Articles Posted in Financial Issues in Divorce

Our Illinois Dissolution of Marriage Act ( IMDMA) has been going through a number of changes over the last year. One major change last year was the introduction of a spousal maintenance formula that created an entirely new landscape for the calculation for spousal support in divorce cases. This year we saw a major change to our child custody statutes, and went from an archaic “custody and visitation” model to a presumptive allocation of parental responsibilities or “shared parenting” model. Now, we are aware that the way we calculate child support is about to change, with these legislated changes becoming effective in July of 2017.

In 2017, we move to an “income shares” model, which takes into account the incomes of both parents vs. the prior system which looked only to the noncustodial parent’s income. The new law will then take a percentage of that income to determine the total amount that should be allocated for child support, with DHFS ordered to develop tables that will set out the amounts that are to be paid for child support, based on DHFS’ findings to as what families spend on their children as a percentage of income.

Interestingly, the new law (SB 3982) also allows a window of opportunity for parents with true sharing of parenting to offset the amounts to be paid, and the parent with the higher income paying only the overage amount of the offset.

A new law in Illinois as of January 1, 2015 changes how spousal support is determined for divorcing couples whose combined gross income is less than $250,000. This new law raises some interesting issues with respect to the global finances of divorce, so let’s examine briefly the new law of spousal support in Illinois.

The law, which was developed by the Illinois State Bar’s Family Law Section Council, creates a protocol for calculating maintenance based on the income of the parties and the length of the marriage. The law that has been in use for years essentially placed a high degree of discretion with the trial judge; parties to divorce sometimes had very little guidance as to what a given judge would award for maintenance, or if any award was to be granted.

Under the new law, a maintenance award should equal 30 percent of the payor’s ( the one who pays maintenance) gross income minus 20 percent of the payee’s (recipient) gross income, not to exceed 40 percent of the parties’ combined gross income when added to the payee’s gross. Where the parties both earn higher incomes, there is a threshold percentage that “caps” the award at no more than 40 percent of the combined incomes. Longer marriages benefit from longer terms of maintenance; shorter term marriages see a lesser time period involved.

My practice centers on high conflict divorces and complex child custody cases. In a number of my divorce and custody cases, there was also a high value marital estate that had to be valued and allocated, including marriages with business interests, stock options, and valuable investments and works of art. With my JD/MBA training and years of experience in financial issues, I am most comfortable with all property valuation and division issues in divorce cases. The WSJ highlights today the difficulties with allocating art in various jurisdictions ( Illinois law does not apply herein ).

Daniel Grant of the WSJ: Sept. 21, 2014

Who gets that painting?

The article below highlights some of the issues and concerns that attach to a divorce after a lengthy marriage. Under Illinois law, retirement assets are divisible between the parties; there is a common practice that IRA’s, 401(k)s and pensions are to be valued as of the date of the divorce, and allocated between the divorcing spouses equitably.

A person’s retirement plan is a lifeline to the future. For many, it is their most important asset, even more emotionally valuable than a house or investment account. With this in mind, it is critical that the identification, valuation, and allocation of all marital assets in a divorce be accomplished properly. Law Offices of Michael Roe has on many occasions, with higher asset estates, worked with skilled and cost effective Divorce Financial Planners to effectuate an allocation model that can be submitted to the court. A properly presented plan that is beneficial to our client can often drive the resolution of the case in the right direction. The article states:

AFTER enduring a divorce four years ago, Mike Miller’s vision for a golden retirement got an unexpected makeover. Mr. Miller had been married for more than 30 years, and now he was single. His longtime dream of a shared retirement was shattered. He was also facing another unwelcome outcome: living in a smaller home and taking fewer vacations.

One of the benefits of practicing Divorce and Custody Law is the opportunity to try cases that involve complex issues, the valuation of a spouse’s business interest in a closely held business being one of those complex issues. Along with my work through the years in the areas of psychology, family systems and custody law, I have utilized my experience from MBA school and working in and with businesses to develop skills in managing business and financial issues in divorce litigation.

Law Offices of Michael F. Roe has maintained strong relationships with some highly competent Business Valuation experts, that work as consulting and testifying experts in valuation cases. These experts are skilled at assembling the correct financials, and employing valuation protocols that are generally accepted in the business valuation industry. The goal of the use of such an expert is to provide the trial court with an expert opinion as to the appropriate value of the client’s company or shares as of the time of the divorce trial.

Just as important as having a good expert in a case is the ability of the trial lawyer to cross examine the other spouse’s expert (if there is one) as to that expert’s valuation opinions. In that sense, it is my job as a divorce trial lawyer to become as expert in that business valuation approach as the experts I am working with. My goal: optimizing my client’s outcome.

