When a divorce is close to becoming final, one of the last things you will discuss with your Chicago divorce attorney is the need for Insurance. Once you have negotiated the terms of the spousal maintenance or alimony that you are going to receive the amount of child support and payment of child-related expenses that each parent is going to be responsible for and there may be a college expense component or even support for a child over the age of 18 if you have a disabled child, you will talk about Life Insurance and Disability Insurance. It is important to understand the difference, how each of them can be used to protect you in the future and which is best for your individual situation. It is hard to think about death but it is necessary to make provisions for the unexpected death or disability of the person that you are relying on for support.
Difference Between Life Insurance and Disability Insurance First, let’s discuss the difference between Life Insurance and Disability Insurance as they relate to the provision in a divorce agreement. Life Insurance is a contract that will pay a sum certain out to the listed beneficiary upon the death of the insurance. Disability insurance is a contract that will pay out to the insured a monthly benefit to ensure that person maintained an income stream, even if they could not earn a paycheck. Depending on what you need to protect it is important to understand which of these types of insurance coverage is best for you. Insurance Needs when Spousal Support is Ordered If you are awarded Alimony of say $5,000 per month for ten years, you are counting on a stream of income for the next ten years of $60,000 per year. If your ex-spouse (payor) was to die prior to the ten years then your stream of income would immediately terminate without warning and you may be left in a difficult financial position. Therefore, you would want to protect your stream of income with insurance. You could request the payor obtain a life insurance policy in the amount of $500,000 with you as the beneficiary so that in the event the payor dies you would receive a lump-sum payment and not have to worry about your stream of income abruptly terminating. The payor would also want to put in place a provision that he can reduce the benefit amount over time to accommodate you obtaining a windfall in the event of his death after payment for a substantial period of time. As an example, it would be reasonable for the payor to be able to reduce the amount of the insurance coverage each year by at least $60,000 after the first two years. Year one and two would be $500,000 coverage and then in year three the coverage could reduce to $420,000 and in year four $360,000, year five to $300,000 etc. so that the coverage mirrors the remaining amount of maintenance to be paid. Other Insurance Policies to Consider In addition to the consideration of life insurance and amount, there are different types of insurance policies that can be obtained and it is best to talk to a trusted insurance advisor about these types. For example, a term life insurance policy is a policy that is in effect for a specific term with the same yearly cost for the life of the term. This is often sufficient to cover your needs and make sure you are covered for the risk of loss to your stream of payments. On the other hand, it could be said that the payor’s risk of becoming disabled is higher than that risk that the payor may die. If this is the case and the payor becomes disabled and unable to pay the maintenance and files to significantly reduce or terminate the payments, a life insurance policy does not help you and you are at risk that your stream of payments could end. A disability policy insuring the payor in the case he becomes disabled with a paycheck would allow him to maintain the maintenance payment and protect you. The amount and terms of the coverage have to be worked out to make sure you are protected but it is important to consider disability insurance along with life insurance when deciding which is best for your specific circumstances. Insurance Protecting Child Support Payments Turning to protect the amount of child support you will be receiving from the payor, the same principles apply. In the event the payor dies, you want to be named as the beneficiary of a life insurance policy so that you obtain a lump sum payment since the stream of child support payments will terminate. The same logic applies to disability insurance, it is more likely that a payor will become disabled than die during the period a payor is obligated to pay child-related expenses so it is wise to consider the use of disability insurance as a tool to protect receipt of payments. When child support is being protected, often times the payor wants to name the minor children as the beneficiary and not the other parents. This is difficult because if a minor is named as the beneficiary a court case has to be opened and the funds administered through the court. It is better to alleviate this requirement and name the other spouse as the beneficiary “for the benefit of the minor children.” Consult Your Lawyer About Insurance Protections Before Your Divorce is Final There are always cases where a payor parent is not insurance as a result of a health condition or some other circumstances that make them uninsurable. There are other things you can look to for protection such as retirement assets or working it out in an estate plan. Different options are available but it is necessary to talk with your attorney about these very important protections before you finalize your divorce. THIS ARTICLE WAS PREVIOUSLY PUBLISHED AT: https://illinoislawforyou.com/divorce/life-insurance-needs-in-divorce/
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Congress recently enacted the “American Rescue Plan Act of 2021” which has recently provided and will continue to provide thousands of dollars in stimulus funds to many families. The bill provides different amounts to different people who fall into different adjusted gross income brackets, and also varies by filing status.
