Imputing Retained Earnings of a Sub-S Corporation for Purposes of Support

The issue of whether a certain type of business profit should be considered personal income forBag with support support purposes has always been a difficult one.  A recent Illinois Appellate Court decision may have clarified the issue.

By way of background, a sub-S corporation is a pass-through entity often utilized in small businesses for federal tax purposes. The business does not pay income taxes at the corporate level. Instead, the income is directly passed through to its shareholders based on their ownership interest and the shareholders pay taxes on their allocated portion of the earnings.  The tricky part, however, is that the shareholders pay taxes irrespective of whether the income is actually distributed to them. Making things more complicated, it is not uncommon for sub-S corporations to make distributions in an amount necessary only to cover the tax liability since taxes are owed irrespective of whether a distribution is made.

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On Property Rights for Same Sex Spouses

The past decade has seen tremendous progress in the battle for marriage equality.  State bans onDivision of property at divorce same sex marriage are falling one after another, granting these families the legal recognition they were denied for too long.

On June 1, 2011, the Civil Union Act became effective and Illinois not only began granting civil unions, but also giving immediate recognition to “substantially similar legal relationship[s] . . . legally entered into in another jurisdiction.”  750 ILCS 75/60.  Three years later, on June 1, 2014 same sex marriages were fully recognized in Illinois under the Religious Freedom and Marriage Fairness Act which incorporated the same reciprocity language for marriages previously entered in other states.

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The Illinois Supreme Court Rules that the “Equitable Adoption” and “Functional Parent” Theories Cannot be Raised By a Nonparent Seeking Custody of a Child

This past week, the Illinois Supreme Court delivered its long-awaited answer to a question which hashands -  baby and parents been debated in the family law community for some time: does the doctrine of “equitable adoption” – first recognized by our Supreme Court in its 2013 decision in DeHart v. DeHart, 2013 IL 114137 – also apply in the context of child custody actions? In In re Parentage of Scarlett Z. – D., 2015 IL 117904, the Court firmly closed the door on a nonparent raising an equitable adoption argument in a custody case by limiting its application to “the context of inheritance.” Further, the Court similarly foreclosed arguments that a “functional parent-child relationship” provides a nonparent with standing to seek custody of a child.

It has been nearly two years since the Illinois Supreme Court broke new ground by recognizing the “equitable adoption” doctrine for the first time. This doctrine allows a person who was accepted and treated as a natural or adopted child, and as to whom adoption was promised or contemplated but never legally achieved, to share in the inheritance of the promisor.

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Governor Rauner Proposes Changes to Illinois Pension Plans in Budget Address

Governor Rauner proposes to cut billions of dollars from the State of Illinois’ next fiscal year’spension IL budget.  The fiscal year in Illinois runs from July 1 to June 30th.  Approximately half of the funds cut are proposed to be due to cuts to Illinois Pension Plans.  The proposed budget cuts would have a significant impact on divorced or divorcing parties where a State Pension constitutes a significant asset in a prior divorce settlement or their current marital estate.  The budget cuts could significantly impact the actuarial value of these pensions.

The Governor proposes to cut funds due to pension plans is by converting all of the state employees (except for state police and firefighters) to “Tier 2” employees as of July 1, 2015.  Tier 2 previously applied only to employees hired after December 31, 2010.  All persons hired before January 1, 2011 were in Tier 1.

The governor estimates his changes will cause the amount of the pension contribution needed for the next fiscal year to be $2.2 billion less.

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Infidelity

Marital infidelity is common and much has been written on the subject. Recently, the Wall StreetJealousy Journal published an article entitled “The Signs Before An Affair”, Wall Street Journal, January 27, 2015, page D1.  While not necessarily scientific, the “signs” include:

  • Gender;
  • Certain ages being more prone to cheating;
  • History of past infidelity;
  • Dissatisfaction with the current relationship;
  • Exposure to potential partners at work;
  • Thrill seeking or narcissistic personal traits.

Moreover, statistics suggest that sometime during their marriages, 21% of men and 15% of women are involved at some time in an extramarital affair.  See National Opinion Research Center’s General Social Survey. Other statistics are even higher.

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Why is Alienation Difficult to Identify?

