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What you need to know about Divorce

F. The Equitable Division of Property

A no-fault divorce provides for what is known in Illinois as the equitable distribution of property.

In divorce actions, courts are authorized to fairly divide all mutual property owned by either spouse alone, together with a third party or with the other spouse.

Marital property is defined as all property acquired by either spouse during the marriage, except that which is known as non-marital property: property acquired before the marriage; 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 by a spouse after a judgment of legal separation; property excluded by valid agreement of the parties; and any judgment or property obtained by judgment awarded to one spouse from the other.

All property acquired by either spouse after the marriage and before a Judgment for Dissolution of Marriage or Declaration of Invalidity of Marriage including non-marital property transferred into some form of co-ownership between the spouses, is presumed to be marital property, regardless of whether title is held individually or by the spouses in some form of co-ownership.

It is important to note that as with marital assets, marital debts must also be equitably apportioned between the parties.

Equitable Distribution does not necessarily mean a 50-50, item-by-item split; but rather an emphasis on a balanced property division in consideration of other subjective variables. These variables include age of the spouses; the length of the marriage; the parties' health; the contributions of each party to the acquisition, preservation or increase/decrease in value of the marital and non-marital property, including the value of a homemaker to the family unit; the dissipation of marital or non-marital property by a party; the value of the property assigned to each spouse; the relevant economic circumstances of each spouse when the division of property is to become effective; any rights or obligations arising from a prior marriage; any valid pre- or post-nuptial agreement of the parties; education or vocational skills; employability; needs of each of the parties; the custodial provisions for any children; the right of a spouse having custody of the children to live in the family home for a reasonable period; whether an apportionment is in lieu of or in addition to maintenance; and the dependent spouse's ability to be rehabilitated and earn a living consistent with the lifestyle acquired during the marriage.

As a practical application of these definitions, consider the scenario where your spouse started a business during your marriage. The business is considered marital property and part of that business or its equivalent dollar value may be awarded to you. The fact that your spouse owns the business in their own name does not matter. The fact that they started the business during your marriage is what counts. In Illinois, a spouse who contributed support and financial resource while the other received an education is also entitled to compensation for their "investment". In terms of a divorce, it belongs to both of you.

Another application should consider the Illinois exception to the marital home. A woman with minor children can usually remain in the family house until the youngest child turns eighteen. After that, the practice generally is that the house is sold and the profits divided pursuant to a pre-determined proportion - whether by agreement of the parties through settlement or judgment of the court following trial. Any other marital property (e.g., cash, furniture, cars) is divided at the time of the divorce.

For many couples, the largest assets to be divided are not the ones immediately apparent: pension rights, profit-sharing, retirement benefits, personal injury awards, prospective awards from pending lawsuits, patents, copyrights and royalties all fall into the category of marital property and are subject to equitable distribution.

Under the 1984 Federal Retirement Equity Act, a dependent spouse may get an interest in their spouse's retirement fund as if they had money in the bank; but a 1986 amendment requires that they wait until the earliest date on which the retiree can begin collecting benefits, usually age fifty-five. This means that even when a husband does not actually start receiving his pension benefits, his wife can get her share of those funds, either in installments or in a lump sum. The percentage beyond half that a wife can get depends on what her lawyer can negotiate or the court orders. Although Federal law provides that she may be able to get all of it, this application has been slow to receive acceptance.

(i) Social Security. As long as you have been married for at least (10) years, you are entitled to receive derivative benefits from your spouse's Social Security - whether or not you were employed.

For example, an unmarried woman can receive retirement or disability benefits if she is sixty-two or older; but even if she is less than sixty-two, she can receive benefits if her ex-husband is receiving retirement benefits and she has been divorced for at least two (2) years. If her ex-husband dies, she can receive benefits at sixty, or over the age of fifty if she is disabled, provided she is unmarried or, as long as her children are under sixteen and entitled to benefits.

If a woman remarries, she can continue to receive her ex-husband's benefits if the remarriage is after age sixty, or after age fifty if she is disabled. She can also elect to take the benefit of her new husband's Social Security if it is larger than her own benefit.

