Under Illinois divorce law, the so-called “equitable distribution” principle (enacted in 1977) allows courts to allocate marital property in myriad ways. The asset mix in the “marital pot” in numerous cases, however, does not lend itself to a percentage division that a court is likely to order (or on which the parties might ideally agree). Lack of liquidity is a common reality; and, in some such cases, the would-be property transferor may prefer to draw on future income so as to effect a buyout of marital property claims. Commonly, this thinking leads to an arrangement in which, in lieu of property delivered to the other ex-spouse on entry of a judgment, a stream of future payments is structured as alimony for federal income tax purposes, buttressed with contractual terms providing for the stream to “ride through” most standard terminating events (such as remarriage, cohabitation, or death of the payor), as well as for the stream to be non-modifiable. Sometimes such a stream of payments is secured by an encumbrance on property. Various reasons exist for future alimony payments to be made in lieu of a turn-over of property at the time of entry of a divorce judgment; most frequently, illiquidity and overall tax planning are the primary motivating factors.
In today’s economic environment, it is a very difficult decision to opt for a divorce and end a dysfunctional relationship. Today there can be enough stress in people’s lives to make them hesitant to compound that problem by adding the stress of a divorce. However, there is a proven and slowly growing alternative to the traditional adversarial divorce. More frequently in today’s economy, people are pursuing alternative resolutions such as mediation.
Mediation is not for everyone. It requires two people who still respect one another, who can communicate without inserting emotional baggage into the conversation, and who share the common goal of maintaining a productive relationship for the benefit of their own future and their children’s. One usually hears the horror stories of bad divorces, but there are also many successful divorces. As a former judge, I presided over hundreds of cases. As a lawyer, I have represented hundreds of clients. Over the years, I came to realize that, in most cases, there is good in people that a qualified mediator can build on.
In mediation, spouses meet with a qualified neutral professional, usually an experienced attorney, to discuss their problems, exchange financial information, and work with the mediator to attain their own settlement without involvement of the courts, retained experts, accountants, or litigious attorneys. It takes special people to mediate their differences in a positive manner so that their settlement suggestions constructively build a successful resolution. In this way, the parties avoid prolong conflict and extensive costs.
A Primer on How Property is Divided in an Illinois Divorce Case
If you follow the tabloids and Hollywood divorces, you might mistakenly believe that property is automatically divided 50/50 in a divorce. While that is true in community property states like California, it is not true in Illinois. Illinois is an equitable distribution state, which means marital property is divided in “just proportions,” not necessarily 50/50. In deciding what are just proportions, the court considers a myriad of factors, including, but not limited to, each spouse’s contribution to the marital estate, homemaking contributions, waste of property, length of marriage, debt obligations, age and health, custodial provisions for children, and tax consequences. In short, there is not much that the divorce court is not required to consider in dividing property in just proportions. Significantly, the division of property does not turn simply on which party made the greatest financial contributions to the marriage. Non-financial contributions, such as homemaking and child rearing activities, are equally important, especially in long-term marriages.
In my experience, most judges faced with the task of dividing the marital estate start with an internal mind set of “why shouldn’t this be a 50/50 division?” and then allow the lawyers to argue why their respective clients should get a disproportionate division. In Illinois, some reported cases affirm as equitable 90/10 division of property in favor of one spouse; on rare occasions even a 100/0 division is found to be just. Property division is a fact-specific determination, but the vast majority of the cases reflect a division within the 50/50 to 60/40 range.
Litigants in a contested divorce often find that there are precious few matters on which they both can agree. Yet even the most contentious spouses can usually agree that the children’s college funds – usually kept in an IRS 529 Qualified Tuition Program – should be preserved for the children’s benefit.
Protecting a child’s financial interests and future education is a smart and admirable course of action to which all parents should strive. But spouses in contested financial litigation need to understand that money sequestered in a 529 educational savings account could still be considered a marital asset subject to distribution and is, therefore, not out of the reach of the account holder or the court.
A 529 educational account is an asset of the account owner (usually a parent) and is established for the benefit of a named beneficiary (usually the child). The child beneficiary has no present interest in the account or its proceeds. According to IRS Reg. Sec. 1.529-1(c), the account owner is entitled to “select or change the designated beneficiary of the account, to designate the funds to any person beside the designated beneficiary, or to just receive funds from the account.”