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Alternative Dispute Resolution (ADR) in Divorce

 

By Lyn C. Conniff

(Adapted from A Presentation to Lilac Tree Attendees on the Nuts and Bolts of Finances in Divorce)

In the litigation process, there is a focus on winning and losing.  However, in the Mediation Process and the Collaborative Law Process, the focus is on the needs and interests of both parties.

Mediation:  Divorce mediators can be attorneys, financial planners, accountants, or mental health professionals.  The mediation process typically makes use of one mediator.  However, there can be a dual mediation process where 2 mediators are used, a mental health professional and an attorney.  More frequently, couples are resolving their financial issues in the divorce process by using mediators who are also financial planners or accountants with specialization in divorce financial issues.

The mediator (whether there are one or two of them) is always an impartial neutral.  It is not the mediator’s role to give legal advice, to make recommendations, or to draft legal documents.  The mediator will collect financial information from both parties and work with each spouse separately and together to come up with an agreed upon solution to each financial element: maintenance, child support, property division and division of debts.  The mediator will meet with each spouse separately, or together, or will do a combination of the two.  Once there is agreement, the mediator then will prepare an outline agreement or ‘Memorandum of Understanding.’  It will then be the role of a divorce attorney to draft a settlement agreement and the other documents that are necessary to finalize the divorce.

Collaborative Law Process.   The Collaborative Law Process has as its main focus the needs and interests of the children.  Just like the mediation process, it’s not about winning and losing.  Collaborative professionals believe that if you focus on winning and losing, the losers end up being the children.  Collaborative attorneys are specially trained; they have mediation training and training in the collaborative law process.   Although each attorney remains an advocate for his or her client, the Collaborative Law Process is a ‘team approach’ to problem solving.  We use financial neutrals, child specialists, divorce coaches, and collaborative trained attorneys.

At the beginning of the case, the parties and the professionals sign a ‘Collaborative Participation Agreement.’  This agreement commits everyone to negotiate and work together in good faith, and, most importantly, binds the attorneys not to go to Court.  The most important goal is to keep the parties out of the court system and to keep them focused on the needs and interests of the children and each party.

There are some real advantages to the Collaborative Process.  We still have complete disclosure of all financial information.  But because the attorneys are not running in and out of court, the costs for the divorce are typically lower.  There is also privacy in this process that you can’t have in the litigation process because in litigation the Court becomes a stage for the world to see your private business.  What the Collaborative Process takes into account more than any other process is the acknowledgement that when you get divorced, there is more than just the legal divorce to take into consideration.  There is:

  1. The physical divorce: moving into separate households
  2. The financial divorce
  3. The emotional divorce, and
  4. The legal divorce.  In the Collaborative Law Process we only go to court at the end of the process to present the settlement agreement to the Court for its approval and get the final ‘judgment for dissolution of marriage’ entered by the Judge.

Each of these, the physical divorce, the financial divorce, the emotional divorce, and the legal divorce are intertwined.  So, even though we are talking about the finances of divorce, you must remember that finance and numbers in divorce are highly charged emotional areas.  Take for example the family home: you want to stay in the home, because it is where you have lived, what you have decorated to make your own, and it represents security for you and perhaps also for your children.  But it may not make financial sense for you to stay in the home. So, how are you going to process these emotions and the feelings of rage you have against your spouse for ‘breaking up the home’ and taking away your sense of security? Until you acknowledge the emotional components of the finances, and resolve them, it will be difficult to reach a reasonable resolution. Once you remove the emotional components connected with the finances, you are left with making business decisions.

Creative Solutions from the Collaborative Law Process:  The law is not the only element that is considered in the Collaborative Law Process.  We Collaborative Law Professionals all pride ourselves in thinking outside the box, in looking at common sense approaches, simple solutions, and reasonable outcomes.  Remember, there are no winners and losers in the Collaborative Law Process.

