We’re really thankful for a guest post by a good friend of Chicago Family Law Group, Kate McClelland, a Chicago real estate broker. The simple reality is that a home is nearly always the most valuable asset of a marriage and you must handle the home right when going through a divorce.
The decision to divorce comes when all other options fail for a couple. While divorce is an emotionally excruciating move in life, there are several other aspects associated with the separation that you need to look into.
What to do with the marital home is a giant question in front of the divorcees. Since this is a challenging and tricky decision, you need to consider every option. A number of choices and implications will come up that are going to affect you and your former partner financially and emotionally.
3 Options for Your Divorced Home
Just like separating after a divorce, parting with your home you love is a rough time. Not that it can compare to breaking up with your spouse. Nothing can compare to that, but parting with your house is still tough.
One important question that you and your ex-spouse must address quickly is ‘what are you guys going to do with the house?’. If you are leaning toward selling considering the advice of attorneys, financial counselors, therapists and realtors is a smart thing to do. Don’t rush to sell it and cost yourself money. Don’t settle with your spouse as soon as you can and cost yourself money. Think it through.
All of those figures are going to offer a few different points of view, so it’s worth talking about all of those different factors and all the choices you will run into. Even though it may seem like there a few choices, there are only three realistically.
First, retain the house leaving the title and mortgage as they are. Someone would still have to move out, but if you have kids this could make sense.
Second, transfer the title and mortgage to either you or your ex-partner. This would require a buyout of some type, in the majority of circumstances.
Third, sell the home together and move on to a new place. There are pros and cons to each of these decisions. You have to consider them each.
I can’t stress enough that rushed decisions could cost you big time. Start off by seeing if any of you would want to keep the home or can afford to not sell it. As said before, children and schools are going to be a big factor in your choices.
If you aren’t comfortable staying in the house, selling is the only option on the table. If you have kids, child support may come into play. So that makes maintaining two houses even tougher to imagine. Still, it is not uncommon to see families holding on to a house and paying separate mortgages.
Adding one more payment to your present one can be an impossible task. Try to make your transition as structured and smooth as possible.
Remember that we are all working with a future that is not certain. Though a positive attitude to life is important, you should consider what is possible and feasible. That way you can safeguard your interests and financial safety in the long run.
Selling the house
Most industry experts agree that selling the home is the best viable solution for divorcing couples. This is often the best option. It addresses and takes care of several complicated issues. It also will alleviate a lot of the friction once it is over.
Once you have agreed to sell your home at the time of the divorce, there are a few things that should guide you through the process. In the first place, understand that when you are already undergoing a rough phase of your life, it’s not a good time to take on the additional burden of selling the home yourself. It’s overwhelming and could lead to rushed and clouded choices.
Do some good research to find the right agent who can understand you while helping sell the house fast and for a reasonable price. A real estate professional will be able to give you a suggested listing price based on research showing current market value. Listen to her. Starting off with the wrong price in your listing will set you back.
Staging the house can be a tough job while selling a home. You need to decide which minor repairs and improvements need to be done.
If you have already left the property, then you can entrust the responsibility of staging the home to the agent. Cleaning the home, removing clutter, clearing the extra furniture, making some fine tunings are all some tough jobs, and if one partner is doing all this, then the other might think of compensating them adequately for this effort.
Reviewing the offers received is the combined job of the divorcing partners. While both of you can benefit from the advice given by the agent, and should head it, ultimately you both have to agree on the details of offers and contracts.
With choosing to sell the house, you might again land on some crucial questions. Whether to do it before or after the divorce? Whether to tell the buyers about their divorce status or not? Several lawyers and counselors will stress on the possibility of benefiting from capital gains if the property is sold before divorce.
It will all depend on the specific situation that you have in front of you. Once the sale of the home is decided and there is an agreement on what happens with the sale and who is to pay for what, the best thing would be to leave one of the partners to deal with the process.
The final and the most important thing in selling the house is to divide the profits. You need to pay off all the obligations of the house and also settle whatever other payments and commissions you have agreed upon.
