Most people are aware that a surviving spouse is usually entitled to inherit all or a large portion of the estate of a deceased spouse. Fewer understand the effect on estates if one spouse dies during a legal separation or after a divorce. After a divorce, many neglect to change wills that specify bequests to a former spouse or their beneficiary designations for life insurance and retirement accounts. State law may dictate what will happen in such situations. However, provisions and procedures can vary substantially from state to state. Additionally, federal law may be implicated, especially when pension and retirement accounts are involved.

Intestate Succession and Divorce

When a person dies without a will (“intestate”), state law determines how and among whom the estate will be divided. Based on a perception that estates passing under will generally name the surviving spouse as the primary beneficiary, intestate succession laws reflect this and allocate all or a large portion of the estate to the surviving spouse. In most states, however, after and sometimes even during a divorce, spousal status is lost. Under New York law, the husband or wife is not considered a surviving spouse for purposes of intestate succession where a final divorce decree exists; the marriage was void as being incestuous; there is a decree or judgment of separation, or the spouse abandoned or failed in a duty to support the decedent.

In California, “surviving spouse” does not include those whose marriage has been annulled or dissolved; who have obtained or consented to a divorce then married another; or who were parties to a proceeding terminating marital property rights. Couples who, after a divorce, remarry their former spouse may still be considered spouses in California and other states if they are still married at the time one spouse dies. In 1969, a Uniform Probate Code (UPC) was promulgated and has since been adopted by approximately one-third of the states. The provisions of the UPC similarly eliminate as spouses for intestacy purposes those whose marriage has been annulled or terminated, unless they have remarried their former spouse.

In some states, while a divorce is pending, couples remain spouses for the purposes of intestate succession. As a result, if one spouse dies without a will before the divorce is final, the surviving spouse may inherit. Court cases have affirmed this, but also affirm that, after the final divorce decree, the former spouse may no longer inherit under intestacy laws.

Effect of Divorce on Wills and Other Death Benefits

In some states, a divorce or annulment automatically invalidates will provisions leaving property to the former spouse and/or designating the former spouse to act as executor, trustee, or in other capacities. Divorce may also deprive the divorced spouse of the right to a statutory, elective share of the decedent’s estate (under state laws, a spouse may be entitled to a portion of a spouse’s estate regardless of being omitted from a will).

In a New Jersey Supreme Court case, a husband died during the pendency of a divorce. The court ruled that the wife was no longer entitled to a division of property by the divorce court, because of the death, but also could not claim an elective share, because of the separation; the husband left his entire estate to children from a prior marriage. The lower court was, however, allowed to make an equitable distribution of marital property.

Under the UPC, all provisions in a will favoring a divorced spouse are revoked “as though the divorced spouse had died at the time of the divorce.” The UPC also revokes all “revocable” designations, such as those described above as executor, etc., and may sever the joint tenancy and community property interests. Some state laws further automatically invalidate bequests to and designations of any relative of the divorced spouse (except for children with the decedent). For example, bequests to children of the divorced spouse from a former marriage might automatically be eliminated or invalidated, as might designation of the divorced person’s brother as executor or trustee.

This automatic revocation has further been applied in some states to beneficiary designations in certain retirement accounts and/or insurance policies and to bequests and appointments made in trusts. In other states, however, the trust must be amended to change or eliminate the bequests and appointments. However, if the decedent amended the will or other document after the divorce or otherwise reaffirmed an intent to continue to benefit the divorced spouse, that may counteract the automatic revocation.

The Egelhoff Case

As noted above, state laws sometimes void beneficiary designations of divorced spouses for life insurance and/or retirement accounts. A 2001 decision by the U.S. Supreme Court in Egelhoff v. Egelhoff considered the validity of such a Washington state law. While they were married, David Egelhoff designated his wife, Donna Rae, as beneficiary of the life insurance and retirement account he held through Boeing Company. The Egelhoff’s subsequently divorced and David was allocated the retirement plan and life insurance in the property division. David died just two months later in a car accident, never having changed the beneficiary designations. Two of David’s children by a former marriage sued to recover these assets for David’s estate.

The trial court held that the insurance and retirement account were controlled by the 1974 federal “Employment Retirement Income Security Act” (ERISA), which preempted (took precedence over) state law on the subject. ERISA mandates distributions according to the plan rules, which, in this case, had to be made only to properly designated beneficiaries under the plan. As a result, Donna was awarded the account and insurance. A court of appeals and the Washington Supreme Court reversed, holding ERISA did not preempt the state law that invalidated beneficiary designations after the divorce. The U.S. Supreme Court disagreed, finding that ERISA specifically preempted Washington and other similar state laws. The Court stated that the preemption was necessary for, among other things, uniformity in the treatment of retirement accounts throughout the U.S. The Court reasoned that administrators could not be forced to make decisions based on inconsistent state laws.

Upon divorce, all debts, property and assets must be divided between the spouses according to applicable percentages set by state law. In equitable distribution states, the court divides marital property (or property acquired during the marriage) according to what is “equitable” or “fair.” In community property states, the court will divide marital property in equal shares, or fifty-fifty. In general, retirement benefits are classified as “property” and are thus subject to division in the event of a divorce.