Third Stimulus Check - What You Need to Know Single Filers Filers who file “Single” may receive up to $1,400 if their adjusted gross income is $75,000 per year or less. Single filers who earn between $75,000 and $80,000 in adjusted gross income will also receive a check but at a reduced amount. Married Joint Filers Married couples filing jointly can receive up to $2,800, so long as their adjusted gross income is $150,000 or less. In the event that they earn an adjusted gross income of more than $150,000 but less than $160,000, they will still receive a reduced amount, but not the full $2,800, subject to a phase-out completely at an adjusted gross income of $160,000. An eligible married joint filer is a couple whose adjusted gross income is $150,000 or less. Married Joint filers are also able to receive money for qualifying dependents, as further explained below. Head of Household Filers Head of Household filers who have an adjusted gross income of $112,500 or less will receive the full $1,400 for themselves. There is a phase-out, however, for Head of Household filers who reach $120,000 in adjusted gross income. Head of Household filers are also entitled to additional sums for qualifying dependents, as set forth below. Dependents In addition to these funds, eligible dependents of any age will receive an additional $1,400 per eligible dependent. The dependents can be any age, which is different than previous rounds of stimulus funds, and the funds are given to the party who claims the dependents on the relevant year’s tax returns which are utilized to determine the stimulus funds awarded. (See Section 6428B. of H.R. 1319, the “American Rescue Plan Act of 2021”.) What Tax Year is Used for Determining the Third Round of Stimulus Checks? The individual federal tax filing deadline has been extended this year from April 15, 2021, to May 17, 2021. This means that clients do not have to file their 2020 Federal Tax Returns until May 17, 2021, and depending upon their 2019 income and who claimed the relevant dependents in 2019 and 2020, some clients may want to wait to file, while others may want to rush to file. The stimulus funds are determined based upon the 2019 tax returns filed by each party unless they have already filed a 2020 tax return. So, if someone earned less money in 2019, wherein they were eligible for stimulus funds, and now they aren’t, they may want to wait to file until May 17, 2021, in hopes of receiving their stimulus check in the meantime. As it stands right now, the money received from stimulus checks will not have to be repaid, and even if someone earned more money in 2020 (where they wouldn’t qualify for a stimulus check based upon their 2020 tax filings but would when based off of their 2019 tax filings) they can still qualify for a stimulus check payment based upon their 2019 tax filings. This only can happen so long as the 2020 taxes were not yet filed. Additionally, the exact opposite is true and may be more applicable to many clients. If someone had a banner earnings year in 2019, but in 2020, their income plummeted, they may be eligible for a stimulus payment in the third round of stimulus payments, where they would not have been for the first two rounds of stimulus payments. For those clients, they want to file as soon as possible, to try and obtain a third stimulus payment, since the stimulus check could be based off of their 2020 tax returns instead of 2019 tax returns, as long as the timing aligns. Who Receives the Dependency Stimulus Check? In short, the tax returns used to determine the amount of the stimulus check will also control who receives the dependent stimulus monies. So, for example, if Spouse A files in 2019 and claims the minor children, and then 2020 would be Spouse B’s turn to file and claim the children, you will have Spouse A hoping Spouse B doesn’t file 2020 in time to receive the stimulus funds for the minor children. On the contrary, you will have Spouse B rushing to file for 2020 (so long as their income qualifies) so that they can receive the dependent stimulus funds during the third round of checks. We also may see arguments where Spouse A would qualify for a stimulus check with dependents, but Spouse B would not. In that scenario, Spouse A may want to ask Spouse B to wait as long as possible to file for 2020 taxes, because there is more of an opportunity for Spouse A to receive stimulus monies for the minor children whereas Spouse B wouldn’t, regardless. To take this a step further, many parties argue over who should receive the dependent stimulus funds, regardless of who claimed the minor children on their taxes in any given year. Some parties go so far as to file motions regarding this issue. Most parents who have the majority of parenting time believe that they should be the ones who receive the stimulus funds for the dependents, no matter who claimed the minor children on their taxes