In contested custody cases, some divorcing parents claim “Parental Alienation Syndrome”. It is notiStock_000004586131Small surprising that they are often using the term incorrectly, especially since psychologists and courts alike cannot agree on the meaning of this term.  While the syndrome was identified over twenty years ago, it is still the subject of current dispute because, while easy to define, it is not at all easy to accurately identify.

At its core, parental alienation is a campaign of denigration by one parent against the other parent which engages the children and destroys familial bonds.  In the cases where this claim is being made, it is usually when a parent believes that he or she is being targeted either because the other parent treats them poorly in front of the children or because a child develops anger or indifference towards them.  In and of itself, however, these behaviors do not prove that there is in fact parental alienation.

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Imputing Income

Because of the economy over the past few years, many of my clients have changed jobs and eveniStock_000006782296XSmall careers. While an employment change sometimes influences the outcome of child custody or visitation, it almost always impacts the calculation of support. One reason behind this is Illinois law on imputing income.

Imputing income simply means that a court can treat a party as having more income than he or she actually earns at the time, which is often used to ensure that a party is not motivated to stay out of work in order to avoid paying support. However, under the right circumstances, a court can sometimes impute additional income even when a party is employed.

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Private Conversations Protected Under New Illinois Eavesdropping Law

On December 30, 2014, Gov. Quinn approved new rules regarding how private conversationsiStock_000000531602Medium can be recorded following the Illinois Supreme Court’s decisions this past March in People v. Clark, 2014 IL 115776 and in People v. Melongo, 2014 IL 114852, which struck down Illinois’ prior eavesdropping law for being overly-broad. Illinois’ previous eavesdropping law was among the strictest in the nation, making it illegal to record anyone, even in public, without their permission.

The new law now draws a distinction between a “private” conversation and other public communications, and provides that a person commits eavesdropping when he or she knowingly and intentionally:

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Chicago Works to Improve Response to Domestic Violence Cases

The spotlight on efforts to combat domestic violence continues to shine on groundbreaking changesiStock_000019213639Small in policy and procedure developed by a Chicago citywide task force formed last year by Mayor Rahm Emanuel. The task force – which is a collaboration between the Mayor’s office, the Chicago Police Department (CPD), the office of the Cook County State’s Attorney, the city Department of Family and Support Services and the Chicago Metropolitan Battered Women’s Network – has formulated new training protocols for first-responding officers to increase sensitivity to the psychological and emotional aspects of domestic situations, enhance coordination between the police, the prosecutors and service providers to keep victims safe, and to improve evidence collection techniques to assist in prosecution and conviction of offenders.

Against a backdrop in which the CPD annually responds to more than 200,000 domestic- related calls, Mayor Emanuel explained the need for this coordinated response by pointing to the 31 domestic violence-related murders in Chicago in 2013, and the fact that many of these victims contacted the police at least once before they were killed. Believing that “[i]f we handled it right the first time, we could [have] prevent[ed]” these deaths, Emanuel charged the group with improving the system. To that end, focus was placed on the pivotal role police officers play as the first contact abused women have with the justice system when they decide to seek help and leave their abusers.

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Illinois Pension Reform Found Unconstitutional

There appears to be good news for state employees.  On Friday, November 21, 2014, Sangamon iStock_000019128209SmallCounty Circuit Court Judge John Belz found that “without question” the pension reform law is unconstitutional since the Illinois Constitution contains a provision that a public worker pension cannot be “diminished or impaired”. In reaching his decision, Judge Belz stated that  “the state of Illinois made a constitutionally protected promise to its employees concerning their pension benefits… Under established and uncontroverted Illinois law, the state of Illinois cannot break this promise.”

The pension reforms found to be unconstitutional include reducing and suspending cost-of-living increases for pensions, raising retirement ages and limiting salaries on which pensions are based. Accordingly, per this recent decision, the pension benefits of individuals in the Teachers Retirement System (“TRS”), State Universities Retirement System of Illinois (“SURS”) and State Employees Retirement System of Illinois (“SERS”), will not be affected and the benefits they are presently earning will not be changed. While pension recipients may feel a sigh of relief, they should be aware that this may not be the final word since Illinois Attorney General Lisa Madigan has promised to appeal to the Illinois Supreme Court.

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