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.

 

This past January 1st over 250 new laws took effect for Illinois, including several sweeping changes to Illinois’ divorce laws. Here are some of the major changes to the Illinois Marriage and Dissolution of Marriage Act that have taken effect this year:

I. Maintenance (750 ILCS 5/504)

As of January 1, 2019, maintenance is no longer tax-deductible to the payor spouse, and no longer includable in the gross income of the recipient spouse. In light of this new federal tax reform, numerous changes were made to Illinois’ maintenance statute effective January 1, 2019, and are summarized below:

  1. Maintenance Barred if Award is Not Appropriate (750 ILCS 5/504(b-1))
    Unless the court finds that a maintenance award is appropriate, the court shall bar maintenance as to the party seeking maintenance regardless of the length of the marriage at the time the divorce action was commenced.
  2. Guideline or Non-guideline Maintenance Awards (750 ILCS 5/504(b-1))
    Only if the court finds that a maintenance award is appropriate, shall the court order guideline maintenance or non-guideline maintenance. However, if the application of guideline maintenance results in a combined maintenance and child support obligation that exceeds 50% of the payor’s net income, the court may determine non-guideline maintenance, non-guideline child support, or both.
  3. Guideline Maintenance Awards (750 ILCS 5/504(b-1)(1)(A))
    If the parties’ combined gross annual income is less than $500,000, and the payor has no obligation to pay child support or maintenance or both from a prior relationship, the amount of maintenance shall be calculated by taking:33 1/3% of the payor’s net annual income, minus 25% of the payee’s net annual income. The amount calculated as maintenance, however, when added to the net income of the payee, shall not result in the payee receiving an amount that is in excess of 40% of the combined net income of the parties.
  4. Modification of Maintenance Orders Entered Before 1/1/19 (750 ILCS 5/504(b-1)(1)(B)) and (750 ILCS 5/504(b-4))
    Modification of maintenance orders entered prior to 1/1/19 that are and continue to be eligible for inclusion in the gross income of the payee for federal income tax purposes and deductible by the payor shall be calculated by taking:

    30% of the payor’s gross annual income minus 20% of the payee’s gross annual income, unless both parties expressly provide otherwise in the modification order. The amount calculated as maintenance, however, when added to the gross income of the payee, may not result in the payee receiving an amount that is in excess of 40% of the combined gross income of the parties.
    For any order for maintenance or unallocated maintenance and child support entered before 1/1/19 that is modified after 12/31/18, payments thereunder shall continue to retain the same tax treatment for federal income tax purposes unless both parties expressly agree otherwise and the agreement is included in the modification order.
  5. Maintenance Findings (750 ILCS 5/504(b-2)(3))
    The court shall state whether the maintenance award is fixed-term, indefinite, reviewable, or reserved by the court.

  6. Gross income for Maintenance Purposes (750 ILCS 5/504(b-3))
    Gross income means all income from all sources, except maintenance payments in the pending proceedings shall not be included.
  7. Net income for Maintenance Purposes (750 ILCS 5/504(b-3.5))
    Net income has the meaning provided in Section 505 of the Act (i.e., Child Support), except maintenance payments in the pending proceedings shall not be included.
  8. Maintenance Designation (750 ILCS 5/504(b-4.5))
    1. Fixed-term maintenance (750 ILCS 5/504(b-4.5)(1)) – If a court grants maintenance for a fixed term, the court shall designate the termination of the period during which this maintenance is to be paid. Maintenance is barred after the end of the period during which fixed-term maintenance is to be paid.
    2. Indefinite maintenance (750 ILCS 5/504(b-4.5)(2)) – If a court grants maintenance for an indefinite term, the court shall not designate a termination date. Indefinite maintenance shall continue until modification or termination under Section 510.
    3. Reviewable maintenance (750 ILCS 5/504(b-4.5)(3)) – If a court grants maintenance for a specific term with a review, the court shall designate the period of the specific term and state that the maintenance is reviewable. Upon review, the court shall make a finding in accordance with 504(b-8), unless the maintenance is modified or terminated under Section 510.

II. Child Support (750 ILCS 5/505)

The Illinois child support statute was amended to align with the federal tax law changes concerning maintenance, and to create uniformity with the new Illinois maintenance statute outlined above.

