What happens to assets in a divorce?

WHAT HAPPENS TO ASSETS IN A DIVORCE?

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Property division is one of the most divisive times in a divorce because no one gets exactly what they want. I encourage clients to discuss this issue with their spouse and determine a fair division of assets and debts. The first thing I do when a client hires me is to quickly determine what the parties’ assets and debts really are and put a value to all of them. We then create a “marital balance sheet” that lists all assets and debts, their values, in whose name the assets and debts are held. We can then start to negotiate the division.

Marital vs non-marital property

It is important for you to understand the terms “non-marital property” and “marital property.” If the property is deemed to be your non-marital property, it is not subject to division; it is yours. Generally, non-marital property is property acquired prior to the marriage or received by inheritance during the marriage and has been maintained in your name only. Marital property is property earned or acquired during the marriage – regardless of whose name the asset is held. It must be divided in a divorce. Non-marital property or inheritance money can become marital property if has been mixed or “commingled” with marital property by transferring it into a marital asset or retitling in your spouse’s name or your joint names. So for example, let’s say you have a house that you bought prior to the marriage. Then after the marriage, you added your spouse’s name to the title. By doing so, the house is now marital property subject to division in a divorce.

The process of classifying assets is not always simple. Be assured that I can explain your particular situation to you in better detail when I know all the facts.

How is the marital property divided?

Illinois is an “equitable distribution” state, which means the court does not always divide marital property evenly. Rather than splitting everything 50/50, the Court looks at each party’s current situation and future needs. The Court uses the factors listed below when dividing marital property.

Each Party's Contribution – The amount they added to the marital estate whether that be financially or through homemaking.
Dissipation by Each Party – Dissipation is the hiding or wasting of marital assets.
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 (includes ensuring that the parent responsible for the children can provide housing).

Prior Marriages – If either party already pays or receives maintenance or child support.
Agreements – Prenuptial and postnuptial agreements.
Status – Each party’s age, health, station, occupation, income, skills, employability, estate, liabilities, and needs.
Parental Responsibilities – The time and money required to continue to raise any children.
Maintenance – The impact of maintenance or property given to a party in place of maintenance.
Earning Potential – How much each party will likely earn and what events that led to potential.
Taxes – The tax consequences of each asset.

For purposes of property division, your contribution as a homemaker or caretaker of the children is valued equally to the contributions of the main breadwinner. The law recognizes that the breadwinner relies on the at-home contributions of a spouse to go out and make a living.

Who gets the home?

Many times this is one of the most contentious issues in a divorce. The home can be the most valuable asset and it has emotional value to not only the spouses, but the children. The Court generally likes to keep the children in the home if possible. So, for example, if the father is going to be the primary residential parent, the father would get the house so the children can continue to live there with him. He would then have to buy out the mother’s share in the equity. Sometimes, neither party can afford the home by themselves, so the house will be sold and the proceeds divided. If there is a dispute, the Court will generally order the house sold.

Retirement accounts

A lot of people have a hard time understanding that retirement accounts and pensions are marital assets. If they are earned during the marriage, they are subject to division despite who earned them. Courts will generally allow you to keep the amount of retirement you acquired prior to the marriage if you can prove what that value was. However, just because one party contributed to a 401(k) or earned a pension during the marriage, that does not mean the other spouse is not entitled to a portion of it.

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Investments

Similar to retirement accounts, even if only one party is responsible for the investments, they are marital assets.

Who gets the furniture and personal property?

The parties are entitled to their personal effects (clothing, jewelry, golf clubs, etc.) They are also entitled to their premarital property (acquired before the marriage) and any gifts received before or during the marriage. As to the remaining property and furniture, the courts do not like to get involved in the process of dividing it up. The value of the property, for purposes of divorce, is what you could sell it for on Craig’s List or a garage sale, so a couch for which you paid $2,500 may only be worth $200 to a divorce judge. If the furniture or property has intrinsic value such as antiques, collectibles etc., you may want to have it valued to properly have it factored in the division of property.

I advise my clients to create a list of property they want and try to negotiate directly with their spouse. Using lawyers to do this is usually too expensive.

Debt

Debt can be tricky, especially when the debt is one party’s. If it was all incurred before the marriage, it usually stays with that one person. For instance, student loans normally are assigned to the spouse who took them out. But, if the debt was incurred during the marriage, for family purposes, the Court will usually require both spouses to contribute.

What if you believe your spouse has hidden assets?

Every party to an Illinois divorce must list all of their assets on their financial affidavit which must be shared with the other party. The court requires both parties to complete financial affidavits that list all income, assets, expenses, and debts. Financial Affidavit | Office of the Illinois Courts The affidavit is signed under penalties of perjury. If someone lies, omits, or even forgets to put something on their financial affidavit there can be grave consequences. The Court can impose financial penalties, including the cost of the other parties’ attorney’s fees and costs. Failure to be forthcoming and honest in disclosing accurate information can lead the judge to question that parties’ credibility when it comes to all issues in the divorce action.

If you suspect your spouse has been withdrawing funds from bank accounts, your lawyer can issue subpoenas to the banks to identify the withdrawals. If there are such withdrawals and your spouse cannot explain that the funds were used for family-benefiting expenditures, you will be entitled to at least 50% of such funds. There is no need to find the funds. You merely need to see that the money was transferred without adequate explanation. The process of withdrawing or wasting marital assets is called dissipation. I recently had a case where, through subpoena, we were able to determine that the husband withdrew over $500,000 from various accounts and gambled it away. We were able to get an order requiring the husband to repay half of such dissipation to my client.

If one spouse owns a business, we look to see if they are writing off expenses that should really be deemed to be income. Many people write off cars, cell phones, house mortgages, meals, and vacations. While the IRS may not question these write-offs, the divorce court judge will likely add them back into marital income calculation for purposes of support. Finally, if one of the parties has a cash business, it is possible to look at the party’s lifestyle to determine whether all income is being accounted for. In cases where there are substantial funds involved, we use experienced forensic accountants to trace withdrawals and to perform analyses to determine the true income and where marital funds are going.