Some divorcing couples decide to co-own the house to let their children live there till they get older and sell the house after that. There are some pros and cons to such a decision.
Any failure to make mortgage payments can equally show up on the credit scores of both the partners. It is also necessary to decide the ways of allocating the mortgages, keep up with the expenses and decide who would benefit from the mortgage interest deduction.
If one spouse can be allowed to benefit from that, the other partner can be compensated adequately through some other financial means.
Co-ownership will also require lingering involvement with one another. Sometimes when the transfers during divorce are not taxable, the co-ownership agreement prevents such benefits.
The arrangement of co-ownership must be included in the decree of divorce or, accompanied by a court order. While they continue as co-owners, it is also essential that they make contingency plans to cover the death of one of the partners.
If one partner really wants to retain the property for himself or herself, the option of buying out the other partner’s equity comes into the picture.
In this situation, one of the worst decisions for one partner could be to transfer the title to the other while still being committed to pay the loans. This is something that will create lingering stress and heartache.
Though this could be one of the remote options, there are certainly ways to disown the legal and financial ties to the transferring owner while giving the co-owner the sole right to the title.
This can happen through the right kind of refinancing arrangement where an entirely new loan is offered in replacement of the existing loan. However, the fact remains that the co-owner must now be able to qualify for the loan.
In some cases, the ex-spouse willing to keep the property might want to sell the equity in the house for other jointly owned assets. Under such arrangements, a fixed amount needs to be assigned to all the assets put together. After this, the parties can mutually agree on an equitable division or appeal to the court to direct the proceedings.
However, in most cases, the divorcing partners will have only a few valuable assets to divide with the house being the major one. Therefore, how the house is settled is a crucial decision with implications for both the parties.
If the divorce goes to trial, the issue of home assumes the secondary importance. When there are no equities to divide and the divorcing partners defend their rights over the home strongly, the situation must be approached objectively.
Unfortunately, sometimes a home does not have any equity and it is not an asset but only a liability. This happens when the current mortgage is greater than the market value and is called being ‘underwater’.
Under such circumstances, the best option would be to liquidate the property and settle things as painlessly as possible. This means shifting to a short sale of the house.
If it is feasible for one spouse to buy out the other, and there is substantial equity in the property, that is a good option.
Keeping it for kids or other options
The modern age scenarios are changing drastically. An increasing number of couples resort to creative solutions because of their children.
After splitting, they wish to keep their children in a stable atmosphere, rather than pulling their roots from the home while they are growing up, and they look for a creative way to make that happen.
This could mean waiting until the children are a particular age and then selling the house. Some couples move in and share the house while ending their marriage, which is also called nesting. This is a sort of amicable breakup.
Such arrangements can have less emotional influences on the children, in addition to having minimal financial implications on the separating partners. Such conditions might also be forced if the couple is already upside down on their mortgage.
This could be a tough decision considering the several pitfalls, and this cannot go on for an indefinite length of time.
Why selling is often the best option
Once the decision is made to divorce, most couples want to proceed with dividing assets and finalizing the split. This can lead to arguments over who gets what and what things are worth. If you are unable to come to an agreement, and the attorneys and mediators find it unsuccessful to work with you, you will have to go through court proceedings.
Liquidating the property and dividing the proceeds as it is appropriate often solves the issue more peacefully with least friction and dissension. It also eliminates the potential stress of missed mortgage payments in the future due to changes in circumstances, or failure of an ex to make payments they have been ordered to make. It happens. They might find it unaffordable at a point in time. Since circumstances can always change, you need to be realistic. Employed professionals are at the risk of being laid off. Self-employed are at the risk of swings in income.
Several reasons might justify or motivate you to keep the home. However, know that things have significantly changed these days.
While homes are a symbol of security at some point in time, they could also turn into nuisance under some circumstances. There is the loan payment, needing to pay the insurance and property taxes, the escalating tax payments during the escalation of the property value and so on.
You also will need to set aside something for home maintenance. Other issues that you may have never thought of while living with the spouse could crop up now, including what to do with the yard, how to maintain the pool and how to pay for the utilities of the home. While planning to keep the home, you must weigh each of these aspects and consider what they would cost.