  1. Gross income for Child Support Purposes (750 ILCS 5/505(a)(3)(A))
    Gross income includes maintenance treated as taxable income for federal income tax purposes to the payee and received pursuant to a court orer in the pending proceedings or any other proceedings and shall be included in the payee’s gross income for purposes of calculating the parent’s child support obligation.
  2. Net Income for Child Support Purposes (750 ILCS 5/505(a)(3)(B))
    Net income includes maintenance not includable in the gross taxable income of the payee for federal income tax purposes under a court order in the pending proceedings or any other proceedings and shall be included in the payee’s net income for purposes of calculating the parent’s child support obligation.
  3. Spousal Maintenance Adjustment (750 ILCS 5/505(a)(3)(F)(2)
    Obligations pursuant to a court order for spousal maintenance in the pending proceeding actually paid or payable to the same party to whom child support is to be payable or actually paid to a former spouse pursuant to a court order shall be deducted from the parent’s after-tax income, unless the maintenance obligation is tax deductible to the payor for federal income tax purposes, in which case it shall be deducted from the payor’s gross income for purposes of calculating the parent’s child support obligation.

III. Modification and termination of provisions for maintenance, support, educational expenses, and property disposition (750 ILCS 5/510)

An order for maintenance may be modified or terminated only upon a showing of a substantial change in circumstances. The court may grant a petition for modification that seeks to apply the changes made to Section 504 by these amendments to an order entered before the effective date of these amendments only upon a finding of a substantial change in circumstances that warrants application of the changes. The enactment of the amendment itself, does not constitute a substantial change in circumstances warranting a modification. 750 ILCS 5/510(a-5).

IV. Disposition of Property and Debts – Designation of Life Insurance Beneficiary (750 ILCS 5/503)

A large aspect of divorce is the division of property and debts, including life insurance policies and proceeds. Newly enacted Section 503(b-5)(2) addresses treatment of a life insurance beneficiary designation upon entry of a divorce judgment, and is summarized below:

If a divorce judgment is entered after an insured has designated the insured’s spouse as a beneficiary under a life insurance policy in force at the time of entry, the designation of the insured’s former spouse as beneficiary is not effective unless:

  • The divorce judgment designates the insured’s former spouse as the beneficiary;
  • The insured re-designates the former spouse as the beneficiary after judgment entry; or
  • The former spouse is designated to receive the proceeds in trust for, or on behalf or, or for the benefit or a child or a dependent of either former spouse.

If a designation is not effective under one of the foregoing examples, the proceeds of the policy are payable to the named alternative beneficiary, or if there is not a named alternative beneficiary, to the estate of the insured.

An insurer who pays the proceeds of a life insurance policy to the beneficiary under a designation that is not effective under the above examples is liable for payment of the proceeds to the person or estate, only if:

  • Before payment of the proceeds to the designated beneficiary, the insurer receives written notice at the home office of the insurer from an interested person that the designation is not effective under the statute; and
  • The insurer has not filed an interpleader (i.e., a lawsuit to compel two parties to litigate a dispute).

Note:  the provisions of the new statute do not apply to life insurance policies subject to regulation under ERISA, the Federal Employee Group Life Insurance Act, or any other federal law that preempts application.

V. Visitation by Certain Non-Parents (750 ILCS 5/602.9)

With certain exceptions, certain non-parents may bring an action requesting visitation with a child.

The list of “appropriate persons” includes grandparents, great-grandparents, step-parents, and siblings of a minor child age 1 or older. These individuals may bring a petition for visitation and electronic communication if there has been an unreasonable denial of visitation by a parent and that denial has caused the child undue mental, physical, or emotional harm, and one of the following qualifying conditions exists:

  • The child’s other parent is deceased or has been missing at least 90 days;
  • A parent of the child is incompetent as a matter of law;
  • A parent has been incarcerated in jail or prison for more than 90 days immediately prior to filing the petition;
  • The child’s parents have been granted a divorce or legal separation, or there is a pending dissolution proceeding or other action involving parental responsibilities or visitation of the child and at least 1 parent does not object to the grandparent, great-grandparent, step-parent, or sibling having vitiation with the child; or
  • The child is born to parents who are not married to each other, the parents are not living together, the petitioner is a grandparent, great-grandparent, step-parent, or sibling of the child and the parent-child relationship has been legally established.

The newly amended Section 602.9(c)(E)(iv)-(v) clarifies that if the petitioner is a grandparent or great-grandparent, the parent-child relationship need be legally established only with respect to the parent who is related to the grandparent or great-grandparent. If the petitioner is a step-parent, the parent-child relationship need be legally established only with respect to the parent who is married to the petitioner or was married to the petitioner immediately before the parent’s death.

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.