Understanding the Most Common Financial Issues That Can be Present During Your Illinois Divorce

 Posted on October 01, 2020 in Divorce

Everyone knows how much of an emotional and life-changing event a divorce can be. What many people do not realize is that getting a divorce can also have a major impact on your financial health too, both during and after the divorce. Many studies have been conducted and various groups of couples from many demographics and backgrounds have been observed to determine the differences in financial health before and after the divorce process. Though each divorce is going to be different because each couple’s situation is different, the general consensus is that divorce can majorly impact your finances and even lower your standard of living after everything is said and done.

Fortunately, this fact does not have to just be taken at face value. There are certain things that you can do to help protect your finances during your Illinois divorce, which will, in turn, help you protect your financial health after the divorce is over with and the decree is signed by the judge and both you and your spouse. Divorce can get complicated quickly, especially if there are complicated financial issues involved, which is why it is recommended that you hire an Illinois divorce lawyer to help you with the divorce process.

How Can Divorce Impact My Finances?

If you are not careful and make good decisions while you are going through your divorce, you could end up in a bad situation after the fact, though there may only be so much you can do. According to Bloomberg, divorce is going to lower your standard of living no matter what. However, your age when you get divorced and your gender both have an impact on how much your standard of living is affected after a divorce. Both men and women who divorce after the age of 50 will see their standard of living decrease much more than men and women who divorce when they are younger.

Women who get divorced after the age of 50 saw, on average, their standard of living drop by about 45 percent. This new figure is more than double the amount a younger divorced woman’s standard of living decreases after divorce, according to previous studies. Men, on the other hand, only experience a drop in their standard of living of around 21 percent if they get divorced after the age of 50. Younger men who get a divorce either experience a very small or negligible effect on their standard of living. No matter who you are, getting a divorce can have an impact on your finances and property, which is why help from a divorce lawyer is always recommended.

What to Do About Property and Debt Division

In the state of Illinois, one of the things that you must do before you finalize your divorce is divide up and specify who gets what in the divorce. Property division can be a long and tedious process, especially if you have a contentious spouse who wants to drag the process out. Illinois courts will always want you and your spouse to try to work out an agreement among yourselves before you bring your case to court. If you are unable to work out an agreement among yourselves, the next step is usually trying mediated negotiations, in which a third-party mediator helps you and your spouse stay on track and keep the conversation constructive and respectful. If you are still unable to reach an agreement, then you should bring your case to court as a last resort. The process of actually dividing property in Illinois is easy enough to understand, though there are specific caveats that must be followed for it to be accepted.

Marital vs. Nonmarital Property

One of the first things you must do is figure out what is and is not subject to distribution during the property division process. According to the Illinois Marriage and Dissolution of Marriage Act (IMDMA), marital property is any and all property acquired by either spouse subsequent to the marriage. However, there are exceptions to that rule. These include:

• Property acquired during the marriage by gift, legacy or descent or property acquired in exchange for this property
• Property acquired in exchange for property acquired before the marriage
• Property acquired by either spouse after a declaration of legal separation
• Property that has been excluded by a valid agreement between the spouses, such as a prenuptial or a postnuptial agreement

Factors for Distributing Property

Unlike other states, Illinois operates under the notion of “equitable distribution” of assets, rather than “equal distribution.” This means that the split of marital property between spouses may not always work out to be 50/50, but it should always be a fair agreement for both spouses. When determining an appropriate distribution of assets, several factors are considered, including:

• Each spouse’s contribution to the acquisition and preservation of the property
• The contribution of either spouse as a homemaker or caretaker
• Whether or not either spouse dissipated any assets
• The value of the property that is assigned to each spouse
• Each spouse’s relevant economic circumstances
• How long the couple was married
• The employability, health, age, education, and earning capacity of each spouse
• The tax consequences of the property distribution
• Custodial provisions for children of the marriage

Addressing Debt Distribution

In addition to dividing your marital property, you must also divide up any debt that you and your spouse happened to accumulate while you were married. This can include a mortgage that you may have on a family home, any vehicles you may own and any consumer debt, like personal loans or credit cards. Many couples forget about their shared debt when divorcing, but dealing with your debt prior to finalizing your divorce is the best thing to do.

