What are Marital Assets and Non-Marital?

One of the hotly contested issues in a divorce is the division of property. What are marital assets and non-marital assets and how do you figure out who gets what in the divorce? The division of property in a divorce can includes items such as: financial accounts, investments, real estate, cryptocurrency, jewelry, and collectibles, vehicles, yard equipment, jewelry, mileage points, antiques, furniture, photographs and videos. These are the items that should be included in the Marital Settlement Agreement (MSA), the document which divides the parties’ property including all assets and debts.

I often have clients say we do not need to include certain financial accounts or investments in our MSA because we know it is mine or his. That is not correct. All property must be included and awarded to one of the parties. If something is not included, a party may be able to go back to court and allege that it was fraudulently not disclosed.

It is helpful to visualize marital property columns for His and Hers with the goal of the allocation being approximately 50/50. Premarital and non-marital property would be in their own columns and are not included in the percentage analysis.

Illinois does not require marital assets and debts to be divided equally, rather, the language states that they are to be divided equitably. What is equitable will be based upon the parties’ separate assets, incomes, debt, future obligations and earning capacity.

What are marital and non-marital assets?

Pre-marital assets:

1. Assets that one party had before marriage. Pre-marital property can often remain their property. This can include a party’s 401(k) or college fund.

2. Property that you have been given as a gift or have inherited: This property will also be retained by the party who received the gift or inheritance.

One mistake people often make while married is that they fail to keep pre-marital, gifted and inherited property as their own. In other words, they combine it with other marital property. Here are common pitfalls and suggestions to keep your separate property (non-marital assets) truly separate:

1. Adding marital assets or income to an otherwise pre-marital or inherited asset usually changes the character of the asset from separate to marital. Often a party has a 401(k) from employment from before marriage and continues to contribute to that account after marriage. To keep some portion as pre-marital, the party must keep all the statements from the account administrator so that a forensic accounting can be done to identify the portion that was premarital.

If a party has an inherited or pre-marital investment account, but adds income earned during the marriage by either spouse, the property will likely be considered to be “transmuted” or transformed into marital property. Do not deposit any income earned during marriage into a premarital, gifted or inherited account unless you plan to share it.

2. If you take money from a pre-marital, gifted or inherited account to invest in a home, car, boat or other property, do not expect to get that money or investment back. The purchased property will be considered marital property if it is titled in both parties’ names, if any loan for the purchase includes both parties’ names, or if marital income is used to make the original purchase or ongoing payments. It is particularly important to keep assets from before marriage separated with no income from the marriage added to those accounts and no money from those accounts being used for a marital purpose such as the purchase of a house, boat, car etc.

3. People often assume that if an account, debt, house, car or business is in their sole name, then it is their separate, non-marital property. That is not true if you put any income earned during the marriage into that property. For example, paying property taxes on an inherited cabin with marital funds may convert the cabin to marital property.

4. Any income earned during the marriage is “ours” or belongs to the couple even if in an account in just one person’s name. For example, a person starts a business with the business solely in their name and using a bank account in the name of the business or that person. That business and bank account are marital assets to be divided in a divorce.

If the parties keep separate accounts at the onset of their marriage, and each deposit their own income into their individually named account, those accounts will be classified as marital. The same is true with debts. If each party has their own credit cards prior to marriage and then makes charges and payments from the income, all the debt will likely be marital unless it can be clearly demonstrated what existed at the time of the marriage.

Similarly, if you decide to keep bank accounts in each of your names and not have any joint accounts during the marriage or you may even decide to do this at the beginning of a breakup, those accounts are still marital assets and will be divided at the time the divorce is concluded.

This can be a problem for a couple who thinks they have divided their accounts at the start of a divorce and then a year later when the divorce is completed, one party has depleted their assets, and the other has accumulated money. There is a good chance that the total assets will be divided equally.

In Illinois, the date of the judgment is the date for valuation and division and not the date of separation.

Similarly, classification of assets and debts will be identified as marital, pre-marital, and non-marital at the time of the finalization of the divorce so an asset may change its classification during the process if safeguards are not followed.

An effective way to avoid these hurdles and obstacles is to have a prenuptial or postnuptial agreement. A prenuptial agreement must be signed before the marriage takes place. The marriage itself is the consideration so the contract will be valid. It is only a valid contract if the marriage proceeds.

Liz Wakeman, Attorney, Founder, Wakeman Law Group

A postnuptial agreement is an agreement drafted during the marriage. There must be consideration for that contract to be enforceable. Very often that consideration is working towards reconciliation at a point when the marriage is in trouble or each spouse giving up some rights to some assets. A postnuptial agreement with consideration of attempted reconciliation will be enforced if there was a reasonable effort to reconcile.

In the preliminary stages of divorce in Illinois, the parties will prepare financial affidavits. It is important to give these your full attention and to be completely transparent and accurate. Failure to provide a complete and accurate affidavit may result in sanctions or punishment that can include payment of the spouse’s attorneys’ fees or being barred or limited from presenting evidence to the court. Work closely with your attorney on this document. It is also important to review the supporting financial documents, such as: tax returns, bank statements, and credit cards, which can all reveal assets that may have been overlooked or hidden.

In closing, it can feel frustrating and unfair if you are divorcing and the assets you thought were yours turn out to be marital property. Try to focus on the end goal, which is finalizing the divorce as quickly and as inexpensively as possible, and the freedom you will have for a happy and peaceful post-divorce life.

Liz Wakeman — Divorce Attorney, Founder, Wakeman Law Group

Liz holds a law degree from DePaul University School of Law. She began her legal career with Williams & Montgomery in Chicago practicing in the area of insurance defense litigation. She defended claims for products liability, contract actions, declaratory judgments, automobile accident, premises liability and medical malpractice through multiple insurance carriers including Allstate, ISMIE, and many others while also handling a variety of litigation for the now defunct Venture Stores.

Seeking a more suburban practice, Liz moved to a firm in Vernon Hills and Chicago. While there, in addition to continuing the general insurance defense practice, she served as National Counsel for PST Vans managing their vehicular accident litigation claims across the country. She also handled medical malpractice cases for ISMIE and many Chicagoland hospitals and physicians and served as monitoring counsel for the Illinois Guaranty Fund for malpractice cases across the state.

Liz was a partner at the firm of O’Hagan, Smith & Amundsen/SmithAmundsen in the Woodstock office continuing to handle automobile accident, premises liability (slip and fall), medical malpractice and myriad of other types of insurance defense claims for State Farm, Farmers, Liberty Mutual, American Country Insurance as well as self- insured hospital systems such as Advocate.

Liz was a partner with Crystal Lake firms where she expanded her practice to include family law and injury cases for plaintiffs. With her knowledge and experience of the analysis and process the insurance companies utilize to evaluate and prepare cases for settlement and trial, she has been able to help many plaintiffs recover damages for injuries sustained in a variety of accidents including automobile and motorcycle accidents, injuries from falls and from the negligence of medical care providers. Learn more here.