Defined Benefit Plans

Generally, a “defined benefit plan” is a retirement plan that will provide monthly income benefits which become payable upon retirement. Defined benefit plans use a formula to calculate the retirement allowance based on certain set factors such as age, years of service and salary. As such, these plans are more restrictive. Defined benefit plans are designed to allow for a member to receive their retirement benefits for the rest of their lifetime. They can be in the form of government pensions, union pensions or company pensions.

Defined Contribution Plans

A “defined contribution plan” is a retirement plan that is based on the funds available in the individual’s account. In general, a member makes contributions to their retirement fund, which is sometimes matched by their employer. The return on their investment of contributions will determine the final size of their fund. These plans are more portable than defined benefit plans since employees can rollover their contribution funds into a new employer’s retirement plan. Examples of defined contribution plans include:

  • 401Ks
  • 403Bs
  • IRAs (“Individual Retirement Accounts”); SEP-IRAs; Educational IRAs; Roth IRAs
  • Keoghs
  • Deferred compensations plans
  • Profit sharing plans
  • Stock savings plans

State Law Determines How Assets Are Distributed

State law governs the distribution of assets upon divorce. “Marital property” is generally defined as any property that has been acquired by either or both spouses during their marriage. “Separate property” is considered to be the sole property of one spouse and remains undivided on divorce. Equitable distribution states divide marital property “equitably” (fairly) and consider factors such as how long the marriage has lasted, the earnings of each spouse, what each spouse has contributed to the acquired asset.

In contrast, based on the presumption that both spouses have contributed equally to the marriage, community property states divide marital property “equally” (or fifty-fifty). There are only nine community property states including Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin.

Retirement Benefits are Generally Considered to be “Marital Property”

Retirement benefits or pension plans of either spouse are considered to be marital property, to the extent that they are earned or contributed to during the marriage. Accordingly, retirement plans and pensions must be included with the rest of the marital property that is to be divided upon divorce. Typically, the benefits are valued and then apportioned between marital and separate property by the court in a Domestic Relations Order (DRO) or a Qualified Domestic Relations Order (QDRO). However, any contributions made prior to the marriage or after divorce are usually considered to be separate property of the contributing spouse.

Retirement Plans Not Included in Marital Property

Some retirement benefits and pensions may not be included with the other marital property that is subject to division upon divorce. Since some retirement plans are controlled by federal law, states are thereby preempted or precluded from applying their marital property laws to those assets. Examples of retirement benefits which are not included as distributable marital property are as follows:

  • Social Security payments
  • Military injury compensation
  • Railroad worker’ retirement benefits
  • Workers’ compensation disability awards

Methods for Distribution

Where the retirement benefits are considered to be marital property, a court might use the “deferred distribution” or the “immediate offset” approach to divide the assets upon divorce. Under the deferred distribution approach, the court typically retains its jurisdiction over the divorce and waits to distribute the benefits to the parties when they are actually paid to the pensioner.

In contrast, the immediate offset approach instantly awards an offsetting amount of marital property to the non-employee spouse, equivalent to their share of the plan, and the entire plan itself is awarded to the employee spouse. This is done by calculating the present value of the pension and determining how much was earned during marriage.

Domestic Relations Order/Qualified Domestic Relations Order

In order for one spouse to receive a share of the other spouse’s benefits on divorce, a court must issue a DRO or QDRO to apportion the pension. These orders typically provide specific language as to how retirement benefits are to be distributed between marital or separate property, and thus between the spouses. DROs and QDROs outline how the funds are transferred from the spouse holding the retirement plan, to the spouse to receive a share of the plan, and are included in the Final Judgment finalizing the divorce.

Work with a Chicagoland Attorney and Mediator

Getting a Divorce is a difficult time of life, choosing the right attorney should not be! For over 47 years Alan Pearlman, Ltd. has been serving Chicagoland and the surrounding Suburbs in obtaining solutions to these difficult matters. Contact my office at 847-205-4383 for your free 1/2 hour telephone consultation and see how we can be of service to you.

After surviving the holidays, many people are preparing to serve their spouse with divorce papers — and, as one expert notes, that can be a good thing for some households.

January typically has a surge in divorce filings as people look for a fresh start on their life. Divorce filings surge in January as people decide to start their New Year with a clean slate, helped by a stressful holiday period and, perhaps, even more, stressful in-laws, experts say, with family lawyers reporting a rise of nearly one-third in business in the New Year.

One in five couples plan to divorce after the holidays, according to one survey of 2,000 spouses by legal firm Irwin Mitchell.

Now, one U.S. Census Bureau expert is highlighting research on the benefits of well-designed laws for divorce, a proceeding that’s often associated with nasty legal fights and emotional wreckage. Laws that make divorce “easier and quicker,” can bring “unexpected positive ripple effects,” said Misty Heggeness, a principal economist in the Census’ Research and Methodology Directorate.

She pointed to past research that showed:

• When either side can file for a “no-fault” divorce, women increase “their economic clout in a marriage by bringing income that they control into the home,” Heggeness noted. In states with “no-fault” divorces, couples are 8% more likely to both work full-time outside the home, and it’s 5% more likely that the wife is in the labor force, a University of Pennsylvania researcher previously noted.

