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Prudent Divorce Planning?…..Transferring Assets Before Filing Paperwork

Published in Chicago Lawyer Magazine, December 2021
By Daniel Stefani

On the eve of many divorces, there is an urge by one or both parties to gain an advantage by transferring assets to family, friends and even offshore accounts. Typically, there’s a paper trail, and usually it is ultimately discovered by the opposing party. Yet there are some legally justifiable reasons to transfer assets. A handful of Illinois Appellate Court decisions explain further where and how it could be allowable.

In most cases, transfers of what would otherwise be marital assets before filing for divorce are recouped by a divorce court finding the transfer was a “dissipation” of marital assets. The Illinois divorce courts have wide discretion to remedy dissipation.

The caselaw definition of dissipation is “the use of marital property for the sole benefit of one of the spouses for a purpose unrelated to the marriage at a time that the marriage is undergoing an irreconcilable breakdown.” The trial court decides whether dissipation has occurred as a question of fact and upon appeal of the issue, the appellate court will not reverse the finding of dissipation unless it is against the manifest weight of the evidence.

The spouse alleging dissipation must first prove that certain transactions could qualify as dissipation. If a showing of dissipation has been made, the burden then shifts to the allegedly dissipating spouse to refute. That spouse must prove by clear and convincing evidence the funds were spent in a way which does not qualify as dissipation.

As such, in cases where dissipation is an issue, the court must initially decide two sub issues. First, whether the transfer of the money was for a purpose unrelated to the marriage (i.e. gambling, gifts for a paramour) that can’t be explained. Dissipation can also be transfers of money to family members, friends, and or other legal entities without sufficient justification. Second, the court must decide if the transaction occurred during a time when the marriage was breaking down.

In the recent case of In Re Marriage of Sinha, the 2nd District focused primarily on how to determine when a marriage is irreconcilably broken. In Sinha, approximately three months before filing for divorce, the wife transferred $540,000 from an E-Trade account in her name to an account in India titled in her mother’s name.

The evidence was unclear, but the petitioner claimed some of that money was her premarital assets. Upon discovering the transfer, the husband filed a motion asking the trial court to order her to return the money and make an accounting of the money. Ultimately the court agreed, and she returned only approximately $18,000. The wife testified that $150,000 of the money was for wedding expenses, $122,000 to repay her parents for her education, and about $100,000 was for her father ’s cancer treatments.

There was substantial testimony as to the status of the parties’ marriage in the years leading up to the divorce filing relevant to the question of when the marriage suffered an irreconcilable breakdown. There was much historic marital discord including a charge of domestic battery against the husband and a filing by the wife of a prior petition for divorce, which was dismissed.

The trial court stated it couldn’t determine the date when the marriage was irreconcilably broken. As a result, it made a finding the marriage suffered an “irreconcilable breakdown” on Dec. 4, 2015 — the date the petitioner filed for divorce. This was almost three months after she transferred the $540,000. Consequently, the husband’s claim of dissipation was denied.

On appeal, the husband testified at trial the marriage broke down approximately one month before the money was transferred. He said the parties had money issues, disputes over the child’s diet, whether the child could visit the husband’s parents, and the fact his wife asked him to move out of the marital home during that time period. Also, the wife testified at trial that “the marriage broke down in 2012.”

The appellate court analyzed the historic caselaw on how to define irreconcilable breakdown. It cited caselaw that defined dissipation “to be calculated from the time the parties’ marriage begins to undergo an irreconcilable breakdown, not from a date after which it is irretrievably broken.” It found the trial court here calculated dissipation, not from when the parties marriage began undergoing an irreconcilable breakdown, but rather from when the parties’ marriage had completed the process of breaking down.

The appellate court found that the respondent provided ample testimony the marriage began to breakdown in the summer of 2015. Consequently, it reversed and remanded further proceedings back to the trial court level on the issue of dissipation

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