Property Division – Investment Accounts
The Illinois Marriage and Dissolution of Marriage Act governs the division of property owned by spouses in a divorce. Property may be owned jointly or individually. Title to the property is not the determining factor in dividing assets. Rather, the division of assets in Illinois is determined by the character of the property; namely: marital property vs. non-marital property.
The Illinois law that defines property as either marital or non-marital states that property acquired during the marriage is labeled marital property, subject to an equitable division between the parties in a divorce. There are a few exceptions to this general principle, namely:
- Gifts, inheritances, and property that is acquired in exchange for gifts and inheritances
- property owned prior to the marriage
- property acquired after entry of a Judgment for Legal Separation
- property labeled as non-marital in a prenuptial agreement
- increase in value of non-marital property during the marriage
Dividing Investment Accounts
There are many nuances to the equitable division of investment accounts, and each case is very different. For example, when dealing with taxable brokerage accounts, couples should look at each individual holding within the accounts. The cost basis of each asset held in the investment account is important. A $40,000 stake in a stock purchased for $10,000 has a value of far less than $40,000 once the tax bill on the unrealized capital gain is considered. In contrast, a $40,000 investment purchased for an initial $50,000 is effectively worth more than $40,000 because the capital loss could be used to reduce one spouse’s tax bill. Often times the effect that tax laws have on the division of assets in a divorce is ignored. This is a grave mistake. When negotiating the division of assets, the parties must take into consideration the “real” value of an asset. Do not assume that all assets currently valued at the same dollar amount are worth the same to both parties.
Quick Tip: Know what you own! Different types of assets may be treated differently under the tax laws.
An equitable division must take into consideration these differences.
In some cases, an investment account may be divided between the parties by merely transferring intact assets in the account from one party to the other party. Shares of stock in a corporation may be transferred from one party to the other party without liquidating or selling off the stock.
Other times, it is appropriate for one spouse to keep all of the assets in the investment account and offset the value of that account by awarding the other spouse a like asset of the same value. This avoids the liquidation of stock, for example, at an inopportune time such as when a stock price is so low selling it would result in a loss to the parties. Seeking the advice of a financial planner or accountant while sorting through and earmarking various assets and accounts may be helpful.
There are many options available. Creativity is key. Experienced attorneys are invaluable in crafting a unique and smart settlement agreement for divorcing couples. However, you must be diligent about follow-through and housekeeping once the settlement agreement is approved by the Court and the Judgment for Dissolution of Marriage is entered. The parties should make sure every detail is executed properly. Each spouse should review the asset allocation within his or her accounts and re-balance or make adjustments as needed. Savings goals may change as well, so both spouses should make sure their new portfolios reflect their own personal goals for the next chapters in their lives. Each spouse’s living expenses, immediate bills and long-term savings goals should be carefully reviewed.
Hidden Assets or Accounts
When there is a lot of money at stake, people often get creative and even underhanded when it comes to holding onto as much of that money as possible. Especially in high end divorces, hiding assets can be a big problem. Some common tactics include:
- opening accounts in other family members names
- hiding cash in a safe deposit box
- overpaying taxes and asking for a refund after the divorce
- creating false debt
- deferring raises and bonuses
Finding hidden money can be challenging, and it often requires the services of an investigator. If one spouse suspects that the other is hiding assets, it is recommended that he or she work closely with the attorney by providing as much information as possible about the suspicious activities of the other spouse and sharing anything he/she may know about potential hiding places.
Contact Our Office
At Kathryn L. Harry & Associates, we are experienced in dealing with high asset divorce and the various complicated matters that often accompany it, including the division of investment accounts. To schedule a free consultation, contact us today.