Although varying state rules apply, people divorcing in all 50 states no longer need to offer legal reasons why they’re splitting up. They can do it unilaterally through so-called “no-fault” provision. In 2010, New York became the last state to add “no-fault” clauses.

In states with ‘no fault’ divorces, couples are 8% more likely to both work full-time outside the home, and it’s 5% more likely that the wife is in the labor force.

• When laws give the homemaker — typically a woman — strong post-divorce property rights, it can actually boost the number of marriages, a 2016 paper determined.

• When laws allow one spouse to unilaterally file for divorce, there is an approximate 10% drop in women murdered by their partners, and 8% to 16% drop in female suicides, and a 30% drop in domestic violence “committed by and against both men and women.” The capacity to file for divorce unilaterally gives many woman an escape hatch from a dangerous situation, the researchers said in 2006 paper.

To be sure, divorces can be an agonizing process that can drain spouses’ money and emotions. They can ignite fights over child custody and create acrimony on the division of money and property. Heggeness also acknowledged the emotional and financial costs of divorce, but like other experts, she found big picture bright spots when divorces were speedy and gave leverage to the homemaker.

Others, however, say divorce is like going through a terrible recession. Because people are marrying later, they’ve often accumulated significant assets by the time they wed, making a prenuptial agreement more desirable. What’s more, they may want to keep the family business out of reach of a future spouse in the event of a divorce. Rising property prices may also encourage people to consider signing a prenuptial agreement.

Others say divorce is like going through a terrible recession. People are marrying later and have often accumulated significant assets by the time they wed.

Marriages, themselves, are an investment. Aside from the thousands of dollars, a couple may have spent on a wedding, nurturing the relationship at the core of a marriage typically involves a great deal of time and money. Engaging in an extramarital affair is like throwing that investment away. “It’s a waste of money if you’re not willing to make your partner the priority in your life,” said Tom Gagliano, author of “The Problem Was Me” and life coach.

What’s more, the average divorce’s price tag is $15,000 in legal fees, according to legal information site

Heggeness looked at the consequences of Chile’s 2004 legalization of divorce, tracing a link between divorce laws and increased school enrollment. The law required the primary breadwinner, usually the husband, to pay the equivalent of lost wages in a lump sum or installment to the spouse staying home, typically the wife.

Because both sides could file for divorce, Heggeness said that increased spouses’ “bargaining power “ to push for issues that mattered to them, like providing a good education for their children.

“Access to divorce for parents had a positive effect on children’s education, interpreted as increasing women’s bargaining power within married-couple families,” she said in her study, also noting the child’s age also was an important factor in school enrollment. (Other studies say children of divorce are less likely to earn a college degree.)

Speed mattered too. Heggeness looked at the administrative wait times to finalize a divorce between the varying Chilean courts. She weighed the Chilean families in areas with a one-year divorce wait period that had a 6% increase in high school enrollment. There was a 10% increase in areas without a waiting period.

Heggeness’s look at divorce’s potential upside comes while research last month showed 2018 divorce rates reached a 40-year low.

There were 15.7 divorces for every 1,000 married women in 2018, according to Bowling Green State University’s National Center for Family & Marriage Research. That’s down from a high point in 1979 when there were almost 23 divorces for every 1,000 marriages, the researchers said.

Overall rates are declining, but an increasing number of older Americans are splitting up. In 2018, Americans over 65 had a higher divorce rate, 6.6, than their marriage rate, 3.3, the Bowling Green numbers showed. Increased longevity and a refusal to be unhappy anymore are some of the reasons for the “gray divorce” surge, some observers say.

Work with a Chicagoland Attorney and Mediator

Getting a Divorce is a difficult time of life, choosing the right attorney should not be! For over 4 decades Alan Pearlman, Ltd. has been serving Chicagoland and the surrounding Suburbs in obtaining solutions to these difficult matters. Contact my office at 847-205-4383 for your free 1/2 hour telephone consultation and see how we can be of service to you.

Illinois has recently enacted one of the most far-reaching cannabis legalization laws of any state in the country. The law will become effective January 1, 2020, contains provisions for the expungement of cannabis-related offenses.

Over the past decades, hundreds of thousands of Illinois residents (and non-residents) have been arrested for cannabis-related offenses and, as a result, have arrest records that have affected their lives by negatively impacting their ability to gain admission to educational institutions, ability to obtain employment, secure professional licensing and in a variety of other ways. Recognizing the harm that these offenses have had on the lives of offenders, the legislature has included expungement provisions in the new legislation to wipe away the criminal records of persons for offenses occurring prior to the effective date of the new law.

The law provides for expungement by 2 different methods (1) automatic expungement which does not require any action on the part of the offender; and (2) expungement that can only be granted by a petition to the court filed by the offender or his or her attorney.

Automatic Expungement

An automatic expungement will be available only in cases involving the possession, manufacture and/or distribution of 30 grams or less of cannabis. Additionally, to be eligible for automatic expungement, the offense must not have included a penalty enhancement due to delivery to a minor (less than age 18) who was at least 3 years younger than the offender. Furthermore, if the offense involved an arrest, conviction or other disposition for certain violent crimes, the offender will not be eligible for automatic expungement. These offenses include violent sexual offenses, sexual offenses involving a minor, stalking, animal abuse, and any offense which requires the person to register as a sex offender.

