Gitlin Law Blog

Divorce & Bankruptcy Part I

Q: If I am contemplating filing for both divorce and bankruptcy, should I file one or the other first?
A: If you and your spouse have substantial debts, it may make sense to complete a joint bankruptcy before completing a divorce.  By discharging debts before completing the divorce, you can simplify the division and distribution of the marital property and avoid problems of possible future liability from debts assigned to your spouse in the event of his or her bankruptcy.  However, the decision is not necessarily an either-or choice.

Q: I’m in the middle of divorce proceedings and my spouse just filed for bankruptcy.  How will this affect the divorce proceedings?
A: When a party files for bankruptcy, an automatic stay becomes effective.  A bankruptcy estate is also created.  The estate includes all non-exempt property of the party petitioning for bankruptcy.  The automatic stay does not affect custody and visitation disputes or divorces except to the extent that division of bankruptcy estate property is at issue.  The divorce court does not have authority to divide property in the bankruptcy estate.  The divorce court retains authority to determine custody, visitation, child support and maintenance.  Therefore, bankruptcy proceedings can stall or delay the division of property in divorce proceedings.

Q:  How long does the automatic stay last?
A: Generally the automatic stay remains in place until the debtor receives a discharge in the bankruptcy case.  However, there are other significant limitations on the automatic stay which a debtor, or anyone seeking to avoid the automatic stay, should discuss with a bankruptcy attorney. 

For more information visit Gitlin, Busche & Stetler, Woodstock, Illinois lawyers website.

H. Joseph Gitlin covers the practice of family law in Illinois.  Mr. Gitlin is the author of Gitlin on Divorce Reports, which summarize current Illinois opinions.  Click here for Gitlin on Divorce Reports information or contact the office at (815) 338-0021.   Mr. Gitlin's book, Gitlin on Divorce, A Guide to Illinois Matrimonial Law is a necessary tool for lawyers and legal assistants involved in family law and for judges hearing matrimonial cases

Discovery of Hidden Assets

Q: How are hidden assets discovered?
A: The first procedure is self-help on the home front.  Any papers with dollar signs and numbers are potential clues.  The storage place for records of assets is often in the computer, or places to which the other spouse does not have easy access.  Other hiding places include the locked trunk of the car and a locked briefcase.  There are opportunities to gain access to keys.

 The second means of learning about attempts to hide assets is in the court proceedings, through what is known as “discovery”.  In discovery your spouse is required to answer written questions (interrogatories) regarding the location, transfer etc. of assets, and he is required to produce documents relating to assets.  Your reliance is not placed solely on your spouse.  For example you may ask your spouse for bank records, and receive none, but if you suspect your spouse has been doing business at a certain financial institution, you may subpoena the records of that institution.

Q: How about gaining access to data in the computer?
A: Even materials that are “deleted” from the computer can be brought up by a forensic computer consultant.  The kid next door may be your “computer consultant”, but you need the sophistication of a computer consultant who is trained in discovering data for use in court, a forensic computer consultant.

Q: What is a “paper trail”?
A: For the ownership of most valuable assets, such as real estate, stocks and bonds, accounts of money, motor vehicles etc. there is a registration, or paper record of ownership and transfer of ownership.  If A transfers a valuable asset to B, there will usually be a paper trail.  Most divorcing parties who are seeking to hide assets do not have the sophistication required to hide transactions.

Q: My spouse owns a business.  It is a corporation.  Is there an opportunity to hide assets within the business?
A: Yes, you bet.  By law the corporation is a distinct legal entity, that is, like another person.  To complicate matters there can be a primary corporation and that primary corporation can own other subcorporations.  It sometimes takes a lawyer with sophistication about corporate structures, and a forensic accountant to find the paper trail within corporations.

Q: Is there an opportunity to hide assets, or income, within a small business which is not incorporated?
A: Absolutely.  Cash is the easiest to hide and often not traceable.  There are, however, creative ways of investigating.  For example, a spouse who is a carpenter-contractor will usually buy most of his building materials from one source, for example, a lumber yard.  The records of the lumber yard in regard to this spouse’s purchases can be subpoenaed.  The records will show the site to where the materials were delivered.  The homeowner can then be subpoenaed to discover how much was paid to the contractor.  This type of investigation can also be applied to other small businesses.

