Chicago Family Law Blog

Chicago Family Law Blog today received honors as a Top Divorce/Family Law Blog. It is with great pleasure and humility that we are happy to have achieved this honor for the 2009-2010 year and hope that others can appreciate our efforts to bring to the public the news and topics that concern their rights and their families. You can read the story and see the other top bloggers at http://www.attorney.org/law-blogs.html

 

 

General Types of Domestic Adoption
Adoption can occur domestically or internationally. Each state has its own laws governing domestic adoptions. There are several different types of domestic adoption including:

• Agency adoption
• Independent adoption
• Identified adoption
• Infant or foster care adoption
• Stepparent adoption
• Domestic partner adoption
• Relative (kinship) adoption

Children born out of wedlock outside the United States to one citizen parent and one noncitizen parent face different requirements for acquiring U.S. citizenship, depending on the gender of the citizen parent. The Immigration and Nationality Act (INA) provides that the child must meet additional requirements to obtain U.S. citizenship when their father (but not their mother), is a citizen. The differential treatment depending on the gender of the unmarried parent citizen in determining the child's citizenship was held to be constitutional by the U.S. Supreme Court in 2001.

 

In general, individuals must possess the requisite "legal capacity" to enter into a valid and binding contract. Contract law regards such legal capacity as the capability of understanding the nature and consequences of the transaction. In most states, minors do not have capacity to enter into contracts until they reach the age of majority, usually 18 years of age or older. However, this does not mean that minors may not make contracts at all. Rather, the law is designed to protect minors by discouraging other parties from entering into contracts with them. Accordingly, contracts with minors may or may not be binding, depending on the circumstances.



Incapacity of Minors

In order to create an enforceable contract, both parties must have maturity and capacity. If one of those elements is lacking from the bargaining process, one consequence could be the invalidation of the entire contract. Minors, for example, do not possess the legal capacity to enter into contracts with other parties. This is generally because minors are not thought to possess the ability to perceive and process all of the necessary information to make an adequately rational decision. However, this does not mean that minors cannot make contracts, it just means that courts may not enforce the contracts that minors enter into.

Divorce mediation, an alternative to traditional divorce proceedings, is a means to resolve the complex issues of a divorce. Mediation involves the services of a trained and neutral person who works with the parties to facilitate the settlement of disputed issues. Such person is known as the "mediator."

In traditional divorce proceedings, the judge ultimately determines child support, child custody, spousal support and property issues. Mediation, on the other hand, allows couples to control the outcome of their divorce. Additionally, the mediation process is non-adversarial in nature, which is especially important for couples with children, as like-minded parents can establish parenting plans with minimum disruption to the lives of their children.

Many marital settlement agreements require one party to maintain a life insurance policy on his or her life naming the former spouse as the primary beneficiary. While this provides some financial security for the former spouse, it may also result in an adverse unintended tax consequence for the insured spouse's estate.

For example, if the ex-husband is required to maintain a $1 million life insurance policy on his life, naming his ex-wife as beneficiary, on the ex-husband's death his ex-wife will receive the $1 million face amount of the policy directly from the life insurance company. If the ex-husband was the owner of the life insurance policy and paid the premiums on the policy, the IRS will include the $1 million face amount of the policy in the ex-husband's estate for the purposes of calculating the amount of estate tax owed by the ex-husband's estate. If the ex-husband died in 2007 with a taxable estate of $3 million plus the $1 million in life insurance, the inclusion of the life insurance proceeds would result in a $450,000 increase in the estate tax owed.

The foregoing result may be avoided through the use of a tax-sensitive marital settlement agreement and an irrevocable life insurance trust. The ex-husband may still be required to maintain a $1 million life insurance policy with his ex-wife as beneficiary, but the life insurance policy would be owned by the trustee of the irrevocable life insurance trust. The ex-husband may transfer money to the trust for the payment of the premiums. Since the payments are required pursuant to a court order, the payments are not considered taxable gifts. Since the irrevocable life insurance trust, not the ex-husband, is the owner of the policy, the $1 million life insurance policy will not be included in the ex-husband's estate for the purpose of calculating the estate tax owed.

Prior to filing for divorce, various federal tax considerations should be reviewed due to their potentially profound implications. Among the major issues commonly covered in a divorce decree or agreement are: alimony, sometimes referred to as "spousal" or "separate maintenance" support; division of property; and child support. Each has its own tax treatment and implications.

Division of Property

Most divorces involve a division of the property owned by the couple. Such a division of property is not usually a taxable event, i.e., neither owes taxes nor gets a deduction from income because he or she receives certain property as a result of the divorce.

There are, however, tax implications following divorce that affect future taxes. More specifically, selling personal and real property in the future may require spouses who received such property (pursuant to a divorce) to pay taxes in connection to that property.

Personal and real property have a "basis" for federal tax purposes. The basis is usually the purchase price of the property. When the property is sold later, the amount by which the sales price exceeds the basis is called "capital gain." Capital gain is usually taxable at special rates. Thus, when property distributed pursuant to a divorce decree is subsequently sold by the receiving spouse, the receiving spouse may be required to pay taxes on the proceeds of the sale.

For example, in a divorce, the wife may receive the family home while the husband might receive stock or other investments equal in value to the house. If the house has a lower basis than the stock, when both are sold, the husband could end up with significantly more money, because he owes less capital gains tax.

On the other hand, under tax law applicable at the beginning of 2004, the first $250,000 (for individuals) or $500,000 (for couples) of the taxable gain on the sale of a qualifying personal residence is exempt from tax. In light of these tax issues, selling the house before the divorce, then dividing the proceeds, might make more sense.

It has been estimated that more than one half of all first marriages end in divorce; the number of failed marriages is even higher for second marriages. One major issue in most divorces is the division of property. Commonly, a large portion of the marital assets consist of rights in or payments from one or more pension plans.

Pension Plans and ERISA
Divorce and division of property are generally controlled by state law. However, when state law contradicts or is inconsistent with federal law, the federal law "preempts" the state law; federal law controls the outcome. In 1984, Congress passed the Employee Retirement Income Security Act (ERISA), which governs most private pension plans (government and some other plans are not covered).

Federal law prohibits the assignment of pension benefits in ERISA plans. This appeared to include transfers to a spouse during divorce, regardless of a state court decision on division. To remedy this, the Retirement Equity Act of 1984 (REA) established an exception to the rule through use of a "QDRO."