Bonus Income And Divorce In Illinois

Money is a funny thing in an Illinois divorce. In a divorce, money is an asset that can be divisible or not based on whether it is marital.  In a divorce money is also evidence of income which can determine child support and maintenance (formerly known as alimony).  Money usually comes in regular allotments every two weeks but sometimes it comes in all at once as a bonus.  So, how is a bonus treated in an Illinois divorce?

Is A Bonus Marital Property in Illinois?

“Marital property” is property which a court may divide amongst the two parties in a divorce.

“Non-marital property” is property which can NOT be divided by the court.  Non-marital property must stay in whomever’s name or possession which it is currently in.

When divided, Marital property is divided “equitably.” That is to say that the Illinois divorce courts are not constrained to divide the property equally but rather can divide the property any way the court thinks is fair.  This split can sometimes be 60/40 or even 70/30 but marital property is almost always split 50/50 by a Chicago divorce court, in my experience.

Marital property is “all property, including debts and other obligations, acquired by either spouse subsequent to the marriage” 750 ILCS 5/503(a)

So, everything earned after the date of the marriage and before the marriage is officially over (the divorce) is marital.

But there’s a lot of exceptions to rule and the statute lists them all:

“(1) property acquired by gift, legacy or descent or property acquired in exchange for such property;

(2) property acquired in exchange for property acquired before the marriage;

(3) property acquired by a spouse after a judgment of legal separation;

(4) property excluded by valid agreement of the parties, including a premarital agreement or a postnuptial agreement;

(5) any judgment or property obtained by judgment awarded to a spouse from the other spouse except, however, when a spouse is required to sue the other spouse in order to obtain insurance coverage or otherwise recover from a third party and the recovery is directly related to amounts advanced by the marital estate, the judgment shall be considered marital property;

(6) property acquired before the marriage, except as it relates to retirement plans that may have both marital and non-marital characteristics; (6.5) all property acquired by a spouse by the sole use of non-marital property as collateral for a loan that then is used to acquire property during the marriage; to the extent that the marital estate repays any portion of the loan, it shall be considered a contribution from the marital estate to the non-marital estate subject to reimbursement;

(7) the increase in value of non-marital property, irrespective of whether the increase results from a contribution of marital property, non-marital property, the personal effort of a spouse, or otherwise, subject to the right of reimbursement provided in subsection (c) of this Section; and

(8) income from property acquired by a method listed in paragraphs (1) through (7) of this subsection if the income is not attributable to the personal effort of a spouse. Property acquired prior to a marriage that would otherwise be non-marital property shall not be deemed to be marital property solely because the property was acquired in contemplation of marriage. The court shall make specific factual findings as to its classification of assets as marital or non-marital property, values, and other factual findings supporting its property award.” 750 ILCS 5/503(a)

You will notice that the word “bonus” is not in either the Illinois statutory definition of marital property or non-marital property.  So, is a bonus marital on non-marital property in an Illinois divorce?

First, if there is any question as to whether an asset is either marital or non-marital property, that asset is presumed to marital property. “Any doubt as to the nature of the property must be resolved in favor of the finding that it is marital” In re Marriage of Steel, 2011 IL App (2d) 080974

The party asserting that the asset is non-marital will then bear the burden of proving that the asset is non-marital.

There is no statute for bonuses earned during the marriage but received afterwards. When the statute doesn’t tell you outright, the matter is usually decided by appellate courts who fill in the blanks.

Typically, “Any portion of [a] bonus earned during the marriage should be considered marital property.” In re Marriage of Peters, 326 Ill. App. 3d 364, 369 (Ill. App. Ct. 2001)

Most bonuses come with a catch to the employee: that the employee must keep working for that employer in the future to keep the bonus. This implies that the bonus is (at least partially) earned in the future and therefore is (at least partially) non-marital property.

In re Marriage of Wendt, 2013 IL App (1st) 123261 discusses this exact scenario.

Scott and Allison Wendt got divorced in 2012. Scott was a programmer at Citadel where employees are mostly paid in bonuses not salary (I’ve represented a few Citadel employees).  Scott got a big bonus just months after the divorce was finalized.

Allison said, “Hey, you clearly earned that bonus during the marriage, so it must be marital property. It’s like a stock option!”

The trial court said, “Scott’s 2012 Bonus to be received if at all in February 2013, is not a contractually enforceable right and is not marital property as it was not acquired during the marriage pursuant to Section 503 and Scott must be working there to receive the bonus and it is an expectancy and not a written contract of employment.”

The court said that if you get a bonus after the divorce, the bonus is non-marital property no matter how or when the bonus was earned. The court said the bonus is “nonmarital property because Scott did not have a contractual right to the bonus, which was issued in his employer’s discretion.” In re Marriage of Wendt, 2013 IL App (1st) 123261

Consider the nature of a bonus: a bonus is kind of a surprise and a bonus never promised. 

The court did speculate that if you received a bonus and the bonus was guaranteed in some way, that guarantee would become a contractual right that would in fact be marital property.

