In any divorce, the divorcing couple must divide their property. When they own little, this task is simple: they simply need to divide their few items. But in cases where the couple has a substantial net worth or own a business, the process is more complicated. Here are the 4 steps to divide property in an Illinois divorce.
1) Identification of Property
The first step is to identify all property. Sometimes this is an easy process, for example, when both spouses know each item of property. Sometimes, however, one of the spouses is either kept in the dark or denied full information. Then, lawyers need to conduct more extensive investigations to discover all of the family holdings. This process, known as discovery, involves the issuance of subpoenas, depositions, document review, and financial audits. Once the lawyers identify all property, it needs to be classified as either marital property or non-marital property.
2) Classification of Property
The process of classification of property is based on when and how an asset is acquired. Generally, all property that is obtained during the marriage is a marital property with some exceptions. If an item is classified as non-marital property, the owning spouse keeps it, and it is not divided in the divorce. An example of a non-marital property would be an item that one of the spouse’s owned before the marriage. Other examples of a non-marital property include gifts made to a spouse either before or after the marriage. Also, an inheritance that one party receives is his or her non-marital property.
One can convert a non-marital asset into a marital asset. For example, if a husband places his wife’s name on the title to his non-marital real estate, that act may convert the non-marital property into a marital asset. Also, if a spouse inherits money and deposits it into a joint marital checking account for bill paying, that act may also convert the non-marital cash into a marital asset. Generally, when one commingles non-marital money or property with marital property, the contributed property is at risk of being reclassified as marital property.
The law presumes that all property acquired during the marriage is marital property. The spouse who claims an item as non-marital property must prove by clear and specific evidence that he or she received it under one the legal exceptions to the marital property rule.
3) Valuation of Property
Once the property is classified, we need to value it. While we don’t typically assess non-marital property, in some instances it may affect the division of marital property. For example, if one spouse has non-marital property worth $1,000,000 and the marital estate is $500,000, the substantial non-marital property may support an argument that more of the marital property should be awarded to the spouse without the large non-marital holdings.
The valuation of the property is done using a fair market value standard. This standard of value bases value on what a willing seller would accept, and a willing buyer would pay, assuming neither is under any coercion or compulsion to sell or buy. For business interests, real estate, collectibles, art or antiques, we usually need to hire experts to provide an opinion of fair market value. Of course, nothing prohibits the parties from agreeing to an amount without the input of the expert. Often both spouses will hire experts who disagree on the value of the property. In that event the parties will either need to agree to a number or the judge will have to determine value based on the competing expert testimony at trial.
With regard to bank accounts, defined contribution plans (e.g., 401K plans), IRAs or other account type assets, we value those items as of the time of the completion of the divorce. Personal property, such as furniture or furnishings is rarely assessed; instead, it is usually divided in kind by the parties. If one of the parties is not interested in any of the furnishings, that spouse is free to try to negotiate a waiver to the property, in exchange for some financial concession.
4) Division of Property
Once the property is classified and valued, the next step involves its division. As a general rule, we divide property on a 50/50 basis with some exceptions. As noted above, we may divide assets disproportionately if one of the parties has a sizeable non-marital estate. But customarily we divide property equally. To do this, we start by preparing a marital balance sheet. This document is a recap of the assets and liabilities. Debt needs to be considered as well as assets. For example, we reduce a house value by any mortgages or other liens against the property.
Assuming a 50/50 split, if one of the spouses has more net assets on his or her side of the balance sheet, that spouse needs to pay the other spouse enough to equalize the property values. For example, if one spouse keeps the house and other assets worth $1,000,000 and the other spouse keeps assets worth $500,000, the spouse with the more substantial holdings owes the other spouse $250,000 to balance the distribution. Sometimes the offset is paid in installments over time, or sometimes the spouse will need to get a loan to pay off the money at the time of the divorce.
Identification, classification, valuation, and division of assets in most divorces is very complicated and wrought with risk. Make sure to consult with competent professionals with the experience and expertise to handle complex property issues. The lawyers and CPA at Peskind Law Firm are well versed with all aspects of matrimonial property law and are available to help.