How Does Automatic Expungement Work?

(1) If more than 1 year has passed since the incident and the person was not charged (but a record was created due to police contact) or the charge was dismissed or an acquittal was entered, then the law enforcement agency is required to expunge the record; or

(2) If a conviction was entered, the Illinois State Police is required to identify all qualifying records and notify the Illinois Prisoner Review Board (“Board”). If the offense is a Class 4 felony, the Board will also notify the State’s Attorney in the county where the offense occurred, who may then file an objection to the expungement with the Board stating that the offense does not qualify for expungement. If an objection is filed, the Board will set a non-public hearing to determine whether the offense still qualifies for expungement.

Following receipt of all qualifying records from the Illinois State Police, together with the results of any hearings held on Class 4 offenses, which the State’s Attorney has filed objections to, the Board will file recommendations to the Governor as to whether expungement should be granted. If granted by the Governor, the Attorney General’s office will file a petition for expungement with the court where the offense was originally heard. The court will then enter the order granting the expungement.

Petition for Expungement

The fact that a person does not qualify for automatic expungement (due to the fact that the offense involves the possession, manufacture and/or distribution of more than 30 grams of cannabis) does not mean that the person cannot obtain an expungement. However, in order to obtain an expungement in such cases, the offender will have to file a petition with the court. In order to be eligible to file a non-automatic petition for expungement, the offense the person was convicted of must either be a misdemeanor or Class 4 felony.

This means that a person convicted of a Class A misdemeanor possession of cannabis (31-100 grams) offense or Class 4 felony possession of cannabis (101-500 grams) offense may file a petition to expunge with the court.

Note that since any offense involving the manufacture/delivery of cannabis of more than 30 grams would be greater than a Class 4 felony, and therefore, is not eligible for automatic expungement or a petition for expungement. However, the offense may still be sealed if other eligibility requirements are met.

Work with a Chicagoland Attorney and Mediator

Getting a Divorce is a difficult time of life, choosing the right attorney should not be! For over 4 decades Alan Pearlman, Ltd. has been serving Chicagoland and the surrounding Suburbs in obtaining solutions to these difficult matters. Contact my office at 847-205-4383 for your free 1/2 hour telephone consultation and see how we can be of service to you.

In most states, the age of majority (when a person is recognized by law as an adult), is 18 years of age or older. A “minor” is a person who is under the age of 18. When a minor breaks the law or causes damage or injury to another person, an animal or property, the minor’s parents may bear the liability. Many state statutes authorize courts to hold parents financially responsible for the damages caused by their minor children. Some states may even hold parents criminally liable for failing to supervise a child whom they know to be delinquent.

Parental Liability for Minors

In general, minors are liable for their misdeeds. However, when a minor acts intentionally or negligently in a manner that causes harm to another, it is difficult to collect damages from the minor. In such a situation, the minor’s parents may also be held liable for their child’s acts and/or ordered to pay for them. A “parent” can be anyone exercising parental authority over the child, but typically refers to the “custodial” parent. Although they vary widely by state, most parental liability laws target intentional, malicious or reckless behavior and exclude pure accidents. Parental liability stems from the custodial parents’ obligation to supervise and educate their children.

Types of Acts by Minors for Which Parents May be Liable

Many states have enacted laws which hold custodial parents responsible for delinquent acts of their minor children, including:

  • Vandalism
  • Theft and shoplifting
  • Automobile accidents
  • Fights and assaults
  • File sharing (e.g., music industry copyright cases)

Generally speaking, individuals who are injured or harmed by a minor may be able to file suit against both the minor and the minor’s parents.

Theories of Parental Liability

In most instances, the liability of parents for the acts of their minor children is based on their legal relationship. A parent may thus be considered to be “vicariously liable” for the acts of their children, and the law may hold them responsible for the damages their child causes. Parental liability may be found in some of the following circumstances:

  • The parent has knowledge of prior misconduct
  • The parent signed the child’s drivers’ license application, or the child drives the parents’ car with permission
  • The child is guilty of willful misconduct
  • The child was given access to firearms
  • The child defaces another’s property
  • The child is convicted of a crime and ordered to pay restitution

Amount of Parental Liability

State statutes holding parents liable for damages caused by their minor children vary widely on the type of delinquent act committed and the amount parents must pay. Some states cap the amount of damages for which parents are liable to pay to a few thousand dollars, while other states may hold parents liable for unlimited amounts. In California, for example, parents can be liable up to $25,000 for each tort or act of willful misconduct committed by a minor that causes injury, death or property damage. On the other hand, in New York, parents are only liable for willful and malicious acts of their minor children up to $5,000 per incident.

Insurance Coverage

Although some homeowner’s insurance policies may cover the costs of legal fees and pay for some claims of damage resulting from a minor child’s acts, such coverage is usually limited. For instance, in California, the insurer is not liable for more than $10,000. Policies and exclusions vary by state, but typically, most homeowners insurance will cover the acts of children under a certain age (such as 11, 12 or 13) and only for acts of negligence, but not intentional acts. In some cases, depending on the insurer, additional “policy riders” might be available for purchase after a child reaches a certain age in order to extend the coverage. Generally, however, polices often exclude illegal or willful and malicious acts and thus may, for example, exclude property damages caused by burglary committed by a minor. In such a case, the parents may be required to pay the entire amount or the statutory cap.