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Real Estate in Divorce – The Family Home, Part 2

Part 2 of 2

Lyn C. Conniff & Elizabeth A. Teague

For divorcing couples, the marital home is typically a highly charged emotional issue.  Where there are children, it is desirable to look for a solution that focuses on the child’s or the children’s needs and interests.   Even if the children are older and out of the house, or if there are no children, it is not uncommon for one spouse to have an emotional attachment to the marital home.  But we cannot ignore financial considerations in determining what happens to the family home after the divorce.

Options for the Marital Home

If the home is considered marital property, then it must be added to the assets to be divided in just proportions between the parties at the time of their divorce.   Obviously, a house isn’t like a pie that can be cut up however you want.  Nor can a house be split up like a bank account. However, the total value or net equity in the house (appraised value minus any mortgage, home equity loans or liens) is added to the total value of all assets to be divided between the parties. There are three options for the home, in order to achieve the desired division of total assets of the marriage: sell the house immediately; sell the house at an agreed upon date in the future; or let one spouse keep the house. However, there are many nuances within these three options.

Selling the House Immediately

If the parties decide to sell the marital home immediately, they must first agree on what is to be done to prepare the home for sale, and who will pay for this work. A realtor or a staging specialist can be extremely useful in that decision-making process.

When the home is sold, there will either be proceeds from the sale or a deficit still owed. The parties must decide how to divide those proceeds or how they will pay any amount still owed. If the parties know that they intend to sell the home, it can be listed for sale while the divorce is still pending. However, the parties should plan for the contingency that the home may not sell before the divorce is finalized. In that case, there must be a plan in place for who will remain in the home until it is sold, and how the expenses associated with the home will be allocated while the house is on the market.

The parties will want to list the home for sale with an agreed upon broker, and at a mutually agreed upon listing price.  The best case scenario is when the house sells immediately at a price close to the listing price.  In the real world, however, houses take more than a month to sell after they are listed.  It is wise, therefore, to have a mechanism in place to lower the listing price at specified dates and in specified amounts.

One Spouse Keeping the House

If one spouse wants to keep the family home, there are a number of factors that must be considered. The first is to determine whether that spouse can afford to keep the home.  In other words, can that spouse afford the mortgage, home equity loan, real estate taxes, homeowners’ insurance and upkeep for the home.  Another factor to consider is whether, in exchange for keeping the home, the spouse will need to give up too many, or potentially, all other assets of the marriage to the other spouse in order to achieve the desired division of assets.  If the parties don’t have sufficient marital assets between them for one spouse to ‘buy-out’ the other spouses’ interest in the marital home, or if the spouse keeping the home does not have non-marital assets to help balance the division, then it may not make economic sense for one spouse to keep the marital home.

The final consideration is whether the spouse can afford to refinance the mortgage to remove the other spouse’s name. This is particularly important to consider when the spouse looking to remain in the home is not employed outside the home (or earns much less than the other spouse) and will be receiving maintenance. Refinancing right away may be a problem because he or she will need to establish a history of receiving maintenance payments.   Lastly, neither spouse can ignore the reality that the house must be sold if the remaining spouse is unable to refinance.

Selling the house in the future

There are many reasons to delay the sale of the marital home beyond the date of the divorce.  The parents may prefer to keep the children stable for a period of time rather than relocate during an emotionally turbulent time; they may want to keep the children in their current school district; there may be insufficient equity in the house at the time of the divorce; or the housing market at the time of the divorce may yield a less than desirable sale price for the home.  Once the decision has been made to delay the sale of the home, then further questions arise: who pays the mortgage and other household expenses, who lives in the house until it is sold, will there be an extra charge for the spouse staying in the house because of the corresponding benefits, what happens if repairs are needed, how will title to the home be held until the sale, how do you decide what repairs are necessary, which spouse gets credit for payment of the principal balance after the divorce, which spouse gets the tax deductions for the mortgage interest and real estate taxes?  There is no ‘one-size-fits-all’ answer to any of these questions. The answers are very fact-specific.  Consulting with family law professionals who understand this minefield is important for spouses who are looking to resolve these complex issues respectfully.

