ALLOCATION OF DEBTS & OBLIGATIONS

The allocation of debts and obligations is the other half of the Marital Estate and just as important and in fact may be even more important than the allocation of assets in dissolution of marriage.  The Illinois Statutes talk about the division of Marital Assets and the allocation and assignment of Non Marital Assets, but have neglected the explicit problem of allocation of liabilities.  It is only by understanding that a “fair share of the Marital Assets” is “legal speak” for being sure that you don’t just allocate the asset without regard to not only the associated debt but also to the general unsecured marital debt.

No rational person would allocate a marital residence to one party without first assigning the responsibility for the payment of the mortgage (and in today’s world, the dreaded home equity line of credit “HELOC”

Before you can consider debt, you need to look to the history of the debt. If it predates the marriage, it is probably non marital.

This might be a good time to explain the term “Marital” and “Non Marital”; it is probably an over simplification but if you look at all assets and liabilities in the name of either or both parties or held for the benefit of either or both parties, directly and indirectly are “Marital” (and here is the key language) except for those that are non marital.  You can get one idea from this: if you can’t fit into a non marital exception, then it’s marital.  Generally the effect of such a classification is that a court (the Judge) has the authority to allocate a Marital Asset or Liability to either party, but cannot change the ownership of a Non Marital Asset or obligation of a Non Marital Liability

This becomes important in today’s world where the marital residence is the major asset of the parties. Its fair market value (valued as of the effective date of the dissolution of marriage unless otherwise provided in the orders or agreement of the parties) is more frequently, less than the debt associated with the residence, i.e.: the mortgage and/or HELOC.  Add to that complication which has more and more evolved is the fact that the residence is in both names (joint) but the debt which is a lien on the residence is only guaranteed by one of the parties; this even occurs where the residence was owned by one party who has personally guaranteed the mortgage and then the residence is transferred into joint tenancy during the marriage but not refinanced (transferring non marital property to both parties gives rise to a rebuttable presumption that it was converted into Marital Property (but what about the debt . . .??)

I try to utilize a simple balance sheet approach to sorting out the problems and that should be a cooperative effort with the client.  To first establish a list of the assets and liabilities and then determine:

a.       Are they Marital or Non Marital
b.      Are they associated with certain assets (i.e.: a car with a car loan, a residence with a mortgage or HELOC etc)
c.       How are they titled (in whose individual or joint name on the asset or on the account) for example a credit card may be incurred during the marriage by either or both of the parties.
d.      Valuation: what is the balance on the mortgage, charge card or credit card; Fair market value of the asset (and historical cost); who paid for it and was it purchased with Marital Debts?
Before we go on, there are the issues of hidden assets and (I’m sure you will be surprised), hidden (contingent) liabilities.  What about that IRS lien of two years ago that hasn’t bothered you recently and then closes your checking account or seizes your savings account a year after the divorce is over.
The law relating to hidden assets is clear:
a.       if you did not know and were not able to discover an asset (this has to do with “diligence” which means that you did all the legal steps of discovery and the asset was concealed;
b.      its effect is material (it would have made a difference at the time of the divorce); and,
c.       most important, the Petition to Vacate the Judgment (the technical term to reopen the case) must be filed within two years from the date of entry of the Judgment or of your discovery of the asset (that is not the actual date of discovery, but the date that you could have discovered it if you were diligent);
Opening up a judgment for additional assets or to asset liability from concealed or hidden assets or debts, is not an ideal way to conduct your divorce, the time to do this is always before the final judgment is entered.

Aside from the issues of concealed assets or liabilities, one these and the associated questions are answered, then a balance sheet of the marriage will arise and the process of the allocation and division of the assets and liabilities (debts) can be achieved.

If you don’t get anything else from this essay, you should understand that the focus on asset allocation without the similar focus on the debts of the marriage will cause unexpected and harsh results.

ADG

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THE POWER & UNNECESSARY EVIL OF WORDS IN THE WORLD OF DIVORCE

I have just finished working on three trials back to back; all involved the fight for the “control” of the children and I am convinced that all three cases became contested only because of the use of the wrong words in the agreements or in the negotiations which attempted to settle the children’s issues.  There is mistaken belief that to get “sole custody” is to “win” and to be left with “visitation” would be to “lose”.   I don’t know if the cases could have been avoided, but the bitterness and consequently the increasing cost of legal representation could have been tempered by the use of “gentler and kinder” words (labels) that describe the rights, obligations and duties of the parents toward each other and the children.

