Identifying and Distributing Marital & Non-Marital Property in an Illinois Divorce
In an Illinois divorce, you need the difference between marital and non-marital property. Knowing the difference between marital and non-marital property both before and during a divorce can keep you from making costly mistakes and unintended gifts to your spouse.
Are all assets in the marriage divided in the divorce?
No. For divorce purposes, consider these two types of property: marital and non-marital. Illinois courts divided marital property between the parties in “just proportions.” The court awards non-marital property to the property who owns it.
What is non-marital property?
- property acquired by gift, legacy or descent or property acquired in exchange for such property
- property acquired in exchange for property acquired before the marriage;
- property acquired by a spouse after a judgment of legal separation;
- property excluded by valid agreement of the parties, including a premarital agreement or a postnuptial agreement;
- property acquired before the marriage, except as it relates to retirement plans that may have both marital and non-marital characteristics;
- certain other specified categories…
So, how does Illinois law define marital property?
All property acquired during the marriage, no matter how titled, except property acquired during the marriage by gift or inheritance.
What are the most significant assets divided in a divorce?
The house and the retirement plan. Sometimes the parties overlook the significance of retirement assets, whose value often exceeds the equity value in the house. But when the retirement plan started before the marriage, only that part which accrued during the marriage is marital property. [See below for my discussion involving the all-important tracing exercise.]
My husband/wife committed adultery. Doesn’t that mean I get most of the assets?
No. Illinois courts distribute marital assets “without regard to marital misconduct.” Illinois law doesn’t punish the “guilty” party. See the Gitlin Law Firm’s Q&A regarding adultery and grounds for divorce.
Can my spouse and I make an enforceable agreement that a certain asset will be my non-marital property despite a divorce?
Yes. Under Illinois law, non-marital property includes property designated as non-marital by a “valid agreement of the parties.” An agreement in reference to real estate, of course, must be in writing. Courts recognize both agreements made before the marriage (premarital agreement) and during the marriage.
Can I keep the assets I had before the marriage, like furniture, a car, stock, real estate etc.?
Yes. Non-marital property includes premarital property. As long as a premarital asset remains in your own name and you dont’ contribute to it during the marriage, you may keep your premarital property.
During the marriage my husband bought an expensive motorcycle. He said he paid for it exclusively with overtime pay he earned. The title is registered in his name. Is it his non-marital property?
No. Under Illinois law, the court presumes that all property acquired during the marriage constitutes marital property. The fact that he paid for it and registered the bike in his name doesn’t matter. Illinois courts consider wages earned during the marriage as marital property: whether he earns overtime wages, commissions, bonuses, etc. So, it’s marital.
Before the marriage I owned shares of stock. During the marriage I sold the stock, put the money into a checking account in my own name, where it remained for several weeks. Then I purchased a piece of land in my own name with the money. Is this land my non-marital property?
It should be. An asset acquired in exchange for a non-marital asset is non-marital. If, however, the above scenario is changed slightly and the proceeds from the sale of stock are placed in a joint checking, or savings account for a long time before the land is purchased, then the probability is that the funds have lost their identity as non-marital. In that case, the land purchased with the funds, despite how title is taken, remains marital.
You referred to a “tracing exercise.” Explain what you mean by this?
Assume you have a 401(k) account that’s mixed: containing marital and non-marital contributions. The parties need to then determine the marital and non-marital portion of the overall plan. A lawyer will the ask you for the account statements immediately before and after the marriage. Then you should obtain all later statements.
Isn’t the non-marital value of my premarital 401(k) the value as of the date of our marriage?
No. The court considers the increase in value during the marriage that’s attributable to the non-marital holds as non-marital. That’s because property acquired from on-marital property remains non-marital. But property acquired during the marriage is marital. It’s complex to differentiate the two. Thus, you need to provide the monthly quarterly or annual statements. To be as efficient as possible, remember that it’s best to start with annual statements when they’re available. You complete the tracing exercise when you provide all statements from the date of the marriage forward.
My husband and I are going through a divorce. He recently inherited an estate worth about $6 million. The assets my husband and I acquired during the marriage are worth about $200,000. Does the value of his inheritance play into the asset distribution in the divorce?
Yes. The property statute in the Illinois Divorce Act states that the judge should consider the value of non-marital property when dividing marital property. The inheritance is your husband’s non-marital property. But considering the large value of your husband’s non-marital property, the court could award the lion’s share of the marital assets to you.
Also, because your husband’s inheritance produces, or is capable of producing, significant income when it’s invested, this income, or potential for income, should be considered by the court awarding child support and in in making any maintenance award.
Your husband’s windfall-inheritance would not, however, entitle you to maintenance if it would allow you to live at a higher standard of living than you and he enjoyed during the marriage.
My husband works for a family-owned business. He is president and CEO. He also owns 49 percent of the stock in the business. I determined he is substantially underpaid compared to other people holding similar positions. In effect, what the corporation is saving on his salary it plows back into the business. Do these facts give me any interest in the value of the business?
No. But the marital estate might be compensated for the amounts by which your husband was underpaid during the marriage. The law in this regard is complex. Gitlin on Divorce: A Guide to Illinois Family Law addresses this topic in detail.
I am receiving stock options from my employer. Are stock options marital property?
Yes. Illinois has a statute providing that stock options, restricted stock awards, and the like, are marital property if acquired during the marriage and before the divorce judgment. They are marital property “whether vested or non-vested, or whether their value is ascertainable.” If, however, the stock options were acquired by gift, inheritance etc., then they will be non-marital. In dividing the value of the stock options between the parties, the judge considers the circumstances underlying the grant of the stock option or similar form of benefit. This includes whether the grant was for past, present or future efforts. The court also considers the length of time from the grant of the option to the time the option is exercisable.
Isn’t marital property divided 50/50 in Illinois?
Illinois law does not require an equal property division. But, an equal property division is the starting place.
In Community Property states, such as California and Wisconsin, “community” property must be divided 50/50. Illinois, as most other states, requires that marital property be divided “in just proportions,” which means fairly or equitably.
You speak in terms of percentages for the distribution of property, but how will the property actually be divided?
On a sensible basis. If the husband, for example, operates a business and the wife does not know how to operate the business, the husband will receive the business. If the pension plan and the equity in the home are worth substantially the same, one asset can be traded for the other.
Will the debts be divided 50/50?
It depends. Generally, the division of debts follows the overall allocation of what lawyers and judges refer to as the “net marital estate.” That’s the figure to focus on. By that, I refer to the net (after debt) values.
Are there any income tax consequences to the transfer of property in a divorce?
Generally, no. The transfer of property incident to a divorce judgment is not in itself a taxable event. Yet the law is complex in this regard. Be careful to ensure that the overall distribution of assets does not cherry-pick tax favorable assets and award them to one spouse. For example, consider a case involving the husband’s Roth IRA and the wife’s traditional 401(k). The husband’s Roth IRA would have more inherent potential value.
Updated: April 2024