The easiest way to deal with debt is to have most of it paid off before you file for divorce. However, for many people, this is not possible so you must make other arrangements. Whatever you do, you should not finalize your divorce without first having split up all of your assets and debts. When it comes to credit card debt, you should contact your card issuer to determine your options. If you are both listed as co-owners of the account, you may need to transfer the balance to a new account in one spouse’s name only to distribute that debt to one spouse. However, if one spouse is listed simply as an authorized user, they can typically just be removed from the account.

What Should I Do with the Family Home?

Mortgages, however, are a bit trickier. Dealing with the family home is always difficult during a divorce, especially financially. You are basically given three options to work with: one spouse can keep the home, you both can sell the home or you can continue to co-own the home. Co-ownership is not recommended because there is too much risk involved in it if your spouse does not keep up his or her end of an agreement. Your mortgage lending company does not care about your divorce decree and will not hesitate to begin foreclosure if payments are missed, damaging both spouse’s credit reports.

Keeping the home and refinancing in one spouse’s name only requires that spouse to be able to qualify for a loan with their own credit and income information. For some, this may be difficult going from two incomes to one income. However, the alternative is selling the home and using the proceeds to pay off the mortgage or splitting the proceeds between the two of you.

Dealing with Your Retirement Accounts

If you are getting a divorce and you have any type of retirement account, you may also need to determine how that will be handled during your divorce. What you do with your retirement account depends entirely on what type of account you have. If you have an individual retirement account (IRA), these are very simple and funds can easily be rolled over into another retirement account with no taxes or penalties. However, If you have an employer-sponsored retirement account such as a 401(k), you will need to have a qualified domestic relations order (QDRO) drafted so that your funds are properly distributed among you and your spouse.

What Is a QDRO?

If you or your spouse are required to pay out retirement benefits from an employer-sponsored retirement plan like a 401(k), then you will need a QDRO, which is an order or judgment that assigns a portion of the retirement plan’s assets to an alternate payee, which would typically be the receiving spouse. The receiving spouse is able to roll those benefits over into their own IRA account, though you are not required to put those funds into a retirement account. If you choose to spend the money, however, you will be required to pay the usual income tax rate on the entire amount.

If your retirement plan needs a QDRO to distribute the funds, you will need to ensure the QDRO is written clearly and contains all of the necessary information. The QDRO typically includes both spouse’s information as payee’s for the account, though, in some circumstances, a child or other dependent may be named as a payee. A QDRO must be approved by the court as valid so as not to invalidate the retirement plan for improper withdrawals or handling. To be considered valid, the QDRO must contain:

• The original plan owner’s name and mailing address
• The alternate payee’s name and mailing address
• The percentage of the plan that the alternate payee will be receiving
• How the alternate payee’s percentage will be determined
• The number of payments that are to be made to the alternate payee
• The method through which those payments are to be made

Questions About the Financial Aspect of Your Divorce? Speak with an Elmhurst, IL Divorce Attorney Today

For many people, getting a divorce can be a real, scary threat to his or her financial wellbeing. It can feel overwhelming to be bombarded with all of these financial issues of divorce, along with all of the emotional and familial issues that come with divorce. Divorce is a very crucial time for your finances, no matter what stage of life you are in, so it is important that you retain effective legal counsel.

At Weiss-Kunz & Oliver, LLC, we understand how important it is for you to be able to focus on what matters the most -- your family. Our knowledgeable DuPage County divorce lawyers are here to help you take care of the financial side of things so you can focus on your family and your children. Our team of trained professionals has years of experience settling divorce cases using negotiation, mediation, and collaborative law, allowing you to find a custom fit for your needs. To schedule a consultation to get started, call our office today at 312-605-4041.

Sources:

https://www.bloomberg.com/news/articles/2019-07-19/divorce-destroys-finances-of-americans-over-50-studies-show

https://www.forbes.com/sites/nextavenue/2018/07/15/the-6-nasty-financial-surprises-for-divorcing-women/#513287ae524b

https://www.ilga.gov/legislation/ilcs/ilcs5.asp?ActID=2086&ChapterID=59

https://www.thebalance.com/how-retirement-plan-assets-are-divided-in-a-divorce-1289260

https://www.thebalance.com/what-s-a-qdro-2894206