For more information visit Gitlin, Busche & Stetler, Woodstock, Illinois lawyers website.

H. Joseph Gitlin covers the practice of family law in Illinois.  Mr. Gitlin is the author of Gitlin on Divorce Reports, which summarize current Illinois opinions.  Click here for Gitlin on Divorce Reports information or contact the office at (815) 338-0021.   Mr. Gitlin's book, Gitlin on Divorce, A Guide to Illinois Matrimonial Law is a necessary tool for lawyers and legal assistants involved in family law and for judges hearing matrimonial cases. 

 

Tax Questions Regarding Child Support and Alimony

Q: Can I combine child support and maintenance (alimony) and then deduct the entire amount?
A: Maybe.  This is known as unallocated maintenance and support.  The IRS, however, does not like to be finessed out of receiving taxes, and thus it is very challenging to create an unallocated maintenance and support schedule that the IRS will not challenge.  This is not a do-it-yourself kit, and also may be beyond the capacity of a lawyer who is not divorce-tax savvy.

Q: A divorce is pending and my spouse and I continue to live in the same home.  Can I pay temporary maintenance and deduct it?
A: No.  You may not live in the same household and deduct maintenance payments.

Q: What if I pay, pursuant to a court order or a written separation agreement, my spouse’s rent, the mortgage, tax liability on the residence, or my spouse’s college tuition payments?  May I deduct?
A: Yes, but the mortgage, rent payments etc. cannot be deducted if you own the residence.

Grounds for Divorce

Q: Don’t the grounds for divorce in the divorce petition tell the reason for the divorce?
A: No, not by a long shot.  Illinois has ten fault finding grounds for divorce and one no fault basis (irreconcilable differences).  Grounds are the legal hook on which the divorce hat is hung, but the grounds stated in the petition for divorce seldom have anything to do with the real reason for the dissolution of the marriage.  You can’t have a divorce by stating nice things about your spouse.  You can only have a divorce by stating grounds for divorce and these grounds, except for irreconcilable differences, are fault finding.

Q: Do the legal grounds for divorce really matter?
A: Not usually.  As a matter of law if the person bringing the divorce cannot establish the grounds for divorce the judge cannot grant a divorce, however, the alternative is in living apart for two years and then no fault (irreconcilable differences) kicks in and the divorce is virtually automatic.  In fact the “living separate and apart” does not require separate residences, but may be accomplished by staying in separate bedrooms and no sexual relations.

Q: Why would a person resist a divorce when the other side is intent on it?
A: Either for leverage, in order to obtain a better settlement, or because of a desire to reconcile.  When my clients want to reconcile the marriage I tell them lawyers (and judges) can do virtually nothing about reconciling a marriage, except be supportive of the spouse wanting to reconcile the marriage and not to stand in the way of a reconciliation.  One concrete thing a lawyer can do is to buy time.  Simply not agreeing to the divorce should buy seven or eight months, and a case not coming to conclusion for about two years is not unheard of.

Q: What is the down side to holding up a case on account of grounds for divorce?
A: There is hostility in virtually every divorce case.  The question is only of the level of hostility.  By resisting the grounds for divorce you will raise the level of hostility and make the case much more difficult to settle fairly.

For more information visit Gitlin, Busche & Stetler, Woodstock, Illinois lawyers website.

H. Joseph Gitlin covers the practice of family law in Illinois.  Mr. Gitlin is the author of Gitlin on Divorce Reports, which summarize current Illinois opinions.  Click here for Gitlin on Divorce Reports information or contact the office at (815) 338-0021.   Mr. Gitlin's book, Gitlin on Divorce, A Guide to Illinois Matrimonial Law is a necessary tool for lawyers and legal assistants involved in family law and for judges hearing matrimonial cases

 

Beginning Divorce Proceedings

Q: How is a divorce suit started?
A: By filing of a petition for divorce (dissolution of marriage) with the Clerk of the Circuit Court, having  the clerk issue a summons and having a deputy sheriff, or private process server, serve the summons on the other side (defendant).