A woman should remember that if she remarries, her Social Security records should reflect her new name. To do this, she should fill out an application and present proof of identity under her old and new names at a local Social Security office.

To receive a statement of earnings credited to you or your ex-spouse's Social Security record, fill out a form at the Social Security office, or have your ex-spouse fill one out, and mail it, with your correct name and Social Security number to:

Social Security Administration

Department of Health and Human Services

Baltimore, MD 21235

(800) 772-1213

Once the amount of earnings is determined, a call to your local Social Security office will determine the amount of monthly payment you will be entitled to.

(ii) Credit. If you have joint credit cards with your spouse, you are both liable for all charges incurred on the cards. The only sure way to protect yourself against liability for further charges is to cancel the credit card. You may have seen notices in newspapers stating "John Smith is no longer for any debts incurred by Mary Smith". This is not an effective way to limit your liability. Options to limit your liability include:

a) Notifying the credit card company directly by certified mail, return receipt requested, that you wish to close your joint account;

b) Obtaining court orders regarding the use of a card and responsibility for payment. Note: such orders are effective between you and your spouse but do not bind the creditor;

c) Establishing your own credit by obtaining a credit card in your own name immediately upon filing your divorce. Sears and JC Penny are good ones to try first. Establish a credit history by using the card for several months and paying promptly at the close of each billing;

d) Learning about your debt history by finding out whether there are liens against real property that has your name and/or spouse's name on it by checking with the county recorder. For a nominal fee, you may also contact a title company and ask for a copy of liens recorded;

e) Contacting a credit bureau to get your reported credit history.

After a divorce, the Consumer Credit Protection Act of 1968 prohibits the denial of a credit card because the applicant is a single or divorced woman.

It is illegal for creditors to ask your sex, except on a loan to buy or build a home (you do not have to use Miss, Mrs. or Ms. on the application); ask or assume facts about child-bearing or birth control; discourage your application; "score" your age differently if you are over/under age sixty-two; ask if there is a telephone in your name; ask for a co-signature or any information about your ex-husband if you are creditworthy; require you to reapply on an existing account or change the terms of credit if you become divorced; refuse a loan if you are qualified; or lend you money on different terms from those granted another person with similar income, expenses, credit history and collateral.

A lender may ask if you are married, unmarried (single, divorced or widowed) or separated, but they cannot deny credit because of it.

Creditors must include as income all part-time employment, child support and maintenance payments, but are entitled to proof that the income is steady and reliable.

If credit is denied, or an account is closed, under the Equal Opportunity Act, the applicant must be notified within thirty days after the application has been completed. The notice must state the specific reason for the denial of credit or tell the applicant that they have the right to request this information.

(iii) Health Insurance. The Federal government and Illinois require that under the circumstances of a divorce or legal separation, companies who employ twenty or more employees, both full- and part-time, on at least fifty percent of the working days in the previous calender year, must offer their employees, spouses, ex-spouses and/or dependents of the divorced or separated employees an option to continue their group health coverage.

This law is commonly referred to as COBRA, and it is a labor law not an insurance law.

After a divorce or legal separation is entered, Qualifying Event Notices are sent to the employee and (ex) spouse or proper dependent child by certified and first class mail within fourteen days of the Qualifying Event (i.e. the divorce or legal separation).

The covered employee, (ex)spouse or dependent who ceases to be a beneficiary under the plan must then notify the employer or insurance plan administrator, within sixty days, of their intent to continue under the plan for a maximum continuation term of thirty-six months. At the elapse of thirty-six months, it is presumed the beneficiary will have secured alternate insurance protection.

Please note, there is generally no obligation on the covered employee to provide payment for the COBRA benefits made available to their ex-spouse or dependents, and as a consequence, unless specifically negotiated for by the a party's attorney, the COBRA beneficiary will be expected to pay for their additional coverage received during this thirty-six month extension.

