Impact of Market Volatility on Divorce Agreements

Following more than a year of stock market euphoria, February 2018 is thus far a month serving as a harsh reminder of the concept of market volatility. For spouses contemplating or in the midst of a divorce, the takeaway transcends mere numbers on a balance sheet.

In divorce cases, litigants have the option to take their case to trial or reach a settlement agreement. When litigants opt for the latter, their rights and obligations concerning issues of property allocation, spousal and child support, and the like are outlined in a Marital Settlement Agreement (“MSA”). The Illinois Marriage and Dissolution of Marriage Act (“IMDMA”) vests courts with the discretion to value assets and liabilities for purposes of property division as of the date of trial, or such other date as agreed upon by the parties or order by the court. 750 ILCS 5/503(f). Generally speaking, when litigants reach a settlement of their case, they use the date of divorce or one very close thereto as a valuation date.

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The Wedding is Off: Now What?

As we approach the end of February, we also approach the end of engagement season. According to WeddingWire, nearly 40% of engagements will happen between the months of November and February. In fact, Valentine’s Day ranks as one of the Top 10 most popular days to get engaged. In spite of best intentions, however, not all engagements (including those on Valentine’s Day) will lead to marriage.

So then the questions include-, what happens if the ring is sized, the reception hall booked, the flowers ordered, the dress purchased, and the wedding is ultimately called off? Who pays what? Who keeps the ring? Can you get your money back?

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The Heart of the Collaborative Divorce Process

On January 1, 2018, the Uniform Collaborative Law Act (“UCLA”) was enacted in Illinois. This means that divorcing couples, who want to preserve their relationship, protect their children and maintain privacy can contractually bind each other to resolve their divorce outside of the courtroom by choosing to use the Collaborative Divorce Process.

Pursuant to the UCLA, parties officially enter the Collaborative Divorce Process by signing a uniform contract called the “Participation Agreement”. As promulgated by Section 15(a)(4) of the UCLA, this contract, which I have had the honor and privilege of drafting with an esteemed committee of local Collaborative practitioners, specifically requires that in the event the parties terminate the Collaborative Divorce Process, they must discharge their Collaborative lawyers and professionals and obtain new counsel. The disqualification provision is the heart of the Collaborative dispute resolution model because it completely changes the divorce negotiations from one of positional bargaining (i.e. traditional litigation) to a series of transactions based solely on the goals and interests of the parties and their children (i.e. interest based negotiations). Thus, the signing of this Agreement by the parties empowers the parties and their trained Collaborative team to create win-win solutions and dissuades the parties from running into court to ask a judge to order a result.

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Legal Fee Savvy

Everybody likes a good deal. At Schiller, DuCanto & Fleck, LLP, we take comfort using a team approach which makes our resources go further and adds value for the client. Oftentimes, consumers of legal services ask about hourly rates only for the lawyer they interview, but seldom ask about rates for other lawyers, law clerks and paralegals that may work on the case. When legal services consumers hear their lawyers use a team approach, many assume that this means multiple lawyers doing the same things and thus they worry about double billing. In reality, however, the team approach does not equate to double billing. When used effectively, the team approach allocates work to the right billing level so that when the total fees are divided by the number of hours spent by professionals (paralegals, law clerks, attorneys), the blended rate is lower than the individual lawyers’ hourly rate. Allocating work to the right billing level means paralegals and law clerks deal with things like document organization, file management, basic collating and analysis (starting a balance sheet) while the leading lawyer analyzes the documents already organized and preliminarily analyzed to determine how they can shape case strategy to achieve the client’s goals. Similarly, this means less experienced lawyers (at lower rates) handling routine court appearances and more experienced lawyers (at higher rates) handling more complex or critical court appearances or those where a client particularly wants them there.

Work being done by a team allows for the allocation of work to the right experience level and the right cost level. It does not mean a client never sees the partner they consulted and wanted, but instead means that a client is working with a responsive team so that the client is getting the most value for their money. This approach costs the client less since, for example, if the lead attorney elsewhere charges $400 per hour and does virtually everything, that will ultimately cost the client more than it will cost if the lead attorney charges $450 per hour, but uses a multi-leveled team blended rate approach.


Supreme Court Refuses to Hear Texas Same-Sex Benefits Case

In what will be seen by many as a victory for the Christian right and a blow to the LGBTQ community, the U.S. Supreme Court let a challenge go forward this week to Houston’s practice of providing benefits such as health insurance to the same-sex spouses of city employees, leaving intact a Texas Supreme Court decision that calls the policy into question. The order does not force the city to change its policy or preclude the nation’s highest court from taking up the dispute later.

The Houston case began in 2013 when Jack Pidgeon, a local Christian pastor, and Larry Hicks, an accountant, sued the city after Annise Parker, a Democrat who was Houston’s first openly gay mayor, gave municipal spousal benefits such as health insurance and life insurance to same-sex married couples.

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The House Passes Their Tax Reform Bill While The Senate Finance Committee Approves an Amended Version of Their Initial Proposal

On Thursday, November 16, 2017, the House passed their Tax Bill with a vote of 227-205.  Thirteen Republican members (eight from New York and New Jersey), along with every single Democrat member, voted “No” on the bill.  Regardless of its passing, however, the bill still faces an uphill battle of aligning with what is emerging in the Senate.