Divorce can feel like a full-time job. It can be all-consuming, affecting every aspect of your life. Between the (sometimes) contentious texts with your ex-partner, phone calls to your attorney and figuring out child custody, where you are going to live and how your new life will look, there is almost always a sense of uncertainty or fear just below the surface. And regardless of how affluent the couple is, there is often a great deal of worry about the financial future.

Once separated or divorced, the informed spouse already has the experience and relationships to transition financially, but the other spouse has to start from scratch. In my experiences as a divorce financial planner who has specialized in working with the “out” spouse, three fears have emerged as most common. While some degree of worry and apprehension is to be expected, with a little work and planning, these three common divorce fears can be eliminated and can help the out spouse feel more confident and secure.

1. Fear of not getting a fair share. If your finances are simple, it can be easy to evenly divide the assets, but if your finances are more complex (e.g., multiple homes, employer stock options, closely held business, illiquid investments, separate property), this can become much more difficult. The solution is to answer these two questions: What do we own and what is it worth? If you are concerned that assets are not being disclosed, discuss this with your attorney and consider hiring a forensic accountant — basically a financial detective — to help uncover any undisclosed assets. The next issue is to arrive at a fair value for each asset. This is an area that is ripe for abuse. The valuation of family-owned or other privately held companies is inherently prone to subjectivity and, particularly in the divorce context, manipulation.

A decade ago, couples that were divorcing could count on a fairly expedient sale of their marital home, and at the time of the closing of the sale of the home, there would be a payout that would leave one or both of the parties with cash to either start over in their new life, or use the cash to fund a downpayment on a new residence.

In recent years, we have seen home values plummet, and home equity values evaporate. People in divorce today speak of their home as the marital “asset,” yet in many cases, the marital residence is a significant marital liability that must be managed with some reasonableness and diligence.

Marital residences that are “under water,” or in other words, worth less than the debt that is secured by the property, most often need to be with sold or managed through a bank workout process. Some of my clients work with professionals who perform property workouts as the major part f their practice. One aspect of the workout is managing the possibility for a deficiency judgment. A bank may seek to have the amount of the mortgage not covered by a short sale assigned as a liability to the owner; this is called a deficiency judgment. In some cases, the bank may be required to be willing to waive the deficiency judgment, and be required to issue a 1099 to the previous owner for the amount of deficiency after the short sale. It’s important for you to know that the lender cannot pursue a deficiency judgment and issue a 1099. They can only do one or the other, not both. If the deficiency is waived as a condition to the short sale, the owners will receive a 1099.

The “Ask Amy” column today in the Tribune discusses marital affairs and the offended party’s need to tell others, including the children, the reasons for the divorce:

I have been married for 25 years. My wife had an affair early in our marriage and we worked things out with counseling. Two years ago I caught her having another affair but for family and health reasons I did not divorce her at that time. We put on an act for others, including our two children, so no one knows how bad our marriage is. Now my kids are in college and I want a divorce.

Some of my clients first came to my office for an initial consultation with the damage of an affair at the forefront of their concerns. In some of these cases, the custody of the children is an issue. In other cases, there are no minor children of the marriage, and the concern is property division and spousal support.

Child support in a divorce case is often a contentious issue for divorcing parents. Divorce consultant and author Lee Block discussed child support issues in the Huffington Post’s new Divorce section of this online journal. Ms. Block states:

Child support is always a hot bed of discussion. There are several reasons for this and the main one is, what exactly does child support cover? There are so many questions about child support and frankly no good answers. Child support becomes an emotional issue instead of a financial one, and everyone has a different view and opinion of what it should cover and how much should be paid.

Illinois child support statutes do not make the subject of child support easier to manage. While some of our neighboring states have adopted sophisticated matrices for allocating between both parents the burdens of financial support of children in a divorce, Illinois still requires that (a) the court determine a “residential parent” (ie a winner and loser of custody), and (b) for the “non-residential parent,” a percentage payment based on their net income.

One of the hallmarks of an impending divorce is a noticeable change in financial status within the family household. Retirement plans get moved to new accounts. Joint checking accounts and credit card accounts begin to show unusual activity, such as unexplained charges or cash withdrawals. Some spouses will defer discussing the desire for a formal divorce until they have, in their mind, secured the family cash and the assets in a hidden account.

Judges will eventually require the return of marital assets to marital accounts, but all of us that work in the court system know that getting these injunction orders takes time and effort. It can be far better to be proactive in protecting marital assets, and securing copies of accounts, once the financial “red flags” of impending divorce start to appear.

I’ve provided a list of 12 items you might gather to ensure that you have most of the critical information in hand before your spouse has a chance to conceal, transfer or sell marital items. These include (but are not limited to) obtaining: