Articles Posted in Property Division

Perhaps no issue is the source of greater confusion among divorce lawyers than the issue of commingled property and contribution claims.  That confusion is compounded by the fact that in practice, judges have differing opinions on when a contribution claim is appropriate and when it isn’t.  Thus, outcomes vary greatly from one  judge to another.

 

It may be helpful to start by defining what a contribution claim is not.  It is not an assertion that an asset is the non-marital property of one spouse or the other.  Rather, a contribution claim begins with the undisputed common understanding that marital property and non-marital property have been commingled together, and we need to figure out who is entitled to what.

 

Marital and non-marital property are defined by statute under 750 ILCS 5/503(a).  A contribution claim is essentially a claim for reimbursement.  The statute sets forth the rules as follows:

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In just a few short years, cryptocurrency has moved from the fringes of the technology and finance worlds into the mainstream.  According to a Pew Research Poll conducted in November 2021:

  • 86% of Americans had heard “at least a little” about cryptocurrencies,
  • 24% claimed to know “a lot” about them, and
  • 16% had personally invested or traded in them

Among those who had invested or traded cryptocurrencies, the largest cohort was men between the ages of 18 and 29, of whom 31% had personal experience.  All of those statistics were significantly larger than what Pew found in its study that was done back in 2015.

If you or your spouse own crypto assets (or if you suspect your spouse does, but you aren’t sure), what should you do in the event of a divorce?  How do you go about finding the assets, valuing them, and dividing them?

The first thing you should do is hire an attorney who has personal, first-hand experience investing or trading in cryptocurrency.  As the Pew Research Poll cited above shows, while a large majority of people have heard a little about Bitcoin, Ethereum, Solana, NFT’s (non-fungible tokens) and others, only a small minority of those people have actually dealt with them.  The concepts, terminology, and mechanisms for buying, selling, and trading are completely foreign to most Americans, and that includes most divorce lawyers.  At Kollias, P.C., we have not only handled numerous cases involving crypto assets, but our firm has also accepted payment in Bitcoin and other cryptocurrencies since 2019.

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When going through a divorce, a marital asset is defined as any asset that a party accrued during the marriage. For example, a husband’s retirement account that accrued during the marriage would be considered marital, while any portion of his retirement account that he accrued prior to the marriage would be considered non-marital. Therefore, when going through a divorce, the wife would only be entitled to the marital portion of the husband’s retirement account. The wife would not be entitled to anything that the husband accrued prior to the marriage.

 

Of course, with any legal issue, there are certain exceptions. Cue the Martin v. Martin case that came down on June 20, 2019 in Florida. This case specifically dealt with military service and how pre-marital military service credits could become a marital asset in a pension. What most people don’t know is that a member of the military is required to accrue 20 years of military service to receive military retired pay, which is the proper term for what people often refer to as a “military pension.” If a servicemember has less than 20 years of service, they are unlikely to receive retired pay. However, those years of service can be applied to certain defined benefit pension plans to enhance the value of the monthly benefit at retirement age.

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Generally speaking, retirement benefits that are earned during the marriage are considered marital property under the Illinois Marriage and Dissolution of Marriage Act. However, determining the amount of spousal retirement benefits that are marital property is often times a central issue to the division of the marital estate upon divorce. In particular, retirement benefits such as a defined benefit plan or a pension can be more complicated to value at the time of divorce, especially where the employee spouse is not yet eligible for retirement.

 

A defined benefit plan is a type of retirement plan that accrues benefits usually pursuant to some formula. This formula often will take into account several variables such as salary, length of service, and a multiplier. Because of these variables, the exact amount of the benefit that the employee will receive cannot actually be determined until they retire and the variables become fixed. Sometimes, after a certain number of years of employment, the pension plan may be able to produce an estimate of what the employee will receive upon retirement. However, the accuracy of the benefit amount depends on how close the employee is to actually retiring. Generally, under a defined benefit plan, the benefits are not considered to be “mature” because they depend upon the employee spouse reaching a certain age and they cannot be immediately paid to the other spouse (or “alternate payee” under the plan) at the time of divorce or entry of the Qualified Domestic Relations Order (“QDRO”). So, what do courts do when an employee is not yet eligible for retirement, but a portion (or all) of the pension or defined contribution plan is marital and subject to division upon divorce?

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It is not uncommon for a spouse to have  received an inheritance during the marriage.  When people are divorcing, one of the biggest issues is how the court will divide their assets. The first step a court must take when determining how to divide assets in a divorce case is to classify those assets as either marital or non-marital.  How would an Illinois court classify the inheritance?  Is it marital or non-marital?

 

Pursuant to Section 503(a) of the Illinois Marriage and Dissolution of Marriage Act, all property acquired during the marriage is presumed to be marital property, except where that property is shown to be obtained by a certain method. Specifically, the statute lists “non-marital” property as “property acquired by gift, legacy or descent or property acquired in exchange for such property.” One party’s inheritance in a divorce case would typically fall under this category of non-marital property.

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When two people get divorced, the court allocates marital property among the parties. Previously, family pets were considered “property” and were allocated as such.

 

The seminal case in Illinois to address issues with family pets was Marriage of Enders, which was decided in 2015.  In this case, the parties agreed to “joint custody” of the two family dogs. Thereafter, the wife in this case denied the husband “visitation” of the two dogs. As a result, the husband filed a petition requesting visitation with the two pets. The trial court determined that the husband had no visitation rights, and the appellate court affirmed.

 

Subsequently, the Illinois legislature amended the Marriage and Dissolution of Marriage Act.  Now, Section 503(n) provides:

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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?

 

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.

 

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.

 

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.

 

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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