Conclusion

Frequently, one spouse may prefer to remain in the home for the stability of the children or because the emotional ties to the home are so very strong. However, when considering whether to keep the home, it is important also to consider whether you are able to take on the expense and responsibility of the home without the income of the other spouse. This can be one of the most difficult decisions to make during a divorce. An experienced family law attorney can help you by walking you through the various options, discussing the realities of your situation, and attempting to work towards a solution which meets the needs and interests of both parties and the children.

Contact the experienced family law attorneys at Conniff Law Offices for a clearer understanding of your options in light of your special facts and circumstances.

 

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Real Estate in Divorce – The Family Home, Part 1

 Part 1 of 2

Lyn C. Conniff & Elizabeth A. Teague

What will happen with the house? This question can cause a high level of anxiety, stress and, potentially, conflict during a divorce. The answer is not always clear-cut and depends on a number of factors.

Illinois law covers the “Disposition of Property” which means that it governs the allocation and division of all property owned by spouses going through a divorce.

When was the home purchased?

If the home was purchased during the marriage with funds earned during the marriage, then the home is considered marital property and is subject to being divided between the parties.

If the home was purchased prior to the marriage, then the home will be considered non-marital property. Does this mean that a home purchased by one spouse prior to marriage is automatically non-marital and, therefore, automatically awarded to the purchasing spouse? Not necessarily. If one spouse purchased the home prior to the marriage, but in contemplation of living in the home after marriage, then it is possible for the home to be considered marital property.

Whose name is on the title?

Another factor which can weigh in the decision of whether or not the home is marital property is whose name is on the title to the home.

If the home was purchased during the marriage with marital funds, then it is marital property, and it does not matter whose name is on the title to the home. If the home was purchased prior to the marriage, but was put in both spouses’ names, then that can be one factor weighing in favor of causing a home which was otherwise non-marital property to be marital property.

Whose money was used to purchase the home?

What is the effect of the down payment coming from only one spouse? This can happen when only one spouse is working outside of the home or if one spouse receives an inheritance which is then used to purchase the home. Does the provider of the down payment then dictate who will receive the marital home in a divorce? The answer is no.  Just because one spouse contributed the down-payment to purchase the home does not automatically determine who will be awarded the home in a divorce.

If the home was purchased with money earned during the marriage, even if earned by only one spouse, then the home is marital property. If one spouse used funds accrued prior to the marriage to purchase a home during the marriage, then the marital home will be considered a marital asset.

Similarly, if one spouse uses an inheritance for a down-payment, the marital home will be considered a marital asset.  An inheritance received by a spouse, whether received prior to the marriage or during the marriage, is considered to be that spouse’s non-marital property.  However, when an inheritance is used as a down payment towards a home purchased during the marriage, that inheritance might be considered to have been converted into a marital asset.

The issue, however, is not that clear.  Courts have determined, under certain circumstances, that, although the home is considered marital property, the non-marital funds (an inheritance or funds in existence prior to the marriage) contributed to the marital home may be reimbursed to the contributing spouse.

No one factor will be decisive in determining whether a home is marital or non-marital property. A court will look at many factors, including when the home was purchased, whose name is on the title, where the money came from to purchase the home, and when the money was contributed. Once it is determined whether the home is non-marital (and therefore awarded to one spouse), or marital (and therefore an asset to be divided between the spouses) then the parties can consider their options for the house in the divorce.

Contact us today at Conniff Law Offices and we can help you determine what your choices are in unravelling this complex issue.

For a review of options for your home in a divorce, please see our next blog, Real Estate in Divorce – The Family Home, Part 2.

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Imputation of Income in Divorce, Part 2

Part 2 of 2 

This is the second of two articles discussing the imputation of income.  In this article we will provide examples of when income may be imputed and explain the application of the discovery techniques outlined in the first article.