Therefore, at times, a smaller and newer home can meet your real needs more effectively, while also freeing you from the headaches and memories associated with the marital home.
Condominiums are getting more popular among different kinds of owners. In this system, the homeowners’ association takes care of the hassles associated with the maintenance issues, and a lot of expenses are shared among the association members.
During times of transition, such arrangements can offer a big relief.
When you are married and sell a home, you are going to benefit from the capital gains tax ramifications. Check out your local property tax guidelines to find out.
Often divorcing couples decide that selling the home is the best course of action for them, and working with a patient, knowledgeable real estate professional can help make the journey as painless as possible.
Summer in Chicago often brings with it many trips to the ice cream parlor for me and my family. I enjoy good hard-pack ice cream and my wife absolutely LOVES it so if it’s a Sunday and the temperature is 85+ there’s a pretty good chance that I’ll be enjoying the beach and a cone. Good quality ice cream is good, plus, a good ice cream shop has a lot of choices too…sort of like going to the salad bar, it’s fun to choose between a lot of yummy things.
Did you know that there are various ‘flavors’ or types of child support too? I find that a lot of people know that there’s something called ‘child support’ that’s involved in legal disputes in divorce and parenting cases but they really don’t know much about it. I find that the average person sort of knows the equivalent of a plain, vanilla ice cream cone version of child support when the reality is that there are MANY ice cream flavors with MANY topping choices and even MANY cone types these days (love seeing the pretzel cones out there).
Let me divide child support into 2 main categories and then I’ll break things down with even more detail within each of the 2 main categories….
MINIMUM Statutory Guideline Child Support
Illinois child support basics are that both parents have an obligation to support their kids and depending on the financial resources of each parent as well as the parenting time arrangement between the parents, oftentimes one parent will need to pay an amount certain to the other parent. These are some common scenarios:
- Pure guideline child support paid by one parent to the other parent. Illinois law provides that different income percentages be paid by the payor parent based on the number of children (1/20%, 2/28%, 3/32%, etc). This situation remains fairly common when one parent is the clear, majority time parent where the kids are with a parent 70% of the time or more. Although this set-up isn’t as common as it used to be, this would be the classic father who had parenting time only on alternate weekends with his kids. This father would have to pay guideline child support.
- Equal parenting time child support. I see a lot of equal parenting time arrangements these days, especially when kids are real young and when the parents live close to one another. Does a parent have to pay child support if the parenting time is equal? Generally, if the incomes of the parents are fairly equal NO. However, if the incomes are not equal then YES, but, usually less than the statutory, percentage guidelines above. If there’s equal parenting time with unequal incomes I typically see judges take the difference between what each parents guideline child support order would be and then the higher income earner pays that difference to the lower income earner. For example, in a family with one kid mother earns $10,000 monthly (20% child support equals $2,000 monthly) and father earns $5,000 monthly (20% child support equals $1,000 monthly) so we take the difference between 2,000 MINUS 1,000. And mother pays father $1,000 per month in child support.
- BELOW guideline child support. Extremely high income earners generally aren’t going to be stuck paying the different percentage guidelines of child support…20/28/32/etc. In my experience, child support in cases where the payor earns north of $500,000 annually are going to be tied more to the needs of the child so that the receiving parent isn’t getting a huge monetary windfall. There’s no hard/fast rule in terms of how high of an income you need to avoid paying percentage income child support but somewhere in the $400,000 and up category is a rough estimate. We see this in cases involving professional athletes quite often.
- ABOVE guideline child support. I see this arise in cases where a payor’s income is hard to determine. Or I’ll see it where the lesser time parent may be voluntarily working less than full-time and/or has assets available to help support the child/children. Or, as I’ll discuss more below…when there’s a parent who has obligations beyond minimum statutory, guideline child support and doesn’t keep up with those payments sometimes a judge will include say a contribution to school expenses in child support so that it can be garnished from a payor’s wages.