Escaping Liability

Where it is recognized, parental liability is generally difficult to escape. In some instances, however, parents may be able to show that they should not be liable for the damages caused by their minor children. Depending on the state and applicable statute, parents may be able to escape liability when they can sufficiently demonstrate that:

  • The minor’s act was not willful and malicious
  • The minor has been “emancipated” (treated as an adult under the eyes of the law)
  • The parent was not the “custodial” parent of the minor at the time
  • The minor was institutionalized

Work with a Chicagoland Attorney and Mediator

Getting a Divorce is a difficult time of life, choosing the right attorney should not be! For over 4 decades Alan Pearlman, Ltd. has been serving Chicagoland and the surrounding Suburbs in obtaining solutions to these difficult matters. Contact my office at 847-205-4383 for your free 1/2 hour telephone consultation and see how we can be of service to you.

Most divorces involve a division of property between the spouses. If there are children from the marriage, the parent not granted custody usually must pay monthly child support. In addition, one of the spouses may be granted monthly alimony or spousal support. The resulting tax implications differ, depending on whether such payments are characterized as child support or alimony.

In general, for federal income tax purposes, alimony is “deductible” from the income of the paying spouse and is includable in the taxable income of the recipient spouse. Child support is treated exactly the opposite: it is not deductible by the payor and is not included in the income of the recipient spouse. Property settlement transfers between spouses in a divorce are usually not taxable events.

Mischaracterization of Payments as Alimony

Since amounts paid as alimony are deductible from income by the one paying, there is an incentive to maximize the amount of payments deemed alimony, as opposed to nondeductible property distributions and child support payments. The recipient spouse may be in a much lower taxable bracket and agree to the plan. However, the IRS objects to attempts to mischaracterize child support or property divisions as alimony, because of the tax effects.

The Alimony “Recapture” Rule

Federal tax laws list requirements that must be met for payments to be considered alimony. However, even when these requirements are met, it is possible that the alimony payments will be subject to “recapture” for income tax purposes. Alimony payments that decrease or terminate during the first three calendar years may be subject to recapture, which means that the payor spouse may have to include as income in the third year a portion of payments deducted as “alimony” during the first years.

The three-year period starts with the first payment of alimony under a decree of divorce or separate maintenance, or a written separation agreement. The second and third years are the next calendar years, whether or not alimony payments are made during these years. Only alimony paid in the first two years that is considered “excess alimony” is subject to recapture; these provisions do not apply after the third year.

Application of the Alimony Recapture Rule

The recapture rule may be applied to require the payor spouse to include as income “excess alimony,” calculated as follows:

  • The amount by which the alimony paid in the second year exceeds the amount paid in the third year by more than $15,000
  • The amount by which alimony in the first year exceeds the average of alimony paid in the second and third years – this average must be calculated by adding the alimony in the second year (reduced by the excess payment for the second year, as calculated above), the amount of alimony in the third year, plus $15,000, and dividing by two

The recapture rules are complex, and the calculation is commonly done by an accountant (hopefully before the divorce decree). Such rules are best illustrated through an example:

A divorce decree requires alimony payments by the husband of $50,000 the first year, $40,000 the second year and $20,000 thereafter for ten years. The payment in year two exceeds the payment in year three by $20,000, so under the rule, $5,000 of it is “excess alimony.” The average of the second and third years, calculated as set forth above, would be ($40,000 – $5,000) + $20,000 + $15,000 = $70,000 divided by two = $35,000. The “excess alimony” paid in year one is thus $5,000. The total excess alimony is $10,000, which must be added to the payor spouse’s income in year three.

Exceptions to the Recapture Rule

The following are not included for purposes of calculating “excess alimony:”

  • Payments that cease due to the death or remarriage of a spouse during the initial three-year period
  • Payments made under a temporary support order
  • Payments for a period of at least three years made pursuant to a continuing liability to pay a fixed portion of income from a business or property, or from compensation for employment or self-employment

Work with a Chicagoland Attorney and Mediator

Getting a Divorce is a difficult time of life, choosing the right attorney should not be! For over 4 decades Alan Pearlman, Ltd. has been serving Chicagoland and the surrounding Suburbs in obtaining solutions to these difficult matters. Contact my office at 847-205-4383 for your free 1/2 hour telephone consultation and see how we can be of service to you.

Many folks in Illinois have questions regarding Community Property and sometimes travel under the false assumption that Illinois has Community Property. First and foremost let me clarify that ILLINOIS IS NOT a community property state, but here are some clarifications for those of you who do live in such a state.

A number of states are “community property” states, meaning that they recognize the concept of community property law. Community property law is dependent on state law and will, therefore, vary somewhat from state to state, but generally, 50% of community property and community income is considered owned by each spouse. State laws usually identify whether income or assets are considered community or separate property; separate property is owned exclusively by one of the spouses.

