Articles Posted in Property Division

The dictionary definition of “dissipation” is waste by misuse, to spend or use wastefully or extravagantly, to squander, to deplete.  The definition contained in the Illinois Marriage and Dissolution of Marriage Act refers to a spouse’s wasting of marital assets during while a marriage is undergoing an irretrievable breakdown.  What does that mean?

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In the case of Marriage of O’Neill, the court stated, “dissipation arises when property is improperly used for the sole benefit of one spouse, for a purpose unrelated to the marriage, at a time when the marriage is undergoing an irreconcilable breakdown.”   If a spouse spends marital money frivolously on items or individuals not related to the marriage while the marriage is breaking down, the other spouse may make a claim for dissipation in a divorce. In many cases, this arises when one spouse spends marital money on an extramarital affair, extravagant travel, and/or expensive hobbies, none of which benefit the marriage or family. Often a spouse does not learn of his or her partner’s dissipation until the discovery or information-finding step in the divorce.

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When going through a divorce, one thing parties are tasked with is dividing the marital estate.  This involves dividing marital assets, and allocating the responsibility of marital debts as well.  Debt that is incurred during the marriage is presumed marital.

Student Loan Debt

But what if the debt is for student loans incurred by only one party during the marriage?  At first blush, it may not seem fair to require the spouse working during the marriage to be responsible for the student’s loans, or even be responsible for a portion of them.  At the same time, the student may not have income, or may have pursued his or her degree relying on the working spouse’s representation that he or she would help pay the loans.

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Imagine the following scenario:  Kim and her boyfriend Kanye decide they want to get married.  Kim and Kanye have acquired a lot of money, bling, and swag throughout their years of work in music and promotions.  Kim, being the more cautious one, decides that before she and Kanye get married, they should sign a premarital agreement (better known by some as a prenuptial agreement or “prenup”) to protect herself in the event that fame wreaks havoc on the fledgling marriage.

Money in mout

Kim’s attorney drafts a premarital agreement that provides, among other things, that Kim’s earnings from the businesses which she started before her marriage, including her reality show, clothing line, and promotional appearances, will remain her sole and separate “non-marital” income.   Kim’s attorney gives the agreement to Kanye, who briefly glances at it while laying down a track, and signs it, without having his attorney review it.

 

Three months after the wedding, Kim decides the whole “marriage thing” is not right for her and files for divorce, in Illinois of all places.  During their short marriage, she has raked in a grand total of $3,000,000 in earnings from her various non-marital businesses.  In court, Kanye argues that the premarital agreement should be invalid.  He also argues that, even if it is found to be valid, that Kim’s $3,000,000 in earnings are marital in nature and that he should get half.  What should the result be for poor Kanye?

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One thing that occasionally complicates a divorce is when a spouse has an ownership interest in a non-marital business.  Countless hours of hard work have gone into the business, there are stocks and ownership interests involved, or perhaps one spouse has control over the business and the other has none.  There are several important situations to consider when you are going through a divorce and business ownership is involved.  Some of these important implications are addressed below.

business divorce

Contribution and Reimbursement

All property that is acquired by either spouse during a marriage is presumed to be marital property.  This includes income generated during the marriage, even if the income is generated from working at a non-marital business.  For example, if a husband is working at his non-marital business and paying himself a salary of $100,000 per year, his salary is marital property.

 

When a spouse contributes personal effort during a marriage to non-marital property, such as a non-marital business, the efforts may also be deemed a contribution from the marital estate to the non-marital property.  The value of these efforts and contributions, if in the form of retained earnings or assets, can be subject to reimbursement to the marital estate, particularly if the contributing spouse has not been reasonably compensated.  So, if your spouse is paying him or herself a $50,000 salary, but the reasonable salary for the work he or she does is $100,000, the marital estate has a reimbursement claim for the difference.

 

Finally, it is important to note that only the appreciation of non-marital property resulting from significant personal efforts of the spouse are subject to reimbursement to the marital estate.  This means, for instance, that if one spouse has $100,000 in an investment account before the marriage, and at the time of divorce the account is worth $200,000 due solely to favorable market conditions, the marital estate is not entitled to $100,000 reimbursement even though the appreciation occurred during the marriage.

