Articles Posted in Financial Issues in Divorce

One aspect in my practice that I have always been proud of is the fact that I have never pushed anyone to file for divorce when I believed that a divorce was not in their best interests.  I have met with some younger married spouses, disillusioned by petty arguments. and disagreements over finances, and I have often referred them first to see a marriage counselor or a financial planner to try and sort out the immediate stressful issue, and to work to preserve the marriage. In other words, a good Family Lawyer makes a good assessments of a family, and counsels clients correctly and carefully.

Today, I write with a good reason to consider starting a divorce as soon as is possible, for couples that need to separate and divorce for appropriate reasons.  The new tax bill recently signed into law has created some tax advantages for some taxpayers, but for couples divorcing the long-established ability to deduct spousal maintenance payments ( also known as alimony in some states) is being ended.  Illinois has a new maintenance statute that is a fixed formula for many divorcing parties, and it has always been the case that even with the new formula the tax advantage of the decuctibility of the payments has helped create settlements that work for both parties. My assumption is that when the legislature created the new maintenance statute, the deductibiity of maintenance was a factor in the way the formula was developed. The formula itself is already a bit heavy handed for the payor spouse (child support numbers tend to be lower, maintenance numbers much higher), and now with the loss of deductibility, new approaches will need to be taken in creating equitable support amounts. The excerpt below is from a financial planner’s article:

“Before new tax bill, alimony payments paid to a former spouse were treated as a tax deduction for the payer and income to the recipient. The payer received an above-the-line deduction, which decreased taxable income dollar-for-dollar by the amount paid. The recipient had to include the alimony payments as income, thereby increasing their taxable income by the amount received. As a result, income was often shifted for a recipient in a lower tax bracket, resulting in lower combined taxes paid.

My law practice has been distinguished over the years by being a prominent advocate for parents and children, especially when there are complex and difficult clinical issues involved in child custody matters. Having been a member of the American Psychological Association for over 15 years and following the seminars and literature on clinical issues in divorce and custody practice, I have tried to make a difference in this area of law and practice.

Yet, having been in my law school’s joint JD/MBA program, and being a student of accounting and finance, along with membership in divorce financial planning associations, I take a keen interest in the financial and valuation side of divorce practice as well. Occasionally, there are some big wins: the recent case of  In re Marriage of Liszka, 2016 IL App (3d) 150238 – Illinois Courts

is a case that I tried (over many weeks of trial)  that resulted in a very positive appellate decision for my client, along with having the law in Illinois on retained earnings in divorce clarified.  Said the appellate court:

As the calendar year 2016 winds down, and as I approach another hearing on issues of child support next week, I am mindful that Illinois’ longstanding (and to some, draconian) child support statute is going to be replaced by a new and more modern “income shares” approach to setting child support for divorcing parents with minor children.

Under the new statute, child support is calculated by determining the gross income of each parent.Then, with appropriate calculations, the incomes of each parent are then tax affected to determine the individual and total net income of the family. These calculations are usually performed by implementing software programs such as “Family Law Software,” used by my Firm and by many judges on their desktop computers. Once that total number is determined, there will be a published chart that will allow the parties and their attorneys to cross reference the amount of total child support that is found to be applicable to a given family at that income level, and for a given number of children. That total amount is then allocated depending on the percentage of income that each parent contributes to the total.

Thankfully, the new statute also provides for an adjustment to child support for cases where the parties implement shared parenting.  Keep in mind that as of January 1, 2016, Illinois abandoned its old approach to “custody” and “visitation,” and implemented a fully updated law that provides for “allocation of parental responsibilities.”  If a parent has the physical residence of a child for at least 146 overnights a year, the court may  decide to employ the “shared care child support obligation.”  Then, the court determines the percentage of time that the non-primary residential parent has with the child or children, and makes a further adjustment downward in the child support obligation.

Our Illinois Dissolution of Marriage Act ( IMDMA) has been going through a number of changes over the last year. One major change last year was the introduction of a spousal maintenance formula that created an entirely new landscape for the calculation for spousal support in divorce cases. This year we saw a major change to our child custody statutes, and went from an archaic “custody and visitation” model to a presumptive allocation of parental responsibilities or “shared parenting” model. Now, we are aware that the way we calculate child support is about to change, with these legislated changes becoming effective in July of 2017.