Community Property

Community property and income may include:

  • Property acquired by the couple during the marriage while domiciled in a community property state, unless purchased with separate property assets.
  • Property that the spouses have agreed to convert from separate to community property.
  • Property that cannot be identified as separate (by default it is considered community).
  • In certain states, income from community property assets (but not separate property assets), is community income. In other community property states (e.g., Texas, Idaho, Louisiana, and Wisconsin), even income from separate property is community income.
  • Salaries, wages, or pay for the services of either or both spouses while married and living in a community property state; money earned while living in a non-community property state can be separate income to the spouse who earned it. In some community property states, money earned after a marital separation is separate income.
  • Income from real estate that is community property under the laws where the real property is located.

Separate property and income may include:

  • Property owned by a spouse prior to the marriage.
  • Property received as a gift or inherited by one of the spouses, even while married.
  • Property purchased with separate property assets, even during the marriage.
  • Any property that the couple agrees to convert from community to separate property under a valid state law agreement.
  • Money earned while domiciled in a non-community property state.
  • Income from separate property, which is income to the owner/spouse.
  • Federal Tax Treatment of Community and Separate Income

Whether a couple has community property and/or income depends on the laws of the state where they are “domiciled.” Domicile is not necessarily the same as residence. Domicile is the couple’s permanent, legal home, intended for use for an indefinite or unlimited time. It is a question of the intent of the couple, but the IRS looks to a variety of factors to verify domicile, including where the spouses pay tax, vote, own property, and have social and business ties to the community.

For federal tax purposes, couples who have community assets and income (as determined under state law) may have to calculate their federal income tax differently. However, it is only if they are married and file separate tax returns that the disparate treatment arises. Just as community property is considered owned 50/50 by spouses, community income is also considered attributable 50/50 to each spouse.

When filing separately, each spouse must report one-half of the community income as their own income, regardless of who actually earned the money. Usually, all community income from the sources set forth above is added together, divided by two, and each spouse must list that amount as income on a separate tax return. In addition, each spouse must report in full whatever separate income was earned in the tax year from the sources described above. It sounds simple, but in practice figuring the amount or portion of income that may be community or separate can become complicated.

Income Tax Deductions and Exemptions

When filing separately, spouses claim an exemption for themselves. When there are dependents, (entitling the couple to further exemptions), the exemptions must be divided between the spouses by number, not the value amount of the deductions from income. Thus, if the couple has three children, all eligible to be taken as exemptions, the spouses must divide up this number (two for one spouse, one for the other spouse, etc.), not allocate the total exemption amount for all the dependents.

If one spouse itemizes deductions on the return, the other spouse must also itemize deductions. Deductions may be allocated as follows:

  • Expenses incurred to earn or produce community business or investment income are generally divided equally among the spouses; each spouse is entitled to deduct one-half.
  • Expenses incurred to earn or produce separate business or investment income are deductible by the spouse owning the business or investment, provided the expenses were paid with separate funds.
  • Expenses that are not attributable to any specific income, such as medical expenses, are usually deductible by the spouse who pays them. If they are paid with community funds, the amount of the deduction is divided equally between the spouses.

Equitable Relief

This division of community income can lead to inequitable results. For example, if one spouse deserts the other, the deserted spouse may have to file a separate tax return listing income earned and received by the other spouse, without having the resources to pay the resulting taxes. U.S. tax laws provide equitable relief for this under certain circumstances specified in the Internal Revenue Code and its regulations.

Work with a Chicagoland Attorney and Mediator

Getting a Divorce is a difficult time of life, choosing the right attorney should not be! For over 4 decades Alan Pearlman, Ltd. has been serving Chicagoland and the surrounding Suburbs in obtaining solutions to these difficult matters. Contact my office at 847-205-4383 for your free 1/2 hour telephone consultation and see how we can be of service to you.

All 50 states have laws authorizing certain nonparent parties, typically grandparents, to seek child visitation rights. These statutes are controversial, and parents often argue that the laws interfere with their fundamental constitutional right to rear their children, which includes the right to determine who may educate and socialize with their children. However, as parens patriae, states are required to protect all citizens who are unable to protect themselves. Accordingly, state legislatures and courts are vested with the power to consider the best interest of their child citizens in enacting and enforcing grandparent visitation laws, provided certain guidelines are followed.

Troxel v. Granville

In 2000, the U.S. Supreme Court issued a severely fractured opinion on the constitutionality of a Washington visitation statute. The law permitted “any person [to] petition…for visitation rights at any time” and authorized courts to grant visitation whenever it would “serve the best interest of the child.” Under the statute, the Troxels were seeking visitation rights of their granddaughters from their mother, after the Troxel’s son (the children’s father) committed suicide. The mother sought to limit the visitation between the Troxels and their granddaughters. The statute, however, was ruled as being “breathtakingly broad.” The Court held that, as applied, the law unconstitutionally infringed on the mother’s fundamental right to make child care, custody and control decisions.

The Troxel Court found that the excessive judicial discretion authorized by the statute was problematic. The Court seemed to suggest the need for state grandparent visitation laws to reflect a child’s needs while simultaneously affording more deference to the parents’ rearing decisions. Thus, Troxel left open the probability that grandparent visitation statutes can be constitutional even with the existence of fundamental protected rights of parents.