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Section 503 of the Illinois Marriage and Dissolution of Marriage Act requires that a court divide the marital property in just proportions considering all relevant factors, including, among other things, the dissipation by each party of the marital property.  Legally, a spouse dissipates (or wastes) marital assets when he or she:

  • uses marital property
  • for his or her own benefit
  • for a purpose unrelated to the marriage
  • while the marriage is undergoing an irreconcilable breakdown.

In order to prove dissipation, all four of the above elements must be shown.  Dissipation can manifest itself in several ways, such as concealing assets, transferring them, selling them, spending money, or incurring debt without the other spouse’s knowledge or consent.  For example, the Illinois Appellate Court has found dissipation in the following circumstances:

  1. In the case of Marriage of Thomas, the husband dissipated marital property by causing the devaluation of a marital business through his inattention to the quality of service that the company was supplying its clients, his failure to solicit additional clients, and by stealing clients for his new business, even though he did not gain any personal benefit.
  2. In Marriage of Gurda, the husband’s committed dissipation by taking marital funds and investing them in a company that became insolvent, without informing his wife. He sold marital property, settled a lawsuit and a workers’ compensation claim, and took out home equity loan secured by marital residence.  The funds were subsequently lost as a result of the bad investment.
  3. In Marriage of Aslaksen, the husband dissipated marital assets when he failed to make court-ordered mortgage payments, and as a result the marital home went into foreclosure.
  4. In Marriage of Landfield, the husband removed $200,000 from common cash fund account.
  5. In certain circumstances, one spouse’s use of marital funds for expenses following irretrievable breakdown of marriage may be shown to be so selfish and excessive as to constitute a dissipation of marital funds, which may be considered in dividing marital assets following dissolution.  See Marriage of Blunda.
  6. Transfer of property, even non-marital property, for inadequate consideration may constitute dissipation, and the court may enjoin attempted dissipation of assets. Wood v. Wood.
  7. In Marriage of Charles, the husband dissipated marital assets by spending in excess of $116,000 on an extramarital relationship, liquidating investments, and failing to satisfy tax debt, thereby incurring over $26,000 interest and penalties.

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In a divorce, the Court has the obligation to equitably divide the marital assets and debts, and determine whether maintenance would be appropriate.  While non-marital property is not subject to being divided in a divorce, it may have a profound impact on the appropriate division of the marital assets and debts.  It may also be considered in determining how much maintenance should be paid.

 

Therefore, the first question is what is “marital property?”

 

Section 503(a) of the Illinois Marriage and Dissolution of Marriage Act defines marital property as all property acquired by either spouse subsequent to the marriage, except the following, which is known as non-marital property:

  • property acquired by gift or inheritance;
  • property acquired in exchange for property acquired before the marriage or in exchange for property acquired by gift or inheritance;
  • property acquired after a judgment of legal separation;
  • property exclude by valid agreement of the parties (e.g., pursuant to a prenuptial agreement);
  • any judgment or property obtained by judgment awarded to a spouse from the other spouse;
  • property acquired before the marriage;
  • the increase in value of property acquired by a method listed in paragraphs (1) through (6), irrespective of whether the increase results from a contribution of marital property, non-marital property, the personal effect of a spouse, or otherwise, subject to the right of reimbursement provided in subsection (c) of this Section; and
  • income from property acquired by a method listed in paragraphs (1) through (7) of this subsection if the income is not attributable to the personal effort of a spouse.

 

The law is clear: both inheritance and property acquired before marriage are non-marital.  This means that the party who owns the non-marital property will be keep it in the divorce, and the other party will have no claim to it.  In cases where one spouse has a sizeable amount of non-marital property this may seem unfair, particularly in the case of a long-term marriage.  Also, unlike property, a spouse’s non-marital income may be considered when determining the maintenance award to the other spouse.