in any given tax year. Some Judges have been inclined to award whatever the amount is that is allocated to the dependent, or a portion thereof, to the majority time parent, while some Judges have left it in the hands of the filer. In many scenarios, it is not cost-effective for a party to file to ask for the child(ren)’s portion of the stimulus check. The 2021 Child Tax Credit This matter is only going to become more complicated as 2021 continues on. As part of the “American Rescue Plan Act of 2021”, families with dependent children are supposed to be receiving an advance on half of their 2021 Child Tax Credit, which will be determined based upon their 2020 Income Tax Returns. This means that the parent who claims the minor child(ren) on their 2020 Federal Income Tax Returns will seemingly also receive half of the 2021 Child Tax Credit, in advance, in monthly payments, from approximately July 2020 through December 2020. The remaining half of the 2021 Child Tax Credit is anticipated to be received when the parties’ 2021 income tax refund is received. This is going to create a headache for family law practitioners, particularly in cases where parties alternate years of claiming the minor children on tax returns. (In situations where each party claims an even amount of children each year, it wouldn’t matter, but for families where each parent takes a turn claiming all of the children, or where there are an uneven amount of children, there may be some issues to anticipate.) In 2019, the Child Tax Credit was $2000 per qualifying child dependent. This has been increased to up to $3,600 per qualifying child, but there is a phase out based upon income, just like stimulus checks. Because it is anticipated that half of the Child Tax Credit will be paid during calendar year 2021 to the person who claimed the minor child(ren) on their 2020 tax returns (but technically as a 2021 tax year benefit), and the remaining half will be paid to the person who claims the minor children on their 2021 tax returns, we as practitioners can anticipate many arguments about who should receive the July through December of 2021 payments (which are technically an “advance” on the 2021 tax filing refund). For parties who switch off years claiming their children, this will likely become an issue. (For more information, See Section 9611 and 9612 of H.R. 1319, “American Rescue Plan Act of 2021”.) THIS ARTICLE WAS PREVIOUSLY PUBLISHED AT: https://illinoislawforyou.com/family-law/third-stimulus-check-issues-and-family-law-matters/ One of the most overlooked areas in a divorce decree is the tax implications of the agreement. Family Law Attorneys are not ethically able to give tax advice in Illinois, which is why clients are often encouraged to speak to their accountant regarding the tax implications of a divorce decree. However, there are general, important tax considerations in a divorce decree and how they can impact your agreement. These repercussions need to be considered during the negotiation stage. Clients can severely undermine the use of an accountant in the early stages of divorce negotiations. This blog is intended to outline some of the more important areas to pay attention to in a divorce decree, relative to taxes.
5 Key Tax Considerations in a Divorce Decree 1. The Child Dependency Exemption/Child Care Tax Credit Divorcing parties generally know that whoever claims their eligible children on their income tax returns can receive a larger income tax refund. Sometimes parties will choose to alternate the years in which one party can claim the children. Other parties will divide their children up and say person A can claim Mary and Joey in all years and person B can claim Daniel and Margo in all years. There are many different ways to allocate child dependency exemptions. People can really fight hard over these issues. However, it makes sense to talk to an accountant about who would benefit most from claiming the children. It also makes sense to see how claiming the children can affect your bottom line child support obligation. Remember, if a person claims the children on their taxes, that increases their income, which means they have more money to pay support. It is a numbers game. Someone could fight hard for the dependency exemption only to then turn around and pay more in support because of it (though usually, the amount is pretty nominal overall, for many people). These are both important things to consider prior to spending time and money arguing over who will claim the children in which years. 2. Taxes Relative to Child Support In Illinois, child support is calculated using the two parties’ respective net income (which is their income after taxes). Child support is not taxable to the person receiving it, and it is not deductible by the person paying it, at least pursuant to current Illinois law. Child support money is received by the obligee without any concern about it being taxes. 