Strategic approaches for dividing assets in divorce include negotiation, mediation, and prioritizing your needs versus your wants. Always document transactions and agreements. You and the other party should fully disclose assets and understand their value. You should also have a firm grasp of possible tax implications relating to asset division. The same idea goes for any future costs such as property taxes for a house in Oakbrook Terrace, IL.
Community Property Laws in Illinois
Illinois is an equitable distribution state, not a community property state. Most states follow equitable distribution models.
Equitable distribution means courts do not automatically split divorce finances and assets 50/50, but consider factors such as each spouse’s employability, who has physical custody of the children, the length of the marriage, and any prenuptial agreements.
Another key consideration is whether an asset is marital property or nonmarital (separate) property.
Marital Property vs. Separate Property
Marital property refers to assets either spouse acquired during the marriage. It includes income, real estate, investments, and personal property.
Separate property includes assets and property belonging to one spouse. Assets the spouse had before the marriage and any gifts or inheritances received during the marriage are typically separate, as is property that a prenuptial or postnuptial agreement identifies as separate.
However, it is fairly easy for separate property to become marital property. For example, one spouse might use his or her separate savings account to help pay for the family home or pay household bills. In this case, that savings account might become marital property.
Also, if separate property such as a house increases in value during the marriage because of both spouses’ efforts or contributions, that increase may move the separate property into the category of marital property.
Factors That Determine the Equitable Distribution of Assets
The principle of fairness, and not 50/50 equality, governs dividing assets in divorce in Oakbrook Terrace, IL. The top factors include these.
- Length of the marriage: Longer marriages tend to mean more equitable divisions because the spouses had more time and opportunities to make contributions.
- Contributions to the marriage: These are financial and nonfinancial and include keeping up the home, raising children, and supporting the other spouse’s career or education.
- Custody and childcare responsibilities: If one parent has primary custody, that parent might get a more significant share of the assets to provide a stable home for the children.
- Age and health of spouses: A spouse with health issues or who is closer to retirement age could receive a larger share.
- Debts: Marital debts, such as mortgages, loans, and credit card debt, can be offset against the value of marital assets.
Other factors include the standard of living during the marriage, so both spouses can maintain a lifestyle similar to what they had. Tax consequences matter, too. If one spouse stands to incur serious tax liability from an asset, this fact can adjust the distribution accordingly (perhaps the spouse gets more from the savings account, for example).
Benefits of Negotiation and Mediation in Divorce
Negotiation and mediation in Oakbrook Terrace, IL, offer benefits such as cost-effectiveness and faster resolution. The alternative could be a contested divorce, which can take much longer. It can require a year or several years, especially if court backlogs apply.
Negotiation and mediation do not involve lengthy court battles and are less stressful emotionally and financially. The couple also retains more control over decisions, whereas a judge might otherwise decide issues for them. People who feel empowered in deciding divorce issues are often more satisfied and more likely to comply with the outcome.
If children are involved, negotiation and mediation can also help preserve a good co-parenting relationship because they are less adversarial.
How to Safeguard Your Financial Interests During Asset Division in Oakbrook Terrace, IL
One important step is to have the help of an experienced family law attorney. This person can help you build a strong case and make informed decisions.
It helps to know what your financial interests are ahead of time, so gather all relevant financial documents such as bank statements, tax returns, investment account statements, mortgage documents, and retirement account statements. Create an inventory of your assets and debts, with sections for what you consider marital and separate property. For nonmarital assets, try to provide evidence of your ownership.
List the values and ownership status of each asset as you understand it. Seek professional valuations for complex assets such as real estate, businesses, or investment portfolios. Doing this reduces the risk of disputes during negotiations.
A financial advisor who specializes in divorce can offer guidance about your investments, retirement accounts, and future financial planning. This person or a separate tax professional can also help you learn about the tax implications of different asset division options. Other tips for safeguarding your financial interests include:
- Seek temporary spousal support (alimony) if you financially depend on your spouse.
- Close joint credit accounts or credit cards to prevent your spouse from accumulating more debt. Open new individual accounts if necessary.
- Review and update beneficiary designations on life insurance policies, retirement accounts, and other financial assets to reflect your post-divorce wishes.
- Watch for possible financial manipulation or hidden asset transfers by your spouse. Set clear financial boundaries as early as possible to minimize the chances of shady or illegal behavior.
Try to make decisions based on financial considerations rather than emotional attachments. Sentimental ties to assets such as a house sometimes do not match an asset’s practical or financial value. Focus on your needs versus your wants.
Tax Implications of Asset Division
Capital gains tax and the possible taxation of retirement accounts are just two of the potential tax implications of asset division. When you sell or transfer assets such as real estate or investments, capital gains tax may apply depending on the cost basis and holding period.
Meanwhile, a Qualified Domestic Relations Order can come into play when retirement accounts such as 401(k)s or IRAs get divided in a divorce. The QDRO helps avoid early withdrawal penalties and taxes, but the receiving spouse can still face taxes when taking distributions.
Other tax matters that might apply to your divorce relate to spousal support and child-related tax deductions. (Child support payments are not deductible, nor are they taxable income). Discuss who will claim children as dependents for tax purposes, as this decision can significantly affect tax liabilities.
The timing of your divorce matters, too. If you are still legally married on December 31, you may have the option to file jointly or separately, which can affect your overall tax liability.
Spousal maintenance, also known as alimony or spousal support, comes up in some divorces, particularly when there is a significant income or financial resource disparity. Maintenance may be necessary due to disability, health issues, or one spouse’s limited work due to childcare responsibilities. This type of support can be short-term while the spouse in need transitions to more self-support or stability. The longer the marriage and the greater the disparity, the longer spousal support payments might continue.
Financial Needs and Earning Capacity of Each Spouse
In general, the aim of spousal support is to be as temporary as possible to help the lower-earning spouse into financial independence. Spouses requesting support typically consider their living expenses, which include housing, utilities, groceries, transportation, and health care. They also consider how debts such as mortgage loans impact their financial situation.
Many requesters also factor in health care expenses, insurance premiums, and any special medical needs. If children are involved, the spouses may have to think about childcare expenses and other factors. The standard of living during the marriage is likely to come into play as well.
When assessing earning capacity, the court evaluates the requesting spouse’s educational background and skills to evaluate his or her ability to get work. The court considers whether the spouse requires additional education or training and looks at employment history, work experience, and any gaps in employment. A consistent work history and recent work experience indicate earning capacity. The court may assess the health of the local job market, the spouse’s age, and whether the spouse will have primary responsibility for any children.
How an Attorney Can Help
Some couples can reach marital settlement agreements on their own, but may make mistakes that cost them down the road. For example, guilt might cause one spouse to give up an asset he or she was entitled to. Attorneys can advocate for you and minimize the chances of these errors happening.
Attorneys can also help months and years after the fact. Understanding how to modify a marital settlement agreement can be tricky, and attorneys can smooth the process out. They offer assistance before, during, and after a divorce. Attorneys also help with tax implications and QDROs for the retirement account division. They help ensure the enforcement of agreements, too.