(iv) Bankruptcy. Frankly, the adage that "honest but unfortunate debtors deserve an opportunity to escape the impossible pressures of debt and again become economically productive members of society" is a wistful sentiment lost in the every day applications of divorce court.

a) Chapter 7, which is liquidation or straight bankruptcy is available to any individual without limitation. Yet those persons whose debts are primarily consumer debts may find their cases dismissed, upon motion by the court or the United States Trustee if "the granting of relief would be a substantial abuse of the provisions of the chapter".

The primary question is whether the debtor's ability to repay creditors out of future income is indicative of such an abuse when the debtor proposes to liquidate under Chapter 7 rather than to implement a plan under Chapter 13.

b) Chapter 13 is the reorganization chapter for individuals, but its eligibility is more complicated. It is available only to individuals with regular income who have unsecured debts of less than $250,000.00 and secured debts of less than $750,000.00. The limitation to individuals might appear to exclude business debts, but such debts can be dealt with in a Chapter 13 case if the business was a sole proprietorship; in such a case, the debts are liabilities of the individual who is the sole proprietor.

The requirement that the debtor have regular income reflects an expectation that creditors will be repaid from a future stream of income. That income need not derive from wages or salary; income from sources as diverse as welfare benefits and child support payments have been found to meet the requirement.

The most significant consequence of a bankruptcy filing is the automatic stay. As the name suggests, it automatically halts any effort by a creditor to collect from the debtor without notice. Generally, any benefits obtained by creditors during this period must be forfeited.

Several types of actions by family claimants enjoy an exception to this stay. First, actions to establish paternity or to establish or modify an order for maintenance or support are not covered by the stay. Second, actions to collect alimony, maintenance or support from property that is not property of the estate are also excepted.

What about property that IS property of the estate? All too often a divorced spouse has witnessed their former spouse go bankrupt and secure a discharge of their obligations incurred as a result of a property settlement or court order concerning property. Thus, when a payor-spouse later files a bankruptcy action, property division debts are a common source of contention.

The Bankruptcy Reform Act of 1994 substantially altered the conflict between federal bankruptcy and state domestic relations laws by making certain debts arising out of property settlement and hold harmless agreements nondischargeable. It has now been said that all marital debts are presumed to be nondischargeable where "the potential benefit of discharge to the debtor-spouse is outweighed by the potential detriment to the non-debtor spouse".

It has also been held that an award of attorneys fees in a final divorce decree is nondischargeable under the Bankruptcy Code when the decree contains an award of child support, maintenance, or combination thereof.

Often, insolvency and family disputes go hand in hand, even when the parties don't.

Sometimes a well-planned bankruptcy for both parties contemplating a divorce can eliminate one source of conflict, discharging joint debts and avoiding the risk that one party will discharge them later, leaving the other with the debts and insufficient property to offset them. Even if a joint filing is not the avenue of choice, a skilled family attorney aware of the possible consequences of a subsequent bankruptcy of the opposing spouse can plan to reduce or eliminate the negative impact on their client.

A joint filing is most common for married debtors. However, there are legitimate reasons for a one spouse filing: only one spouse incurred the debts; most of the debts are premarital; or the non-filing spouse has significant non-exempt assets. An experienced trustee will generally inquire whether any of the non-filing spouse's significant assets had their source with the debtor spouse.

The Bankruptcy schedules - particularly questions relating to the transfer and payment of debts within a year of filing - are a logical place for the trustee to look for avoidable transfers. In other words, well advised debtors disclose everything; the consequences of not doing so are grave, such as being denied a discharge or running afoul of federal criminal law. If a transfer has been concealed, the statute of limitations does not being to run until the concealment ends.

Of course, entering into a marital settlement agreement in connection with a divorce shortly before bankruptcy does not necessarily mean the parties are engaging in fraudulent transfers. Most such agreements are negotiated by the parties and their attorneys in good faith from adversary positions, and are not subject to avoidance. But, the timing of the spouse's bankruptcy, as well as the legal and personal relationship of the parties, may be critical in whether a transfer is effective or is recovered for the parties' creditors.