3. Awards of Cash or Property in a Divorce Decree Cash and property received pursuant to a Divorce Decree is not taxable to the person receiving it and is not deductible by the person paying it. The money and property owned by two parties are presumed to have been earned by them, and thus, they have already paid taxes on it. They paid taxes on it at the time it was earned or received. Thus, when they are divorcing, there is no tax when transferring the property or cash from one of the parties to another. This can be thought of as changing the title to the property; one person is essentially removing their name from it. The other person is retaining what they already owned a share of. Some property settlements, which are tax-free, can trigger “recapture” and cause an IRS audit, as well as back taxes. This happens when the property settlement appears to be spousal maintenance, but it wasn’t called maintenance, and thus wasn’t taxed. For property settlement awards, it is important to make sure the amount paid per year won’t cause recapture to occur. This is something to speak to an accountant about to try and avoid any sort of messy unintended tax consequences. 4. Maintenance or Spousal Support (formerly known as Alimony) in a Divorce Decree After December of 2018, maintenance will no longer be deductible by the payor and taxable by the payee. This is a concerning time in Illinois regarding the issue of maintenance and the changes in the IRS code because Illinois statutory guidelines provide for spousal support to be calculated using gross (pre-tax) figures, and presumes that those sums will be taxable to the person receiving it and deductible by the person paying it. If this is no longer the case, then the Illinois guidelines for maintenance as currently written could cause maintenance awards that are higher than what the Illinois legislature ever intended. There is, however, some judicial discretion allowed under Illinois statutes regarding calculating maintenance, in the meantime, until the issue can be addressed. We will continue to blog future posts regarding changes to this particular issue as they come about. 5. Attorney’s Fees Awarded in a Divorce Decree Monies received by a party as a contribution to their attorney’s fees and costs are not taxable in a divorce decree. These monies are marital monies that are being divided between the parties and thus are not subject to a tax under Illinois law. They just so happen to be used for paying down one of the parties’ debts. Consult a Chicago Divorce Attorney About Tax Considerations in a Divorce Decree Overall, divorce decrees have many tax consequences. Some are intended, some can be unintended. It is very important to work with a knowledgeable divorce attorney and accountant in crafting your divorce decree to ensure there aren’t any unintended surprises. The attorneys at Anderson & Boback have in-depth experience in all aspects of divorce and family law including addressing tax considerations in a divorce decree. Please contact Jessica Marshall at Anderson & Boback for questions about this topic and other questions related to Illinois divorce or family law. THIS ARTICLE WAS PREVIOUSLY PUBLISHED AT: https://illinoislawforyou.com/divorce/tax-considerations-in-a-divorce-decree/ When it comes to planning to divorce in Illinois, many people ask what they should do to prepare for divorce, and those lists are a dime a dozen. In my experience as a Chicago divorce attorney, it is far more common for people to make mistakes and do things they should not have done, which can be very difficult to later rectify.
Here are the Top 7 Things You Should NOT Do If You are Planning to Divorce in Illinois: 1. Do not leave items accessible to your soon-to-be ex unless they are replaceable. Perhaps you have family heirlooms in your home. Furniture, jewelry, old family photo albums or other items that you cannot replace somehow become very susceptible to damage and/or disappearing once one person tells the other that they are filing for divorce. The best way to protect these items is to remove them from the other party’s access. Keep in mind, though, that in the event your spouse will contest the marital versus non-marital nature of any of these items, you will want to hold on to them. Do not sell them or if it is found they were marital, you may end up owing your soon to be spouse for half the value. 2. Do not tell your soon to be ex that you do not want to pay child support. It is no secret that the cost of child support is very high. The cost of raising children is very high. Costs seems to become even higher once you’re in a one-income household with the same bills you previously had in a two-income household. Divorce means adjusting your spending, period. Child support becomes the number one priority that must be paid each month or you could face jail time. Most people realize this and will make the mistake of putting something in writing, via text message or email, or via voicemail stating they will not or do not want to pay child support. This is almost always going to backfire on you and evidence of this can be used to make you look bad later. 