But that’s not how bonuses work for most people. The whole point of a bonus is to guarantee that employees will still work at the company.  So, if you leave the company before the bonuses are issues, you lose out on the bonus. 

So, if you are expecting to get a bonus and you’re getting divorced, get your divorce done as soon as possible or you’ll be splitting that bonus up with your soon-to-be-former spouse.

If your spouse is expecting a bonus, there’s an almost endless number of ways to slow your divorce down so that you will be entitled to that bonus as marital property. 

Commissions And Divorce in Illinois

Commissions operate a lot like bonuses in that they are payment for performance not for mere time at work like a salary.

If commission payments are waived if you quit your job, then you’re not really entitled to the commission and the commission is treated like a bonus: it’s only marital income if received before the divorce is finalized.

If the commission is earned the moment the sale is made and there’s a contract to that effect (there usually is) then the commission is marital property no matter when it is actually received because there is a contractual right to the commission.

Commissions are usually paid almost immediately after a sale so it’s tough to maneuver a divorce to take advantage of a commissions quasi-bonus nature. 

There are some enormous projects and sales that take years to pay off.  So, an experienced Illinois divorce lawyer should advise anyone who gets these long-term pay off commissions (or their spouse does).  There may be an opportunity to keep these commission payments (or receive your spouse’s commissions) in an Illinois divorce. 

What About A Bonus After Separation or Filing For Divorce?

Is A Bonus Income In An Illinois Divorce?

Income in an Illinois divorce is important.  Income determines if you have to pay or receive both child support or maintenance (formerly known as alimony).

For child support income is “‘gross income’ means income from ALL sources” 750 ILCS 505(a)(2)(A) (emphasis mine)

The Illinois statute makes sure that we treat income the exact same way for maintenance and alimony as we do for child support.

“Gross income. For purposes of this Section, the term “gross income” means all income from all sources, within the scope of that phrase in Section 505 of this Act, except maintenance payments in the pending proceedings shall not be included.

As used in this Section, “net income” has the meaning provided in Section 505 of this Act, except maintenance payments in the pending proceedings shall not be included.” 750 ILCS 504(b-3)

So, in Illinois a bonus definitely qualifies as part of either all gross or net income.

But, bonuses go up and down year over year.  How can you get locked into a child support or maintenance payment based on the bonus you received the year you got divorced?

The answer to that is that you don’t get locked into a set child support or maintenance payment in an Illinois divorce where there are bonuses.  You usually negotiate a solution to the varying bonus values in the divorce settlement.  The spouse that receives the bonus and the spouse who receives child support and/or maintenance. 

Specifically, you can come up with a number for child support and maintenance that seems fair to both parties. If you do so, you are ignoring the guideline support amounts and must include in your Marital Settlement Agreement that you are not following the guidelines support amounts and the reason why.  Being agreed is sufficient reason in the eyes of most courts but you still have to right that down in the final documents.

Or, the parties could simply include a clause saying that a certain X percentage of all future bonuses for the next Y years.

For maintenance, it’s real simple, it’s usually a 33% of the net of the bonus.  That’s what the statute says.  You can come to any kind of agreement, though.

For child support, Illinois divorce lawyers usually just revert to the old child support statute that allowed support at 20% of net income for one child, 28% of net income for two children, 32% of net income for three children, 36% of net income for four children, etc. Leaning on the old statute usually results in an overpayment compared to guidelines support because the bonus can just be added to the regular income and amortized over 12 months, 26 pay periods or however the maintenance and/or child support is withdrawn currently. Furthermore, calculating the net income of a bonus after taxes is cumbersome and not something a court entertains down to the penny. “[I]n determining appropriate child support, we are not bound by the technicalities of federal income tax law.” In re Marriage of Ackerley, 333 Ill. App. 3d 382, 392 (Ill. App. Ct. 2002)

You can also agree to do a “true up” every year.  This is a meeting between the two parties to compare incomes and determine that years child support and/or maintenance based on guidelines or whatever other formula that’s already agreed upon.

If you cannot come to an agreement regarding bonus income and maintenance, you must follow the guideline support requirements as laid out in the statute.

The bonus-receiver may point out that the bonus was received months or even years ago and should not be included as income for the purposes of support. The Illinois supreme court has held that the relevant focus for determining income under section 505 of the Act “is the parent’s economic situation at the time the child support calculations are made by the court.” In re Marriage of Rogers, 213 Ill. 2d 129, 138 (2004)

If, in the next year, you don’t receive a bonus or you receive a smaller bonus, you can file a motion to modify your maintenance and/or child support to reflect your total income for that year.

The lack of a bonus or a significantly smaller bonus will qualify as a “substantial change of circumstances” which is required by the Illinois statute for any change in child or spousal support.

As you can see, a bonus in an Illinois divorce creates a lot of opportunity for strategic maneuvering on the part of a Chicago divorce lawyer.  To discuss your bonus or your spouse’s bonus and how it affects your divorce, please contact my family law firm so that we can assess your situation and let you maneuver yourself appropriately.