Divorce is difficult and it is important to have the support of family. When a couple gets divorced it is very common for their parents to be supportive financially as well as emotionally.
The nature of this support is often characterized as “a loan” so that the money doesn’t appear to be marital property or income to the divorcing child.
How does an Illinois divorce court treat loans from parents during an Illinois divorce?
A Loan Versus A Gift As Marital Property In An Illinois Divorce
All property that either couple acquires during the course of their marriage (even after the filing and before the final judgment of dissolution of marriage) is presumed to be marital.
“”[M]arital property” means all property, including debts and other obligations, acquired by either spouse subsequent to the marriage” 750 ILCS 5/503(a)
If there is marital property the Illinois divorce court “shall divide the marital property without regard to marital misconduct in just proportions” 750 ILCS 5/503(d)
Non-marital property does not get divided by an Illinois divorce court, however.
“[T]he court shall assign each spouse’s non-marital property to that spouse.” 750 ILCS 5/503(d)
“[P]roperty acquired by gift” 750 ILCS 5/503(a)(1) is an exception to the presumption that all property received during a marriage becomes marital property.
If a parent gave ANYTHING to their child during the child’s marriage, that item/money will be considered a non-marital gift. “The law is clear that the transfer of property from a parent to a child is presumed to be a gift, and the presumption may only be overcome by clear and convincing evidence to the contrary.” In re Marriage of Heinze, 257 Ill. App. 3d 782, 790 (1994)
This implies that anything given by a parent is also presumed to NOT to be a loan but rather a gift unless it can be proven otherwise.
It’s important that a loan be distinguished from a gift because a loan would be a marital debt which would also be divisible by an Illinois divorce court.
“”[M]arital property” means all property, including debts and other obligations, acquired by either spouse subsequent to the marriage” 750 ILCS 503(a) (emphasis mine)
Even if a loan is proven, it is hard to imagine that an Illinois divorce court would not divide the loan equitably so as to make the parent’s child responsible for the loan.
Unwritten Loans From Parents In An Illinois Divorce
The best evidence that a loan from a parent is a loan and not a gift is a written promissory note.
Most parents give the “loan” to their children without creating a written document indicating they expect to be paid back. If the loan is to be paid back at over a year, it must be memorialized in writing to be enforceable under Illinois’ Statute of Frauds.
“[N]o action shall be brought…upon any agreement that is not to be performed within the space of one year from the making thereof” 740 ILCS 80/1
If the loan is unwritten, there are no terms of repayment. So, the courts have to guess the terms to decide if the loan is viable.
“[T]he test for determining whether an agreement is within section 1 of the statute [of frauds] is not whether it was performed within one year but rather whether when the agreement was made, it could have been performed within a year; and if so, it does not come within the statute [of frauds.]” In re Marriage of Strand, 86 Ill. App. 3d 827, 831 (Ill. App. Ct. 1980)
If the loan could not be paid back within a year, it’s not a loan…it’s a gift.
A Loan Is Not Income In An Illinois Divorce
While a gift from a parent will not be divided by an Illinois divorce court as marital property, a gift may be deemed income for the purposes of calculating child support and maintenance.
Child support is determined by “each parent’s monthly net income” 750 ILCS 505(a)(1.5)
““[N]et income” means gross income minus either the standardized tax amount” 750 ILCS 5050(a)(3)(B)
“[G}ross income” means the total of all income from all sources” 750 ILCS 5050(a)(3)(A)
Maintenance calculates gross income the exact same way as the Illinois child support statute calculates gross income.
“For purposes of this [maintenance] Section, the term “gross income” means all income from all sources, within the scope of that phrase in Section 505 [the child support section] of this Act” 750 ILCS 5/504(b-3)
The Illinois Supreme Court defines income as “ ‘something that comes in as an increment or addition,’ ” “ ‘a gain or recurrent benefit that is usu[ally] measured in money,’ ” or “ ‘the value of goods and services received by an individual in a given period of time.’ ” In re Marriage of Rogers, 213 Ill. 2d 129, 136-37 (2004)(quoting Webster’s Third New International Dictionary 1143 (1986))
That same case determined that gifts from a parent to a divorcing “represented a valuable benefit… that enhanced [the child’s] wealth and facilitated his ability to support” In re Marriage of Rogers, 213 Ill. 2d 129. Therefore, the gifts from a parent could be considered as income to the divorcing child.
When determining a divorcing spouse’s income, loans are not gifts. “[I]n general, loans should not be considered income…[because]..they usually do not directly increase an individual’s wealth.” In re Marriage of Tegeler, 365 Ill. App. 3d 448 (2006)
The distinction between a gift and a loan is “whether repayment of the money received was required. Where repayment was required, the loan was not considered income.” In re Marriage of Baumgartner, 384 Ill. App. 3d 39 (2008)
“[A] trial court should consider loans as potential income for purposes of calculating child support. Whether the loan in question is included as income depends on the facts of the case. If the trial court determines that the loan is not income for support purposes, it must make written findings setting forth its reasoning.” In re Marriage of Ash, 2021 IL App (1st) 200901
In determining whether a parent’s loan is really a loan, there will need to be testimony about the terms of the loan and if any payments have been made. The testimony is likely to come from the parent…who will provide a favorable answer for their child.
No matter what a parent testifies to, an Illinois divorce court is welcome to read between the lines and use the “loan” as reason to deviate from the guidelines.
“The court may deviate from the child support guidelines if the application would be inequitable, unjust, or inappropriate ” 750 ILCS 5/505(a)(3.4)
Likewise, an Illinois divorce court can consider a loan in order to deviate from the maintenance guidelines based on “any other factor that the court expressly finds to be just and equitable” 750 ILCS 5/504(a)(14)
Loans From Parents And Attorney’s Fees In An Illinois Divorce
In my experience, the most common loan/gift from a parent is the payment for a divorce lawyer to finally get rid of an unwelcome in-law.
There does not need to be a distinction between a loan and a gift when it was for attorney’s fees. The court really only looks to what was already paid.
“In assessing an interim [attorney fee} award, the court shall consider all relevant factors, as presented, that appear reasonable and necessary, including to the extent applicable:
…
the amount of the payment or payments made or reasonably expected to be made to the attorney for the other party” 750 ILCS 5/501(c-1)(1)(H)
“In enacting section 501(c-1), the legislature’s goal was to level the playing field by equalizing the parties’ litigation resources where it is shown that one party can pay and the other party cannot.” In re Marriage of Beyer and Parkis, 753 NE 2d 1032 – Ill: Appellate Court, 1st Dist., 1st Div. 2001
The court won’t even entertain a parent’s testimony that the money was a loan because no testimony needs to be taken in a petition for interim fees.
“Except for good cause shown, a proceeding for (or relating to) interim attorney’s fees and costs in a pre-judgment dissolution proceeding shall be nonevidentiary and summary in nature.” 750 ILCS 5/501(c-1)
A family’s support must be considered in an Illinois divorce. Contact my Illinois family law firm (or have your parents contact me) to determine how your family’s support or your spouse’s family’s support will impact your Illinois divorce.