There is a great deal of unneeded power that we have ascribed to words in the practice of family law.  Even the simple process of getting to the point of titling this little essay was the choice of the referring to this article as relating to the word “divorce” or “domestic relations” law unnecessarily sets the reader on the mistaken belief that by calling the issues custodial rather than referring the same issues as “child related” changes the effect.  Not so . . .  For example, in recent child custody related dispute one parent had the “control of the children” and called the other two hours before a visitation to say, that the child was running a fever and would not go to the visit.  Faced with the dilemma of not knowing if the illness is real or just an excuse to push the other side, the other parent called for advice to her “sage” attorney.  The attorney suggested an email to the parent saying that she hoped the child felt better and would be pleased to move the visit to the next evening if the child was feeling better.  This “kindness” in the face of an obvious provocation turned what could have been an ugly situation into one where the parent with the sick child, simply said thank you for the consideration and in fact the visit occurred without incident the next evening.  How often, does the choice of angry or sarcastic remarks cause the incident to escalate into something those benefits no one?

Somehow the word “family law” is more tolerant than either of the “d” words.  When we look at the way that the parents of children can relate to each other and to the children we have loaded words: SOLE, JOINT CUSTODY, CHILD SUPPORT, SUPERVISED, VISITATION, RESTRICTED VISITATION  . . . . . .

Let’s go for the toughest of the words “sole legal custody”. .  why do we really need to use words that assume on parent is “sole & legal” and the other is “neither a custodian” or worst “not legal”; Illinois law does not even use the descriptive term “sole” which is a puzzle since most people want “sole custody” The correct Illinois statutory terms are Custody or Joint Custody and even there both terms are in my opinion too harsh and probably unnecessary to accomplish the purposes that such a designation is intended to mean. The “pain” which is inflicted on the parties by the use of those terms would be better served by calling the issue and the resulting agreement a “Parenting Agreement” and talk about the rights, obligations and duties of the parents and how the process of decisions for the day to day management and the extraordinary management of the children

The word “visitation” is another powerful word, one “visits” a zoo or a museum, isn’t it more appropriate and much less volatile to refer to the time with our children as “parenting time” and take the “win or lose” out the description of the time we spend with our children.

It is probably inevitable that the children spend more time with one of the parents and less with the other, but does that make on parent “less” a parent?  If you really want to make the process less combative, labeling him or her as sole custodian sounds like the winner . . . is the other person less a parent.  Suppose you say one parent is the primary residential parent still leaves the other as “non residential parent”. Thus both are parents, but the children spend the work week (school week) in one place and alternate   Perhaps the insulting term of “obligator” as the one almost equally the weekend, extended weekends and vacation time; both parents have the children when they are able to spend more time with them and each parent has a weekend off so to move forward on their personal lives . . . which is presumably the reason the divorce occurred in the first place.  If the parents did not want personal time away from the other, they would still be together.

Another area of pain caused by the “words” is the area of child support.  Both parents are equally obligated to support the children and their activities.  Generally child support is given from one to the other as recognition that the parent who has the children might need financial help with the children’s expenses.  Just because you are no longer living together, should not diminish the child’s life style.  If you take this approach then the labels “obligor” and “obligee” which are contained in most of the court’s child support and withholding forms are unnecessary.

One parent provides financial support to the other for the benefit of the children.  Using the kinder descriptive phrase of “making a contribution to the other parent for the use of the child” eliminates the inference that the “obligee” has a debt to the “obligor” or payee/payor . . . even though one parent writes a check, both parents pay the expenses of the child.

Here is another set of words that inflame rather than help. . Alimony or maintenance . . . we don’t even need to say what is wrong with alimony, the word itself says it all. …”maintenance” why would I want to continue to maintain someone who I don’t want to live with???  Wouldn’t be better to call it ”spousal support” or  even better “family support” or just “support” because he or she was a part of my family and although we no longer live together, I recognize that she or he needs assistance to survive after the breakup of our family.

If we want to take a more humanistic approach to the breakdown of a marriage (or any other relationship) then we need to recognize that it cannot be a “win or lose” contest, but really a breakdown of a “business relationship” which requires that the obligations created by the “business” (the children) need to be able to thrive as they would if the parents remained together; and the parents need to be able to survive the “business” break down and get on with their lives.

I approach each case with an open mind . . . . can we accomplish a termination of the relationship without creating the “war of the roses” or is someone so unreasonable that they (he or she) or his or her attorney needs to be persuaded . . . the Chinese scholar Sun Tzu in his “Art of War” makes it clear that the best way to win the war is to avoid it by convincing your opponent that your position is so overwhelming strong that a battle would be futile.

Arms are tools of ill omens – to employ them for an extended period of time will bring about calamity.  As it is said, “Those who like to fight and so exhaust their military inevitably perish”
A strong stance, without the use of inflammatory language, is my approach to these problems.  The use of certain words not only inflames the situation, but makes the inevitable solution much harder and more painful to reach.

ADG

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