 

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Brad is a financial manager with Big Business USA. He earns an annual salary, and doesn’t have an employment contract. However, his employer does give him the opportunity to receive an annual bonus, based on the company’s performance in general, and Brad’s performance in particular. Whether or not Big Business USA actually pays Brad a bonus is a matter within the company’s sole discretion. If they do decide to pay him a bonus, his award for this calendar year will be paid next year, in February.

 

Brad is married to Angie. Except for one year in which he received no bonus at all, Brad has earned a large bonus every year that he’s been with Big Business USA. Eventually, the couple starts having marital trouble, and Angie files for divorce. They can’t agree on anything, and the case is set for trial in September. Brad has been working hard and the company has been making enormous profits, and both Brad and Angie expect Brad to get a big bonus next February. Because the divorce will be finalized in September, Angie argues that 9/12 of the bonus would have been earned during the marriage, and therefore considered “marital property.” Her argument is based upon the Illinois Marriage and Dissolution of Marriage Act, which creates a legal presumption that all property acquired by either spouse during the marriage is marital property, unless it was acquired in a way that makes it non-marital. 750 ILCS 5/503(a). A few examples of non-marital property would be property which was acquired by gift or inheritance, or property subject to a prenuptial agreement. Marital property is divided equitably among the parties in a divorce. Non-marital property is not.

 

Brad argues that when the bonus check arrives in February, he and Angie will already be divorced. Therefore, he claims, it is not property “acquired during the marriage,” and should not be considered marital.

 

Unfortunately, the statute says nothing about a situation such as the one that arose in Brad and Angie’s. Specifically, there is no mention as to how a court should classify a non-vested, discretionary bonus issued after the divorce but attributed to one party’s employment during the marriage. In 2013, the Illinois First District Appellate Court decided the issue in the case of In re Marriage of Wendt. In that case, the court ruled that because the husband’s receipt of a bonus was uncertain and not guaranteed by any employment contract, it was only an “expectancy interest” and not actual “property” acquired during the marriage. Therefore, the court decided that the bonus was not marital property, and the wife was not entitled to any of it.

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In my last post, I set forth the legal framework in which Illinois courts examine whether property is marital or non-marital.  In this post, I apply that analysis to a hypothetical fact pattern.

Let’s assume Greg and Sandy are married. During the marriage, they purchase a house and title it jointly. During the marriage, Greg gets himself into legal trouble, and fears that he is going to be sued for several hundred thousand dollars. He hires a lawyer to prepare a quitclaim deed, and transfers his interest in the house to Sandy. The lawyer records the deed, making Sandy’s ownership of the property public record. Fortunately, the lawsuit Greg feared never materializes. They continue living in the house together until Greg files for divorce 10 years later. In the divorce case, Sandy claims that the house is her non-marital property.

Legally, the fact that the house was purchased during the marriage sufficiently raises the presumption that it is marital property under 750 ILCS 5/503(a). The fact that the parties initially titled it jointly reinforces that presumption. If Sandra wishes to assert that the residence is non-marital, she bears the burden of presenting evidence at trial to show that it was acquired as non-marital property under 750 ILCS 5/503.

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A common misconception many people have at the start of the divorce process is that only jointly-titled assets are considered marital property, and that everything else is not. For a number of reasons, often times the asset in question is the marital residence. Perhaps the husband has bad credit, and can’t get approved for a mortgage loan, so the house was purchased solely in the wife’s name. Perhaps, the wife is self-employed, and titled the house in her husband’s name to protect it from potential creditors. Litigants are usually either shocked or relieved to learn that, under Illinois law, the determination of whether house is marital or non-marital depends upon when and how it was acquired, and not necessarily on how it is titled.

Before a court may dispose of property in a divorce case, it must classify the property as either marital or non-marital. After classification, each spouse’s non-marital property is given to that spouse, and the marital property is divided in just proportions. Marriage of Hagshenas, 234 Ill.App.3d 178, 186, 600 N.E.2d 437 (2d Dist. 1992).   Pursuant to 750 ILCS 5/503(a), “marital property” means all property acquired by either spouse subsequent to the marriage, except for property which falls within certain enumerated categories. In order for property acquired during the marriage to be deemed non-marital, the party claiming it to be non-marital must present evidence that it was acquired in one of the following ways:

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