily be fair to the party who’s giving up their interest in the house if they’re going to be liable on the mortgage for many years to come. It might mean that they’re unable to buy a new residence. There are a lot of factors that the court has to consider in its determination of what to do with the house, if it’s otherwise unable to make an appropriate determination and make a determination that’s fair to both parties and the children. Sometimes the court orders that the home be sold. We see all different kinds of outcomes on that issue. It’s really fact-specific and case determinative.
Where there are multiple properties – some owned by one spouse before the marriage, some income properties, and some family residences and vacation homes, for example – how will these be divided upon divorce? Are they all subject to division, or are some exempt?
Chuck Roberts: It depends on whether the property was owned prior to the marriage or, for example, whether it was acquired by gift. Property that’s owned before the marriage is often classified as non-marital. That’s set aside as the separate property of the spouse who owned it prior to the marriage, and it becomes their property, free of any claim by the spouse that they’re in the process of divorcing from. For example, we’ll sometimes see a case where the wife owns a house from an earlier marriage and during this marriage, mortgage payments are made from the marital estate to satisfy an existing debt on the wife’s non-marital residence. Those cases can be fairly complicated. There’s going to be a claim by the marital estate for reimbursement for the amount that was paid on the mortgage on the wife’s separate house. How much is that reimbursement? Is it just going to be just the principal reduction on the debt? Is it going to be the interest that was paid? Is it going to be the property taxes that were paid to protect the property? There are all different kinds of considerations that go into that.
If there are multiple properties, it’s often the outcome that they’ll be divided on an equitable basis between the parties. Of particular interest to the court is if a property is an income-producing property. Can that help with the cash-flow needs of a spouse who is going to be receiving maintenance? Is that spouse in a position to manage, for example, a rental property? There are many different considerations that go into it, and all of those facts are presented to the court to enable it to make its determination as to how those multiple properties are divided between the divorcing parties.
If one spouse takes money from a gift or inheritance and uses it to renovate the family home, buy a vacation property or take the family on a dream vacation, can they still claim that money as separate property during divorce?
Chuck Roberts: It really depends on what the money was used for. If a certain amount of inherited money was put into renovating the marital residence and that process enhanced the value of the marital residence, then there’s going to be a claim to get some of that money back by the spouse who contributed it. We look at that a couple of different ways. One way to analyze it is, how much did the investment enhance the value of the family home? How much was the actual contribution? Sometimes the actual contribution exceeds the increase in value, so there may be a disagreement as to those two items.
If, on the other hand, the money is used to take a dream vacation, that really hasn’t resulted in an asset that the court has the ability to value or to apportion between the parties. That would be more in the nature of a gift to the marriage, and generally speaking, if someone uses some inherited money to go on a dream vacation, that’s on their own dime and those funds are not going to be the subject of a return of the non-marital estate.
Does fault ever play a role in asset division during divorce?
Chuck Roberts: No, it really doesn’t. Illinois has made very clear, for many decades now, that fault truly has absolutely nothing to do with the division of assets between divorcing parties. Right in the statute it says that fault is not a factor to be considered by the court. If you think about it, that kind of makes sense. If we were really going to try every case to determine who was at fault and who caused the breakdown and whether or not one spouse treated the other spouse fairly or appropriately during the marriage, every divorce trial could go on for months. We could spend tens of thousands of dollars in the process of just trying to decide who’s the most at fault. It’s not a good use of the resources of parties that are undergoing this process, and the legislature had the wisdom to say decades ago that, we’re just not going to get into that; in the event of a divorce, they’ve given us the factors to be considered in asset division, and clearly fault does not play a role in that.
How common is financial misbehavior during high-net-worth divorce cases – from hiding money in offshore accounts to stealing marital assets to cover the gambling debts, for instance?
Chuck Roberts: We see that kind of misbehavior or selfish behavior with some frequency in the high-net-worth arena. That’s why my office has a group of forensic accountants and fraud investigators that are available to us on every case as we need them to work with us to uncover efforts that are made perhaps by a spouse to hide assets, and just as importantly to locate assets which may have been hidden. Sometimes that kind of financial misbehavior is illegal. For example, setting up an offshore presence and not revealing it on your federal income tax return can constitute tax fraud. It can get people into all kinds of problems. It may even have consequences for the innocent spouse, the spouse who wasn’t involved in setting up some kind of an offshore presence. Those are issues that need to be dealt with discretely, but it needs to be dealt with thoroughly, because if they’re not, then we certainly don’t want to be in a situation where we’ve rewarded that kind of inappropriate behavior by not taking affirmative, positive action against it.
There are worse, egregious methods of disguising assets, which we’re also accustomed to identifying and dealing with. I’m very often skeptical when I learn that the party on the other side of a divorce case has been engaged in what sometimes is called “divorce planning” for a long period of time before the other spouse learns of the divorce. It sometimes is a signal that maybe some money has been inappropriately moved, or inappropriately vested in a family member or a parent. We take a close look at those kinds of situations, because many times they signal that something inappropriate has happened before we even come to the case.
In a divorce, there’s often a breakdown of trust between the spouses and this idea about hiding assets. I’m guessing a lot of spouses think that the other side is somehow hiding assets to try and reduce the amount of marital assets that are available for division. How does someone typically hide assets and how do you find them?
Chuck Roberts: We see that happen frequently in a couple of different ways. A current trend that we’ve seen is one spouse trying to prepay college expenses. The law in Illinois apportions those expenses based on a number of different factors, not the least of which is the financial resources of the parties. If, for example, someone pays $50,000 in advance for college, that $50,000 is taken out of the marital estate. It’s no longer subject to division by the Court. It may, if it’s going to be a 50-50 split of the estate – that means that both spouses have now effectively paid half of college. Wherein a situation where the parties’ resources are not equal, then maybe one spouse doesn’t have an obligation to pay half. That’s a form of hiding assets.
We see it frequently in the context of closely held business interest. Sometimes, money is moved around in the family business for expense reimbursement, for inappropriate expenses, for investments that are placed in other names rather the name of the business enterprise that may be operated by the other spouse. We see it in the form of retained earnings that are accumulated pre-divorce in an effort to shield that money from division with the soon-to-be former spouse. There are a lot of different techniques that have been used over the years. We’re well versed in what those techniques are. We know how to find them. We know how to deal with them, and while they may slow the process down or make it more cumbersome, those are obstacles that certainly we routinely overcome in our practice here.