Q: What does the summons require the defendant to do?
A: The summons tells the defendant he has 30 days to file an appearance and file a response to the petition.

Q: What is the purpose of the response?
A: The response informs the judge and the opposing party and counsel of the matters that are being denied, so if there is a trial, these are the matters that are at issue.  For example, the plaintiff may allege that she is the proper person to have the custody of the children of the parties.  If the defendant wishes to contest custody, or believes he may want to contest custody, this allegation would be denied.

For more information on Illinois divorces, please visit Gitlin, Busche & Stetler:  McHenry County Illinois Divorce Lawyers. 

H. Joseph Gitlin, author of Gitlin on Divorce and the Gitlin on Divorce Reports, covers the practice of family law in Illinois.

 

Pre-Divorce

Q: Will separation for a time help solve marital problems?
A: No, that has not been my experience.  My experience is that in order to resolve problems a couple must communicate.  If you separate you either do not communicate, or you significantly cut down on communications.  Statements like, “I need my space,” or “I need to get my head together,” are usually malarkey.  Usually the spouse wanting a “trial separation” is merely paving the way for a divorce. 

Q: Can’t I just leave the marital residence?
A: Yes.  You do not lose your marital property interest in the house because you leave it, however, child custody may become an issue, and if you leave without the children this will hurt you.

Q: How can I determine if I can get along financially after the divorce?
A: For a quick answer I use the rule of safe harbor often used by mortgage houses: you need a net (spendable) income which is three times the amount of your cost of housing.  For example, if your mortgage and real estate taxes are $1500 a month, you will need a spendable income of $4,500 a month.  If you receive $1500 in child support and/or maintenance (alimony) you will need to earn a net of $2,000 per month.   A more accurate way of determining the amount of money you need is to make a budget.

For more information visit Gitlin, Busche & Stetler, Woodstock, Illinois lawyers website.

H. Joseph Gitlin covers the practice of family law in Illinois.  Mr. Gitlin is the author of Gitlin on Divorce Reports, which summarize current Illinois opinions.  Click here for Gitlin on Divorce Reports information or contact the office at (815) 338-0021.   Mr. Gitlin's book, Gitlin on Divorce, A Guide to Illinois Matrimonial Law is a necessary tool for lawyers and legal assistants involved in family law and for judges hearing matrimonial cases

Tax

Q: Are distributions from a pension plan taxable?
A: Yes, but the tax may be avoided by a rollover to an eligible retirement plan.  In many divorces one spouse’s pension plan is one of the most valuable assets in the marriage, and the other spouse may be awarded part of the pension plan.  There are several options the recipient of a part of a pension plan can exercise.  The first option, and one to be avoided if at all possible, is to cash out the distributive interest in the pension plan.  A cash out means you will pay income tax on the entire amount of the distribution plus a 10% early withdrawal penalty.  The second option, under which you pay no tax or penalty,  is to cash out your interest in the pension plan, then roll it over into another eligible retirement plan, such as an IRA:  The rollover must take place within 60 days for the distribution to be tax-free.  The third option is to take your interest in the form of a Qualified Domestic Relations Orders (QDRO).  Under a QDRO, the pension plan administrator must carve out for you your interest in your spouse’s pension plan, and you will have the same rights in regard to the pension plan as does your spouse.

Q: We may have to sell the marital residence as part of the divorce settlement.  Is the gain from that sale taxable?
A: Yes.  However, under relatively new provisions, gain from the sale of a property is excluded from income if it was owned and used as the taxpayer’s primary home for two of the last five years.  This exclusion is limited to $250,000, or $500,000 in the case of a joint return.  On a joint return, the taxpayers can exclude the full amount as long as one spouse meets the ownership requirement and both spouses meet the two year use requirement.