BEYOND The Minimum Statutory Guidelines
Far too many parents only settle for the minimum statutory guideline amount for child support. If you use the IL Dept. of Healthcare and Family Services for child support collection it’s all they pursue (this is a great reason among many others NOT to use HFS for child support collection). Why not get your kids ALL of the financial support that they’re entitled too?
- Expense contribution. The court in its discretion can order parents to contribute to uncovered health-related expenses, child care, education, and extra-curricular expenses. There’s a lot of money in this category that’s often totally ignored. Daycare and after-school care for kids is EXPENSIVE. Most suburban school districts have pretty hefty school registration costs. And if your kids play hockey, look out regarding those costs.
- Dependent Tax exemptions. Obviously this varies a lot based on income and different ‘tax factor’s but the child dependent tax exemptions are worth THOUSANDS of dollars and yet these are often ignored.
- Obamacare Shared Responsibility Payment. The Affordable Care Act provides for fines in the event a child doesn’t have health insurance coverage. This needs to be allocated as part of the child support circle.
You and your children are valuable and expensive. Why not get the financial support that you’re entitled too?
Checkout this Webinar that I presented recently too: How to Get Child Support for you Kids in Illinois: 6 Common Questions Answered.
Your high school student has likely received his or her college acceptance letters for regular admission. In divorce, post- divorce, or parentage cases in Illinois, the Court can order parents to assist their children with their college expenses. In previous posts, we have mentioned that there was a update to the Illinois Marriage and Dissolution of Marriage Act (IMDMA). The section covering college contributions was included in these updates.
One of the most significant updates to the College Contribution law is that the court cannot order parents to pay tuition and fees that would be higher than the tuition and fees at University of Illinois at Urbana-Champaign for the same academic year. That’s nothing to sneeze about, as the estimated tuition and fees for the 2016-2017 academic year are $30,638- $35,642.
It is also worth mentioning that the child (“Student”) cannot file their own court-action for college contribution unless there is a death or legal disability of one of the parents who would have had the right to file.
Students who don’t take their academics seriously might lose out. Courts can only order parents to pay for college if the student maintains a cumulative “C” grade-point average (GPA). There are exceptions to this rule. An example of an exception might be if the student missed too many days of school because of an illness and ended up with a low GPA. But if the student spent the semester partying instead of attending class, they could be on their own affording college expenses.
Students who take the 5-year route to graduation may still get help from their parents paying for college, but unless there is a good reason, the Court cannot order college expenses incurred after the student’s 23rd birthday. If the Court finds that there is a good reason, the court can extend it to the student’s 25th birthday but no later.
The Court can order that both parents and the child complete the Free Application for Student Aid (“FAFSA”) and other financial aid forms. The Court can also require the parents to contribute funds for the cost of college applications, two standardized college entrance examinations, including preparatory courses.
In addition to the expenses directly related to the college expenses, the Court can also order the parents to contribute to the actual costs of medical and dental expenses, including medical and dental insurance, and to the reasonable living expenses of the student during the academic year and in periods of recess.
Parents will be happy to hear that the new law specifically allows the Court to consider the parents’ future financial needs, including saving for retirement, when determining each parent’s financial contribution to college expenses. The changes to the law will allow for the court to balance a child’s needs for support in their college years and a parent’s need to provide for their own current expenses and their future needs.
If you have a child that is going to college soon and you don’t have an agreement with your Ex about how you will pay for college expenses, set up a free consultation to discuss your options.
Here’s the trick:
Eliminate the two-thirds (2/3s) of your case that are often TOTALLY UNNECESSARY.
This sounds pretty simple doesn’t it? But like weight loss which is also pretty simple, it’s NOT EASY. But it is possible and I’m going to tell you how…
There are 3 ‘parts’ to most divorce cases and 1 of those parts is really important, but 2 of the parts are not as important and can be eliminated oftentimes and there’s the trick. The 3 parts of a case are as follows:
- Temporary Matters. Temporary simply means what is the set-up while the case is active in court and prior to a final divorce judgment being entered. Meaning is the court ordering things like temporary child support, temporary spousal support, and/or temporary attorney’s fees in the 12-18 months while your divorce case is pending in court.