To reiterate: income may be imputed when there is doubt that the obligor’s reported income is accurate and there is evidence to suggest that the obligor is or can be earning more than he or she claims.  Every district in Illinois has upheld the Trial Court’s ability to impute income.  The Third District best summarized the three instances when income may be imputed: “It is well established in Illinois, ‘[i]n order to impute income, a Court must find that one of the following factors applies: (1) the payor is voluntarily unemployed * * *; (2) the payor is attempting to evade a support obligation * * *; or (3) the payor has unreasonably failed to take advantage of an employment opportunity.’”[i]  I will discuss each scenario in turn. 

Voluntary Underemployment

In the Fourth District case of In re Marriage of Deike, the appellant and child support-obligor lost his job at an automobile manufacturing plant and, after a failed job search, opened a bar and grill, which failed to turn a profit by the time of appeal.[ii]  The appellant filed his petition to modify support in September 2004 and “His net income from October 1, 2004, to June 1, 2006, when both daughters graduated from high school was $31,174. During the same period, he lost $45,600 related to opening the bar and grill.”[iii]

The appellant-obligor argued that a dramatic change in circumstances had occurred, whereby the appellee-obligee saw a salary increase from $30,000.00 per year to $57,000.00 per year, while the appellant lost his job and used up his severance and unemployment benefits before finding new employment.[iv]  While the appellant insisted that owning a bar and grill was a solid financial investment, he also took a job paying “only $27,000 per year” to help make ends meet while the bar was in its first few months.[v]

The Fourth District stated that “[C]ourts have the authority to compel parties to pay child support at a level commensurate with their earning potential” and that “A Court may impute additional income to a noncustodial parent who is voluntarily underemployed.”[vi] The Court rejected the appellant’s claim that the “bulk of the bar and grill patrons pay in cash he and [appellant’s wife] contend they receive no salary.”[vii]  Appellant’s appeal of the Trial Court’s denial of his petition to modify support was denied and the appellant continued to pay child support at a rate commensurate with his prior income.[viii]

In Deike, the Appellate Court’s ruling was supported by substantial information regarding the obligor’s prior earnings and failure to seek full employment.  The Trial Court could not determine whether the obligor was underemployed or hiding cash income, but since income may be imputed in either scenario, and since there was sufficient evidence to support either conclusion, the Appellate Court upheld the imputation of income.

Evading A Support Obligation 

In the Third District case of In re Marriage of Lichtenauer,[ix] the appellant, the child support obligor, formed a company, appointed his live-in girlfriend as president, and paid her an annual salary of $120,000.00 “in spite of having no previous corporate executive experience or qualifications for this position.”[x]  The live-in girlfriend was also the company’s majority shareholder and the shareholder’s agreement allowed her to transfer all of her shares to the appellant at any time, without the approval of the company’s other shareholders.[xi]  The appellant “claimed no financial interest in Correct Electric beyond the approximate $70,000 annual salary he received as an employee.”[xii]

On appeal, the appellant-obligor argued that the Trial Court awarded the appellee “an excessive amount of permanent maintenance after imputing the gross income” of the appellant’s live-in girlfriend to the appellant-obligee.[xiii]  The appellant further argued that the Trial Court erred in determining the appellee’s maintenance award “because the Court did not consider the unequal distribution of marital property” when balancing the appellee’s monthly needs and the appellant’s own monthly income and household expenses.[xiv]

In upholding the Trial Court’s maintenance award, the Appellate Court explained “It is well established in Illinois, ‘[i]n order to impute income, a Court must find that one of the following factors applies: (1) the payor is voluntarily unemployed * * *; (2) the payor is attempting to evade a support obligation * * *; or (3) the payor has unreasonably failed to take advantage of an employment opportunity.’”[xv]  The Court found that the appellant’s business structure, specifically naming his live-in girlfriend as the president of the company he founded, was a contrived attempt to evade a support obligation and, accordingly, the imputation of income was appropriate.[xvi]

Lichtenauer is a classic example of money laundering.  It was evident to the Trial Court and Appellate Court that a significant portion of the obligor’s salary was being funneled through his girlfriend.  This technique is more common amongst small business owners, of which the obligor was one.  The obligee conducted discovery on the live-in girlfriend to determine that she was unqualified for the job she held.  The conspiracy proved unbelievable and the Appellate Court upheld the Trial Court’s imputation of income.