3. Do not stop paying the bills you are responsible for. Who pays the bills in your marriage? If you always paid the mortgage, it is best that you continue to do so. If you always paid the car bill, continue to pay it. It is best to keep the status quo on all bills until you and your soon to be ex can go into court and enter a temporary order regarding who will pay which bills, or if a lump sum of temporary support should be paid. Otherwise, if you just stop paying, you are opening yourself up to a potential emergency motion to maintain the status quo and ensure important bills and upkeep of assets remain current, and do not default. 4. Do not spent a bunch of money “revenge shopping”. If you are about to file for divorce, heading to Michigan Avenue or Amazon.com to do some revenge shopping will backfire. Illinois has a law regarding dissipation, which is the misuse of marital funds. If you did not buy expensive designer purses regularly during the marriage, separation from your spouse is not a good time to start. You could be forced to reimburse your spouse for 50% of all purchases or monies spent for a non-marital purpose. This also includes purchases for a significant other (jewelry, vacations, etc.). Do not try to “hide” your assets. During divorce, you will go through the discovery process which opens up your finances for the past three to five years, in most cases. So, closing all of your bank accounts the second someone files for divorce, or removing large sums of money from your accounts without being able to prove where it went or what happened to it will most certainly backfire. Taking cash and “hiding” it will be detected through the discovery process and you may have to pay a percentage of said “lost” cash to your spouse. Under Illinois’ dissipation laws, even if you “don’t have it anymore” on paper you will still be responsible for it. Do not try to turn your children against the other parent or their family. This one is huge. Anytime a parent bad mouths the other parent or their family to their children, it almost always backfires against them. The children will end up angry at you in the end, even if your spouse cause the divorce or did you wrong, because they will likely protect their other parent (and they’d likely do the same if the other parent bad mouthed you). The divorce is between the parents, not between the children and the parents, and everyone should act accordingly, to maintain what is in the children’s best interests. You should do this as a good parent anyway, however, if that is not enough motivation, know that Judges and Guardian Ad Litems despise this sort of behavior. More importantly, if the court finds that bad mouthing arises to the level of parental alienation, you could face your children moving in with your spouse. Do not act as if you won’t have to see your soon to be ex ever again, especially if you have children. This one never ceases to amaze me. People think they can be nasty to one another during divorce proceedings because the other person is out of their life. If they have children, they couldn’t be more wrong. They will have joint recitals, graduations, holidays once the children are older and host their families, grandchildren, grandchildren’s events, and more. Once you have children with someone the odds that you will see them at milestone events and special occasions are great and life-long. Don’t do anything to make it even more uncomfortable than it already will be. It is highly doubtful your children will have patience for you and your ex not getting along when they are adults and start having their own children and want to share holidays, and the like. Believe me, you will end up missing out if you cannot behave properly. Best to start this one early on. If you are contemplating divorce or think your spouse is, it is important to make smart decisions and seek advice from experienced divorce attorneys. Contact our office today to schedule a confidential consultation about your family law matter or taking the right steps planning for divorce. THIS ARTICLE WAS PREVIOUSLY PUBLISHED AT: https://illinoislawforyou.com/divorce/7-mistakes-to-avoid-planning-divorce-illinois/ Right before a divorce is filed, spouses are usually in a hurry to try and protect their assets from a possible distribution at the time of a divorce. Sometimes this is done clearly in a bad-faith manner, such as gifts or transfers of money to a sister or girlfriend's account. However, other times, the parties are not aware that certain transfers or gifts, such as the transfer of an account to a child either of or outside of the marriage are problematic.