Aftermath of Troxel – Effect on Grandparent Visitation Rights

Immediately after Troxel, several lawsuits forced other courts to review their own state visitation laws. Some states’ courts, such as New Jersey, held their statutes to be facially valid, but unconstitutional as applied to the facts of the particular case. Other states, such as Florida and Illinois, held their statutes to be unconstitutional on their face. Still other states, such as Texas, distinguished Troxel, holding their own statutes to be constitutional.

Restrictive Visitation Statutes

Approximately 15 states have “restrictive” nonparental visitation laws which allow only the grandparents to petition for a visitation order. These laws also generally apply only in cases where parents are getting divorced, where one or both parents have died, or where the child was born out of wedlock.

Permissive Visitation Statutes

Most states have more “permissive” visitation laws which allow grandparents to seek visitation in any case where it would be in the best interest of the child. These states view grandparent visitation rights as only a small infringement on parents’ rights.

Some states have even more permissive visitation laws which authorize courts to consider visitation requests from other third parties such as stepparents or other family relatives. States with such highly permissive visitation laws may also permit grandparents to petition for visitation even where the family is still intact (i.e., no divorce or death has occurred).

Future of Grandparent Visitation Laws

Both the language in Troxel and the overall trend appear to allow that grandparent visitation statutes will be constitutional, provided that they direct courts to “presume” that a fit parent’s decisions regarding visitation are within the child’s best interest. In other words, at least some special weight must be given to a parent’s decision to deny visitation to the grandparents.

California’s statute provides an example of a constitutional permissive visitation law. The California Supreme Court upheld the law which specifically codifies the “fit parent presumption” recommended by Troxel. The court awarded visitation rights to the grandparents of a child whose parents were divorced. This decision is consistent with the trend upholding those statutes which allow grandparents to petition for visitation when the family is no longer together, focusing on the child’s best interest. However, it still appears to be more difficult for grandparents to seek visitation when the family unit is intact.

Work with a Chicagoland Attorney and Mediator

Getting a Divorce is a difficult time of life, choosing the right attorney should not be! For over 4 decades Alan Pearlman, Ltd. has been serving Chicagoland and the surrounding Suburbs in obtaining solutions to these difficult matters. Contact my office at 847-205-4383 for your free 1/2 hour telephone consultation and see how we can be of service to you.

Couples that seek to dissolve their marriages without the challenges of litigation often turn to alternative dispute resolution. Non-litigation settlement strategies are particularly effective for couples committed to maintaining respectful relationships with their spouses after the divorce, and may also minimize negative consequences facing the children. The following issues, among others, are typically amenable to such settlement strategies:

  • Property divisions
  • Spousal support
  • Interim living arrangements
  • Child support
  • Custody and visitation

Divorce Mediation and Collaborative Divorce, Generally

Two kinds of alternative dispute resolution models, often used by divorcing couples, include collaborative divorce and divorce mediation. In divorce mediation, the parties hire an independent neutral third party who brings the spouses together (with their attorneys if any were hired) to assist them to reach a satisfactory divorce settlement. In a collaborative divorce, a relatively new form of dispute resolution, each spouse hires their own attorney, and the two attorneys and their clients negotiate directly with each other without resorting to litigation.

Although divorce mediation has become a popular alternative to litigation, collaborative divorce, available in most states, is also beginning to establish itself as a successful form of divorce dispute resolution. Further, just as the practice of mediation is common in numerous other areas of law, collaborative law is starting to be used for numerous non-family law disputes, such as employment and business disputes.

Same Goals, Different Approaches

The underlying goal of both divorce mediation and collaborative divorce is to allow couples to reach mutually satisfactory divorce settlements in lieu of facing the unpredictable results of judge-imposed decisions. While both resolution models have proved to be generally effective, numerous differences may affect a couple’s decision when deciding which would be most appropriate.

Fees and Experts

Although few comparison studies have been conducted with respect to the costs of collaborative divorce, the general consensus is that litigation, on average, is more expensive. One study indicates that collaborative divorce fees generally reach about 1/3 the cost of the typical litigated divorce. Expenses will increase when there is a need to hire outside professionals. For instance, if the attorneys reach an impasse or lack the expertise to address a particular issue such as the value of one of the spouse’s businesses, a financial expert may be retained for assistance. In a collaborative divorce, the parties generally split all costs and fees.

Similar to collaborative divorce, in mediation, the parties generally split the mediator fees. However, unlike collaborative divorce, the parties are not required to hire attorneys (although the option generally remains open). Mediator fees can range widely, being as low as $100 to $200 per hour and sometimes exceeding $400 per hour, often depending upon the type of law involved or the complexity of the issues. Many mediators have separate fee scales for couples who choose to schedule the whole day.

Motivation to Settle Inherent in Collaborative Divorce

One feature unique to collaborative divorce is the built-in motivation to settle. Specifically, if the parties are unable to reach a settlement, and the dispute proceeds to litigation, the attorneys must withdraw from representation. When this occurs, the parties are required to hire new counsel and pay the additional fees.

Additionally, participants to collaborative divorce generally sign agreements that include provisions against bad faith negotiations. Although similar agreements are sometimes signed prior to mediation sessions, in collaborative divorce, such agreements have a slightly different impact on the negotiation. This is due, in part, to the fact that attorneys participating in collaborative divorce have abandoned, to an extent, much of their adversarial duties in exchange for a more resolution-driven focus. In contrast, in mediation, the attorneys do not rely as heavily on the conciliatory nature of the negotiation and may choose to withhold potentially materially relevant information.

