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COMPLEX ISSUES IN ILLINOIS DIVORCE CASES |
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Assets Acquired Before and During Marriage. The husband is the owner of a business along with his mother and father. Several years before the marriage he purchased shares of stock in the business and bought a 10% interest. After the marriage his parents, on the husband’s birthday, gave him another 15% of the shares of stock. How will the shares of stock be divided in the divorce? |
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Mixing Your Own (non-marital assets) with Marital Assets. Before the marriage the husband owned a farm. During the marriage he sold the farm. Payments were made to him over several years with annual payments of $500,000 each. The husband had a savings account and the parties had a joint checking account. Shortly before the divorce the husband received a $500,000 check. He deposited it in the joint checking account and about a month later he wrote a check for $500,000 for shares of stock he purchased in his own name. In the divorce the husband claims those shares of stock as his own, non-marital property. The wife claims that the shares of stock are marital property to be divided between the parties. |
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Value of a Business. During the marriage, about 20 years ago, the husband and wife liquidated some assets and borrowed money to develop a manufacturing company. At the time of the divorce the manufacturing concern is not doing as well as it did in former years because the same manufactured goods can be bought cheaper from China. The company has 30 employees. The husband travels a great deal to promote the goodwill of the company. The husband claims that at most the company is worth “book value” (the value of its assets less the debts of the business). The parties agree that the tangible assets of the business are worth $1.5 million, but the wife claims that the business has an additional $1 million value (for a total of $2.5 million) on account of the value of the goodwill of the business. What should be the value of the business? |
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High Income Spouse and the Divorce Settlement. The husband is the CEO and a major shareholder of a large business. In the year previous to the divorce being filed, he paid income tax on $850,000. This is a marriage of 16 years. The children are 12 and 14 years old. The wife has a college degree, but during the marriage was never employed outside the home. The Divorce Act calls for child support of 28% of net income for two children. Should the husband pay 28% of his net income for child support? |
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Some divorce cases are dimple and should be capable of quick and simple resolution. Below are facts that can make a divorce case complex. |
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| Q: |
Assets Acquired Before and During Marriage. The husband is the owner of a business along with his mother and father. Several years before the marriage he purchased shares of stock in the business and bought a 10% interest. After the marriage his parents, on the husband’s birthday, gave him another 15% of the shares of stock. How will the shares of stock be divided in the divorce? |
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The shares of stock are the husband’s non-marital property. Assets acquired before a marriage are non-marital property. Assets acquired during the marriage by inheritance or gift, provided they are separately titled in the name of the party receiving the inheritance or gifts, are also non-marital property.
In the facts set forth above, the husband has a 25% non-marital ownership interest in the business. Ten percent of his interest is non-marital by virtue of the shares he purchased before the marriage. Fifteen percent of husband’s non-marital interest is based on the shares of stock he received from his parents on his birthday as a gift. Provided husband does not make the mistake of conveying into joint ownership with his wife any of the shares of stock, at the time of the divorce his 25% ownership of the business is his to keep. |
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Mixing Your Own (non-marital assets) with Marital Assets. Before the marriage the husband owned a farm. During the marriage he sold the farm. Payments were made to him over several years with annual payments of $500,000 each. The husband had a savings account and the parties had a joint checking account. Shortly before the divorce the husband received a $500,000 check. He deposited it in the joint checking account and about a month later he wrote a check for $500,000 for shares of stock he purchased in his own name. In the divorce the husband claims those shares of stock as his own, non-marital property. The wife claims that the shares of stock are marital property to be divided between the parties. |
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Non-marital property can be transmuted to marital property if the property is commingled in a jointly titled asset. The typical example is one spouse’s receipt of a gift or inheritance during the marriage which would normally be that spouse’s non-marital property. However, the spouse receiving the inheritance often makes the mistake of commingling the inheritance (or gift) into a joint account or asset such as a parcel of real estate.
In this fact pattern, however, the court can find that the $500,000 in shares of stock are husband’s non-marital property if the court determines that the deposit made by the husband of his $500,000 check into the joint account was merely only a conduit for the subsequent purchase of non-marital assets with non-marital funds. In Marriage of Guerra, 505 N.E.2d 748 (2d Dist. 1987), the court, based on similar facts, determined that the deposit of non-marital funds into a joint checking account used for the subsequent purchase of other assets found those assets to be non-marital because the deposit in a joint checking account was merely a conduit and was not intended to be a gift to the marriage. |
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| Q: |
Value of a Business. During the marriage, about 20 years ago, the husband and wife liquidated some assets and borrowed money to develop a manufacturing company. At the time of the divorce the manufacturing concern is not doing as well as it did in former years because the same manufactured goods can be bought cheaper from China. The company has 30 employees. The husband travels a great deal to promote the goodwill of the company. The husband claims that at most the company is worth “book value” (the value of its assets less the debts of the business). The parties agree that the tangible assets of the business are worth $1.5 million, but the wife claims that the business has an additional $1 million value (for a total of $2.5 million) on account of the value of the goodwill of the business. What should be the value of the business? |
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Volumes have been written on valuing business interests in a divorce. In the fact pattern above the husband is simply adding up the assets as his basis for valuation similar to an asset based approach for business valuation. There are two other approaches that are commonly used in dissolution of marriage actions. One is the market based approach, which looks at recent transactions either within the company itself or competing companies in the same industry. There is also the income based approach, which looks at earnings and cash flow and makes projections as to future earnings in order to determine a present value of the business.
The additional component raised by the above fact pattern is the question of goodwill. Professional goodwill, such as that which may be attributable to a solo or small professional practice such as a doctor, dentist or lawyer, has been determined by the Supreme Court of Illinois not to be a marital asset. Enterprise goodwill, such as name recognition with a business, such as a car dealership, has been determined to be a component that the valuator should take into account when determining the value of the business. |
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High Income Spouse and the Divorce Settlement. The husband is the CEO and a major shareholder of a large business. In the year previous to the divorce being filed, he paid income tax on $850,000. This is a marriage of 16 years. The children are 12 and 14 years old. The wife has a college degree, but during the marriage was never employed outside the home. The Divorce Act calls for child support of 28% of net income for two children. Should the husband pay 28% of his net income for child support? |
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Statutory child support is not intended to be a windfall for the custodial parent and the court should consider the child's needs. Marriage of Bush v. Turner, 547 N.E.2d 590 (4th Dist. 1989). The courts have allowed downward deviations from guideline child support in cases involving income less than the obligor's income in the fact pattern above. In Marriage of Lee, 615 N.E.2d 1314 (4th Dist. 1993), the obligor's net annual income ranged from $235,222 to $326,387. Similarly, in Marriage of Osborn, 564 N.E.2d 1325 (5th Dist. 1990), the obligor's net income was $9,793 per month and the court set child support of $3,300 per month, which was 34% of the obligor's net monthly income, which was slightly below the 40% statutory minimum for four children. The guidelines are enforced in most every case, but there is a basis for a downward deviation when the case involves a high income support obligor. |
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