Gifts or Transfers of Funds to a Child and Dissipation While transferring or gifting money or assets to a child may sound harmless, these types of transfers or funds or "gifts" are considered dissipation of marital assets. Dissipation is briefly explained in Section 750 ILCS 5/503 of the Illinois Marriage and Dissolution of Marriage Act. Generally, expenditures held to constitute dissipation are extraordinary expenses that clearly do not further common marital interests. If the gifts or funds are marital assets then they must be included as part of the division of assets in the divorce. Transfers to Children of the Marriage A typical example is the transfer of an asset to that child, such as a savings account, CD, money market account, car purchases, or actual cash funds to a child. The issue does not usually become contested for children that are of the marriage as the award can be counted as part of child support or college contribution. However, for children that are outside of the marriage, a court may consider the transfer as dissipation and may award the other party a portion of the amount that was transferred. Were the Funds a Marital Asset? An important point to realize, however, is if this money was in fact a marital asset to begin with, or if marital money was added during the marriage. If the funds that were used were acquired prior to the marriage or through a non-marital source, then the court will not consider the transfer as dissipation. However, if the funds were acquired prior to the marriage, but income acquired during the marriage was used to fund the account, then 50% of the amount contributed would be considered the other party's contribution amount. This can be problematic for larger contributions if the funds given to a child have already been used or cannot be returned to the parent. If you are concerned about a certain savings account that was being held for the benefit of your child but was not under the child's name, seek trusted legal advice first. Speaking to an experienced divorce attorney first will about the best way to preserve these funds from being distributed at the divorce. For one, your spouse may agree to leave the funds to the children. Secondly, you may be better off using these funds to pay off your debts, which will free up money to re-fund the savings account. Before you actually transfer these accounts, it is important to be fully advised of the consequences. If you have already transferred or gifted accounts to your children, it is important to disclose it in Court than to hide it and face possible sanctions. THIS ARTICLE WAS PREVIOUSLY PUBLISHED AT: https://illinoislawforyou.com/property-division/disclose-gifts-or-transfers-to-my-child-during-a-divorce/ Bill and Linda are divorcing after 27 years of marriage – one of the richest couples in the world. Famous for many things but included in their legacy is their philanthropy and the amount they have given away to charitable causes the least of which is their generous donations towards the fight against COVID-19. Bill Gates who co-founded Microsoft is worth an estimated 124 billion dollars. The couple filed a joint petition for divorce in Seattle court this week and indicated that they have already reached an agreement as to how to separate their property.
Bill Gates co-founded Microsoft in 1975 and married Linda almost twenty years later. Interestingly enough, I have not heard that there was a pre-nuptial agreement. There may have been a pre-nuptial agreement and the couple haats decided to keep that to themselves. Pre-nuptial agreements are not required to be filed or made public. There is no doubt that whatever division the parties have come up with will be approved by the court as both parties will be left with substantial wealth. Bill and Linda Gates Long-term Marriage They were married twenty-seven years and in Illinois, this would definitely be considered a long-term marriage. With such a long-term marriage it is not to be thought of as Bill Gates getting a divorce and losing half his wealth since much of the wealth has been accumulated during the marriage. This situation should be thought of as an equitable division and fortunately, the parties have been able to reach a separation agreement as to what that equity means. If the parties were divorced in Illinois and they were to ask the Court to divide their assets, the law in Illinois requires an “equitable” division. Equitable does not always mean Equal. It certainly can mean equal and often it does – but it may not be equal. There are many factors to look at to determine if equitable means equal. It seems more and more common for parties in their 50’s to get divorced once the children are out of the house and there is nothing holding them together. What does keep some spouses together is the inability to move forward with a life on their own or to divorce due to financial constraints. If a couple is having financial difficulties with their income(s) living together it would be a great challenge to manage two households with the same income. Bill and Linda Gates, of course, do not have those constraints so they are able to move forward with this decision without financial pressure. The press is reporting that Bill and Linda Gates have put out the joint statement that “They no longer believe we can grow together as a couple” which is likely the case when a divorce is filed. There are many things that can fit into this statement as to why a couple can no longer grow together but it is refreshing when both parties have made this decision and can proceed with dignity and respect through the process. This is rarely a quick decision and is generally something that has been stewing for quite some time. As for Bill and Linda Gates, in the Netflix docuseries released in 2019 called “Inside Bill’s Brain: Decoding Bill Gates” Bill shared things about their marriage and talked about things he wishes he would have done differently in the marriage. Lessons from Linda and Bill Gates Divorce As Chicago divorce attorneys, we counsel our client’s to think about not having regrets in the way they handle themselves in a divorce. You want to be able to look back at the process and know that you took the high road and are proud of the way you conducted yourself and maintained dignity and respect. This requires a lot of self-discipline but is something you will not regret. This is another reason to look up to Bill and Linda Gates as they move through this process without airing dirty laundry in the media or pointing out faults of the other. They have children that will benefit and appreciate this and that folks is what matters. The world does not need to know you were wronged, you need to know that you are doing your part to maintain your dignity and respect and helping your children move through divorce feeling loved and supported. THIS ARTICLE WAS PREVIOUSLY PUBLISHED AT: https://illinoislawforyou.com/divorce/linda-and-bill-gates-divorce/ |
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