Later that evening, the Senate Finance Committee also voted along party lines, 14-12, to approve the Republican Tax Reform Bill.  Debate continued into the evening on Thursday in the Senate Finance Committee, with several new amendments to the Senate Bill emerging.  The full Senate will take up the Tax Bill after the Thanksgiving Break, with the goal of passing Tax Reform by Christmas, or as President Trump put it “We’re going to give the American people a huge tax cut for Christmas – hopefully that will be a great, big, beautiful Christmas present.”

In light of that, let us take a look at some of the amendments made by the Finance Committee to the Senate Tax Bill.

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Senate Bill and House Amendments

As a follow up to my prior blog post entitled “New Tax Legislation”, last Thursday, November 9, 2017, the House Ways and Means Committee voted along party lines (24-16) in favor of passing the amended Tax Reform Bill to the full House. Since its unveiling on November 2, 2017, however, the House Ways and Means Committee made several amendments to the original legislation. In addition, Senate Republicans released their own proposed legislation on tax reform. In this blog, we will take a look at the revisions to the House Bill, the new Senate Bill, and of course, some key differences between them.

Amendments from the House Ways and Means Committee

Adoption Tax Credit

While the Adoption Tax Credit was reinstated, it was not without some drama. While the Democrats proposed an amendment that would have restored the credit, Republicans voted it down. However, after pushback from religious conservatives, the Republicans ended up reinstating the credit. As a refresher, the initial proposal would have eliminated the Adoption Tax Credit that allows a credit of up to $13,750 per child for qualified adoption related expenses.

Flex Spending Accounts for Childcare

Another interesting reinstatement came after much outcry from constituents regarding the elimination of Flex Spending Accounts for Childcare. An amendment passed earlier in the week restored the accounts, which allows families to save up to $5,000 pre-tax for child care expenses. However, this restoration is limited to the next five years only.

Child Tax Credit

While the Child Tax Credit remains at its increased level of $1,600, up from $1,000, a valid Social Security number will now be required to receive it. Currently, a Child Tax Credit can be claimed with a Social Security Number (issued by the Social Security Administration) or with an Individual Taxpayer Identification Number (“ITIN” – issued by the IRS) for certain nonresident and resident aliens. In other words, an ITIN can be obtained regardless of immigration status, whereas a Social Security Number can only be issued to citizens, green-card holders, and other limited groups, such as refugees and people granted political asylum. The motivation behind this was to eliminate tax credits for illegal immigrants.

Medical Expense Deductions

Presently, individuals are allowed to deduct medical expenses (including long-term care insurance premiums) that exceed 10% of their adjusted gross income. (This floor was actually raised from 7.5% under the Affordable Care Act). The initial tax legislation eliminated this deduction, and even after much debate this week, that elimination remains in the final version from the Committee.

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The Possible Impact to Employee Benefits Under the Proposed “Tax Cuts and Jobs Act”

This article was co-authored by Patrick T. Ryan and Anne Prenner Schmidt

In many cases, Employee Benefit plans represent the most valuable asset accumulated during the marriage. Dividing these funds in the event of a divorce can be a complex process and often have serious tax implications. The GOP proposed tax legislation the “Tax Cuts and Jobs Act” affects Employee Benefits in a significant way.

While it remains speculative to talk about legislation at this early stage, as follow up to our blog published November 6, 2017(1), it is important to understand just how Employee Benefits could be affected under this new proposal. Whether you are happily married or contemplating divorce, it is in the best interest of all married individuals to have an awareness of the employee benefit plans that they or their spouse may be entitled to through their employer, as well as how this impending legislation may affect those benefits.

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New Tax Legislation

Yesterday, the GOP unveiled their proposed tax legislation, the “Tax Cuts and Jobs Act.” While this is just the initial proposal, as soon as next week, the House Ways and Means Committee (the principal tax writing committee of the House) will begin to propose changes and modifications, before sending it to the floor for a vote (which, if it passes would then go to the Senate, and potentially be subject to further changes).

Although speculative to talk about legislation at this early stage – given that it will likely change before it even reaches the House floor, let alone passes the House and/or Senate – it will serve as the main blue print for what the ultimate legislation will look like (if it ever passes – which is still a big if).

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I Am Divorced…Now What? The Top 10 Steps To Take To Safeguard Your Financial Future

Once you have gone through the divorce process and are formally divorced, there are still many steps that can and should be taken to protect yourself. The following is a list of the top ten (10) actions you should take after your divorce has been finalized:

1. The Judgment for Dissolution of Marriage is the document that formally grants the divorce. Keep this document handy to verify to all pertinent institutions that you are actually divorced. Many places require a certified copy which usually has a special raised seal. Make sure you obtain one as part of your divorce process or ask your attorney to get one for you.

2. Unless otherwise required in your Judgment for Dissolution of Marriage, close all joint credit cards, bank accounts, financial accounts and the like. Additionally, remove your former spouse’s access to any and all accounts in your name. You do not want your former spouse to continue to access accounts, withdraw funds or make charges.

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