In the First District case of In re Marriage of Samfratello,[xvii] the appellant child support obligor argued that the Trial Court erred when it ordered him to pay $3,446.00 in monthly child support, based on an imputed annual income of $130,000.00.[xviii]  The appellant worked at a family-owned pizza restaurant and testified that he “received a paycheck of $2,200 every two weeks for the past 20 years, an amount duly reflected in his income tax returns.”[xix] However, the appellant admitted at trial that he lied to the IRS about his income and a review of his bank statements showed substantial cash deposits, including $72,894 in cash deposits in 2002 alone.[xx]  The appellee testified that many family expenses were paid for entirely in cash.[xxi]  “In the absence of credible evidence” from the appellant regarding his net income, the Trial Court imputed an annual income of $130,000.00 onto the appellant.[xxii]  The Appellate Court upheld the Trial Court’s imputation.[xxiii]

In Samfratello the obligor was hiding cash from both the IRS and the obligee.  In this case, the obligor was not hiding cash by making cash purchases but instead he was depositing his earnings into his personal bank account.  A simple ‘Notice to Produce’ likely uncovered the inconsistency between the obligor’s reported income and his bank deposits.

Failure To Take Advantage Of An Employment Opportunity 

In the Fifth District case In re Marriage of Hubbs, the appellant child support obligor argued that the Trial Court erred when it imputed his income at $115,000.00 per year based on his prior earnings rather than his earnings at the time of trial, which were approximately $2,367.00 per month.[xxiv]  The Appellate Court explained that

Where it is difficult to ascertain the net income of a noncustodial spouse, the circuit court may consider past earnings in determining the noncustodial spouse’s net income for purposes of making a child support award. [citation omitted] Using an average income for the previous three years of employment is a reasonable method for determining net income where income has fluctuated widely from year to year.”[xxv]

The Appellate Court went on to find that the appellant had testified that “he had recently rejected a job offer that would have paid him a salary of $120,000 a year,” and that “the circuit court acted properly in imputing [appellant’s] gross income at $115,000.”[xxvi] The Appellate Court explained that “This figure is slightly below his average income for the previous three years and slightly below a salary that he could have earned had he accepted another position. Although the circuit court could have required [appellant] to pay a percentage of his net income to [appellee], we believe that it acted properly in determining gross income to be $115,000.”[xxvii]

Hubbs is similar to Deike, except that, in Hubbs, there was a specific job the obligor turned down, while in Deike the obligor failed to look for a job that would provide him with a standard of living comparable to what he had enjoyed during the marriage.  The relevant information in Hubbs was likely obtained by subpoenaing the obligor’s place of employment and reviewing his prior years’ tax returns.  The obligor’s income disparity raised red flags for the Trial Court and the Appellate Court upheld the ruling.

Conclusion 

Imputing income is often a last resort, but it is not an impossible argument.  So long as there is sufficient evidence to support the inference that the obligor has misrepresented his or her income or earning potential, or is enjoying a standard of living beyond his earnings, a Court may impute income.

Please contact our office to schedule a consultation and discuss your maintenance or child support case.

[i] Id. at 1089.

[ii] In re Marriage of Deike, 381 Ill.App.3d 620, 624-625 (Ill.App. 4 Dist., 2008).

[iii] Id. at 630.

[iv] Id.

[v] Id.

[vi] Id. (citing In re Marriage of Adams, 348 Ill.App.3d 340 (Ill.App. 3 Dist. 2004).