In 2017, we move to an “income shares” model, which takes into account the incomes of both parents vs. the prior system which looked only to the noncustodial parent’s income. The new law will then take a percentage of that income to determine the total amount that should be allocated for child support, with DHFS ordered to develop tables that will set out the amounts that are to be paid for child support, based on DHFS’ findings to as what families spend on their children as a percentage of income.

Interestingly, the new law (SB 3982) also allows a window of opportunity for parents with true sharing of parenting to offset the amounts to be paid, and the parent with the higher income paying only the overage amount of the offset.

A new law in Illinois as of January 1, 2015 changes how spousal support is determined for divorcing couples whose combined gross income is less than $250,000. This new law raises some interesting issues with respect to the global finances of divorce, so let’s examine briefly the new law of spousal support in Illinois.

The law, which was developed by the Illinois State Bar’s Family Law Section Council, creates a protocol for calculating maintenance based on the income of the parties and the length of the marriage. The law that has been in use for years essentially placed a high degree of discretion with the trial judge; parties to divorce sometimes had very little guidance as to what a given judge would award for maintenance, or if any award was to be granted.

Under the new law, a maintenance award should equal 30 percent of the payor’s ( the one who pays maintenance) gross income minus 20 percent of the payee’s (recipient) gross income, not to exceed 40 percent of the parties’ combined gross income when added to the payee’s gross. Where the parties both earn higher incomes, there is a threshold percentage that “caps” the award at no more than 40 percent of the combined incomes. Longer marriages benefit from longer terms of maintenance; shorter term marriages see a lesser time period involved.

My practice centers on high conflict divorces and complex child custody cases. In a number of my divorce and custody cases, there was also a high value marital estate that had to be valued and allocated, including marriages with business interests, stock options, and valuable investments and works of art. With my JD/MBA training and years of experience in financial issues, I am most comfortable with all property valuation and division issues in divorce cases. The WSJ highlights today the difficulties with allocating art in various jurisdictions ( Illinois law does not apply herein ).

Daniel Grant of the WSJ: Sept. 21, 2014

Who gets that painting?

The article below highlights some of the issues and concerns that attach to a divorce after a lengthy marriage. Under Illinois law, retirement assets are divisible between the parties; there is a common practice that IRA’s, 401(k)s and pensions are to be valued as of the date of the divorce, and allocated between the divorcing spouses equitably.

A person’s retirement plan is a lifeline to the future. For many, it is their most important asset, even more emotionally valuable than a house or investment account. With this in mind, it is critical that the identification, valuation, and allocation of all marital assets in a divorce be accomplished properly. Law Offices of Michael Roe has on many occasions, with higher asset estates, worked with skilled and cost effective Divorce Financial Planners to effectuate an allocation model that can be submitted to the court. A properly presented plan that is beneficial to our client can often drive the resolution of the case in the right direction. The article states:

AFTER enduring a divorce four years ago, Mike Miller’s vision for a golden retirement got an unexpected makeover. Mr. Miller had been married for more than 30 years, and now he was single. His longtime dream of a shared retirement was shattered. He was also facing another unwelcome outcome: living in a smaller home and taking fewer vacations.

One of the benefits of practicing Divorce and Custody Law is the opportunity to try cases that involve complex issues, the valuation of a spouse’s business interest in a closely held business being one of those complex issues. Along with my work through the years in the areas of psychology, family systems and custody law, I have utilized my experience from MBA school and working in and with businesses to develop skills in managing business and financial issues in divorce litigation.

Law Offices of Michael F. Roe has maintained strong relationships with some highly competent Business Valuation experts, that work as consulting and testifying experts in valuation cases. These experts are skilled at assembling the correct financials, and employing valuation protocols that are generally accepted in the business valuation industry. The goal of the use of such an expert is to provide the trial court with an expert opinion as to the appropriate value of the client’s company or shares as of the time of the divorce trial.

Just as important as having a good expert in a case is the ability of the trial lawyer to cross examine the other spouse’s expert (if there is one) as to that expert’s valuation opinions. In that sense, it is my job as a divorce trial lawyer to become as expert in that business valuation approach as the experts I am working with. My goal: optimizing my client’s outcome.