Power Imbalances

Disputants frequently rely on mediators to offset power imbalances between parties. Such issues may be present in instances where one party has difficulties communicating with the other for various reasons, such as when a wife is divorcing an abusive husband. Given the nature of such a relationship, it may be difficult for the wife to effectively verbalize some of her concerns or desires. Where an attorney is present at a mediation to represent the wife in this type of situation, such imbalances will be minimized. Nevertheless, mediators often ask the parties, at some point, to speak directly with each other, often as a means of venting or “to get it all out.” Even without attorneys present, mediators who employ proper techniques will still be able to neutralize such imbalances. In a collaborative divorce, however, this concern is arguably less pronounced since the attorneys are communicating directly with each other and act as buffers between difficult personalities.

Balances of power may also be affected by attorney representation or the lack thereof. Mediators are generally not permitted to provide legal advice, but may provide legal information. Thus, unrepresented parties may be at a disadvantage in mediation. However, this is never an issue in collaborative divorce.

Work with a Chicagoland Attorney and Mediator

Getting a Divorce is a difficult time of life, choosing the right attorney should not be! For over 4 decades Alan Pearlman, Ltd. has been serving Chicagoland and the surrounding Suburbs in obtaining solutions to these difficult matters. Contact my office at 847-205-4383 for your free 1/2 hour telephone consultation and see how we can be of service to you.

Decisions regarding the division of marital assets upon divorce may be made either by the divorcing spouses themselves or by a judge. State law governs how marital and separate property is divided in the property distribution. Typically, each spouse will receive a percentage of the total value of their joint property. Although it is illegal to do so, one spouse may try to hide their assets in an effort to protect the assets from property division. There are numerous tactics that an individual might try to use to veil their assets. However, it is possible to find hidden assets to make them available for a fair distribution in a divorce.

Two Schemes to Divide Property

Appropriate division of property between divorcing spouses varies by state. Generally, a court will divide assets under one of two schemes, depending on the jurisdiction. In an “equitable distribution” or “separate property” state, any assets and earnings that were accumulated during the marriage are distributed equitably, or fairly. That does not mean that the assets are divided equally. In fact, as applied, two-thirds of the property is typically awarded to the spouse with the higher income, with the remaining one-third going to the other spouse.

In contrast, in one of the nine “community property” states (AZ, CA, ID, LA, NV, NM, TX, WA, WI; AK is opt-in), property is first characterized as community or separate property before it is divided. Generally, community property is any property that was acquired during the marriage, and it is owned equally by both spouses. Community property is divided fifty-fifty regardless of which spouse acquired it or earns a higher income. Separate property is typically all property acquired by only one spouse before marriage, or through a gift, inheritance or a personal injury award. As such, separate property is awarded entirely to the spouse to whom it belongs.

Preventing Hidden Asset Harm

Hiding assets to shield them from equitable or equal division upon divorce is both financially harmful to the innocent spouse as well as illegal. One way spouses may protect themselves is by being aware of all financial information before the divorce proceedings begin by making copies of financial documents such as tax returns, bank statements, and pay stubs. Another way to protect assets is to set up individual accounts that can only be accessed by the person named on that account.

Common Ways to Undervalue or Disguise Marital Assets

There are numerous ways in which a spouse may attempt to hide some assets to prevent their inclusion in the divorce property distribution. Tactics used to hide assets of a business include:

  • Money from the business is paid to a family member or close friend for phony services, then returned to the spouse after the divorce
  • Salary checks are written to non-existent employees
  • Collusion with the spouse’s employer to delay business contracts, raises, or bonuses until after the divorce
  • Skimming cash from a business owned by one spouse
  • Cash converted into traveler’s checks
  • Payment of a non-existent debt to a family member or friend that will be repaid to the spouse after the divorce
  • Unreported income on tax returns and financial statements
  • Investing in certificate “bearer” bonds and/or Series EE Savings Bonds
  • Artwork, antiques or other property whose value is undervalued or overlooked
  • Rent, college tuition or gifts given to a girlfriend/boyfriend
  • An account set up under a child’s Social Security number
  • Retirement account that the other spouse never knew about

Locating Hidden Assets

Hidden assets are sometimes difficult to locate, and their existence may be difficult to prove. Typically, formal discovery procedures in divorce litigation can assist in finding assets that have been hidden by one spouse. For example, the court can order certain financial records to be disclosed, which may reveal the hidden assets. Further, forensic accountants may aid in locating hidden assets since they are trained to assess the value of investments or businesses, interpret and evaluate various financial records, and can testify on their findings in court. Finally, a private investigator might be necessary to help discover such assets.

Work with a Chicagoland Attorney and Mediator

Getting a Divorce is a difficult time of life, choosing the right attorney should not be! For over 4 decades Alan Pearlman, Ltd. has been serving Chicagoland and the surrounding Suburbs in obtaining solutions to these difficult matters. Contact my office at 847-205-4383 for your free 1/2 hour consultation and see how we can be of service to you.