- Discovery or General Investigating. Legal discovery means the power to force a party to answer written questions and turnover financial data or sometimes it’s taking a party’s deposition. Sometimes this can mean studying the home’s of parents in child custody cases or doing mental health or custody evaluations in contested child custody cases.
- Final Judgment. This is the IMPORTANT one and the one that can’t be eliminated. Here’s where I’m talking about the final judgment of divorce that includes important and major provisions concern financial matters, property division, and terms concerning post-divorce parenting. This can involve critical terms that you’ll need to live with for 15 years and often involve financial terms where thousands and sometimes millions of dollars are at stake.
So the advice to SAVE time and money is to maintain the status quo in terms of how things are being paid for while a case is proceeding. Simply because you and your husband are going through a divorce or separating doesn’t mean that one parent must stop paying for food or rent. We have to bring temporary motions re: child support or spousal support when one parent cuts-off the other parent out-of-the-blue (but it doesn’t have to happen this way). And secondly, extensive discovery and investigation must occur only when one spouse all of a sudden loses access to accounts and log-in information or sometimes one spouse just wasn’t involved in financial matters as much too…that likely is a time when some investigating is necessary.
Items #1 and #2 above can consume MONTHS of time in your divorce case and they’re often avoidable.
It’s that time of year, again: time to file your taxes. Are you looking to get as much of a refund back as possible? One of the most desirable exemptions is the dependency exemption. Parents are entitled to a dependency exemption for each child they support. However, if you are divorced or filing separate from the other parent, only one parent can use the exemption. (See IRS Publication 504 Divorced or Separated Individuals for use in preparing 2015 Tax Returns.)
The General Rule – The custodial parent gets the entire dependency exemption.
A dependent is either:
- Your child or a relative,
- Who meets a set of tests.
The IRS defines custodial parent as:
- The parent with whom the child lived for the greater number of nights in 2015; or
- If the child was with each parent for an equal number of nights, the custodial parent is the parent with the higher adjusted gross income. (See IRS Publication 503 Child and Dependent Care Expenses.
COURT ORDERED DEPENDENCY EXEMPTION
Sometimes it makes sense to allow the noncustodial parent claim the exemption. For example, if the custodial parent is unemployed or makes little income, it would make sense to allow the non-custodial parent to use the dependency exemption to get a bigger tax return.
Parents can agree between themselves who gets the exemption, or the court can order who gets the dependency exemption each year. It is common for divorced or separated parents to negotiate who can take the exemption. If there are two children, each parent might each claim one dependent. If there is one child, the parents might alternate the exemption. If the non-custodial parent does not contribute at least 50% to the dependent’s expenses, it is less likely that the non-custodial parent will get the exemption. If there is a child support arrearage, it is also common to not allow the exemption.
COURT ORDERS vs. IRS
Although a court order allowing the non-custodial parent to take the exemption is enforceable through the state court, it has no bearing on the IRS. The custodial parent needs to release the exemption by signing an IRS Form 8332 Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent or similar statement. The custodial parent becomes the “non-custodial parent” for tax purposes and cannot claim the exemption that year. The noncustodial parent becomes the “custodial parent” for tax purposes and must attach the Form 8332 or the statement to his or her return.
If the noncustodial parent has a child support arrearage at the end of the year, the custodial parent can revoke the Form 8332 release with the IRS. Whether that is allowed by the court depends on your court order. The custodial parent can use Part III of Form 8332 for this purpose and must attach a copy of the revocation to his or her return for each tax year he or she claims the child as a dependent as a result of the revocation. The custodial parent must also give (or make reasonable efforts to give) written notice of the revocation to the noncustodial parent.
Did you finalize your divorce or parenting judgment and neglect to cover who gets to claim the dependency exemption? Has there been a substantial change in circumstances that might entitle you to claim the dependency exemption? Were you entitled to claim the dependency exemption but the other parent claimed it?
We offer FREE initial consultations to discuss your claims and see how we can help resolve your matters as quickly and painlessly as possible.