[vii] Id.

[viii] Id. at

[ix] In re Marriage of Lichtenauer, 408 Ill.App.3d 1075 (Ill.App. 3 Dist., 2011).

[x] Id.

[xi] Id.

[xii] Id.

[xiii] Id. at 1086.

[xiv] Id.

[xv] Id. at 1089 (citing In re Marriage of Gosney 394 Ill.App.3d 1073 (Ill.App. 3 Dist., 2009).

[xvi] Id. at 1089-1091.

[xvii] In re Marriage of Sanfratello, 393 Ill.App.3d 641 (Ill.App. 1 Dist., 2009).

[xviii] Id. at 646.

[xix] Id.

[xx] Id. at 647.

[xxi] Id.

[xxii] Id.

[xxiii] Id.

[xxiv] In re Marriage of Hubbs, 363 Ill.App.3d 696, 706 (Ill.App. 5 Dist., 2006).

[xxv] Id.

[xxvi] Id.

[xxvii] Id.

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The Collaborative Law Process

 

The “War of the Roses” makes for great theater.  But in the real world, the Roses’ process of self- destruction is financially destructive, unnecessarily stressful, and immeasurably damaging to the children, the family, and society as a whole.

The introduction in the Illinois Senate of Senate Bill 31, the Uniform Collaborative Law Act (the “UCLA Act”), will hopefully create a critical mass for the Collaborative Law Process in the State of Illinois.  Two elements are presently interfering with the Collaborative Law Process becoming the preferred process for divorcing couples.  The first is lack of public awareness and understanding of the process.  The second is the divorce bar’s unwillingness to embrace a process that appears to undermine the litigation process as the preferred medium for family dispute resolution.

The Collaborative Law Process is a process whereby divorcing couples can resolve their issues amicably and respectfully without recourse to litigation or positional bargaining.  At the outset, the couple and their attorneys signs a Collaborative Participation Agreement in which they commit to resolve their differences outside the legal process, to participate in good faith in dealings with each other, to disclose all information necessary to finalize an agreement, and to focus on a solution which is in the best interests of their children.

Family Law, especially dissolution of marriage actions, is presently the most common practical application for the Collaborative Law Process.  However, inroads are being made to use the elements of the Collaborative Law Process in other areas of the law.  Professionals in other substantive law areas will be well served by studying the Collaborative Law Process and looking for applications to their own practice areas.

The Collaborative Law Process does not replace the litigation model.  It is an alternative, but, without a doubt, a desirable alternative for couples who want privacy and are interested in avoiding the expense, stress, and destructiveness of processing their divorce through the court system.  The cornerstone of the Collaborative Law Process is trust: the trust that the divorcing spouses will treat each other respectfully during the process and disclose ALL information necessary for a fair and reasonable outcome, and the trust among the professionals in the Collaborative Law Process to focus not on winning and losing for one’s client, but on resolving differences by exploring needs and interests of the parties and their children.

A couple’s interest in using the Collaborative Law Process is typically a good first step to determining whether the case is suitable for the process.  Even in cases where there are significant assets, complicated financial structures, financial distress, a pattern of emotional dysfunction in the family, or a relationship outside the marriage, the Collaborative Law Process can work very effectively.  However, in those cases where there is hiding of assets, ongoing physical abuse, child abuse, child abduction, child endangerment, or ongoing criminal activity, the Collaborative Law Process is not an option.  A well trained Collaborative Law attorney has the skills to determine the suitability of the case for the Collaborative Law Process.

 Starting the Collaborative Law Process

The first step in starting a collaborative case should be to contact an attorney with experience and training in the Collaborative Law Process to determine whether the case is suitable for the Collaborative Law Process.

Please contact our office to schedule a consultation with an experienced attorney who is extensively trained in the Collaborative Law Process, and who has over ten years’ experience of working in the Collaborative  Process.

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