In order to meet these requirements, the taxpayer will be treated as using the property as a primary residence during any period that their spouse or former spouse is granted use by a divorce or separation agreement.

For more information visit Gitlin, Busche & Stetler, Woodstock, Illinois lawyers website.

H. Joseph Gitlin covers the practice of family law in Illinois.  Mr. Gitlin is the author of Gitlin on Divorce Reports, which summarize current Illinois opinions.  Click here for Gitlin on Divorce Reports information or contact the office at (815) 338-0021.   Mr. Gitlin's book, Gitlin on Divorce, A Guide to Illinois Matrimonial Law is a necessary tool for lawyers and legal assistants involved in family law and for judges hearing matrimonial cases. 

 

 

Etiquette in Divorce

Q: Isn’t announcing the divorce before my spouse is served with summons the polite thing to do?
A: Yes.  If yours has been a polite and respectful marriage then you should continue to act consistently and do the polite thing, which is to announce your intentions.

Q: Isn’t it a good idea to try to resolve all the problems that will be encountered in a divorce ahead of time?
A: Yes, but not until you know, that is, until you are advised by a lawyer, as to what the likely outcome of your case will be if it is decided by a judge.  Chances are 95 to 5 that your case will not be decided by a judge, but will be settled.  However, the yardstick of what is fair is what the judge is likely to award.  An experienced lawyer can tell you this.

Q: Should the divorce be discussed with the children?
A: Yes, definitely.  From my experience there are two things which should be stressed to the children.  First, that the divorce is not the child’s fault and it is an adult problem between the parents.  Second, you should assure the child of both parents’ continued love.  As my children were growing up I found that almost any problem the children had could be overcome with a strong overdose of love and attention.

For more information visit Gitlin, Busche & Stetler, Woodstock, Illinois lawyers website.

H. Joseph Gitlin covers the practice of family law in Illinois.  Mr. Gitlin is the author of Gitlin on Divorce Reports, which summarize current Illinois opinions.  Click here for Gitlin on Divorce Reports information or contact the office at (815) 338-0021.   Mr. Gitlin's book, Gitlin on Divorce, A Guide to Illinois Matrimonial Law is a necessary tool for lawyers and legal assistants involved in family law and for judges hearing matrimonial cases

 

What is a Deposition?

Q:  I remember hearing about depositions during the Clinton-Lewinsky court proceedings.  Are depositions taken in divorce cases?

A:  Yes. Depositions may be taken in divorce proceedings.  Often a combination of document production and interrogatories does not produce all the information required and there must be a face-to-face session in which your lawyer asks questions of your spouse, or another person who is a potential witness.  This is discovery because it is done before trial.  Depositions are usually taken in the lawyer's office.  In a deposition a lawyer asks questions and the witness, who is placed under oath, must answer the questions.  A court reporter is present and transcribes the proceedings in shorthand.  You  must answer the questions unless your lawyer instructs you not to.

The side benefit of a deposition is that it may help to evaluate your spouse as a witness and it may be your first experience as a witness.

Q:  Is discovery used in a child custody case?

A:  Yes.  Typically depositions of the parties will usually be taken in a custody case.  Also if "experts," such as psychologists, are going to testify at the trial, or if there has been a custody evaluation, depositions of those experts may be taken.

For more information go to www.gitlin.com, Woodstock, Illinois divorce lawyers.

 

Income Tax Consequences of a Divorce

Q: Where else can I go to find answers to my tax questions?
A: The IRS has a website at www.IRS.gov.  Publication 504 provides additional guidance for divorced or separated individuals.

WARNING:  The income tax consequences of a divorce, especially one involving substantial income and/or substantial assets, are legally complex.  You should receive advice from a lawyer who is divorce-income tax knowledgeable, or an accountant.

Attorney Michael Stetler of Gitlin, Busche & Stetler strives to achieve the best possible post-tax results for clients through effective asset selection and tax consequence arbitrage.  He enjoys working with financial documents, understands and can speak effectively with numbers.  His background in taxation and accountancy brings a welcome perspective to Gitlin, Busche & Stetler.