As a married couple ages, they refinance their house and lower their mortgage payment, the kids leave the home and suddenly there’s extra income. Many couples take this opportunity to buy a second home.
A second home allows a couple to spend the winters somewhere warm or the summers somewhere quiet. A married couple’s portfolio is diversified by having additional real estate in a different community. All the while, they enjoy the tax advantages that accompany owning real estate such as depreciation and the mortgage interest deduction.
Having a second home is great…until you get a divorce. In a divorce, a second home becomes one more asset and liability to fight over. But, if you’re prepared, you can use your second home as a strategic advantage in your upcoming Illinois divorce.
Second Homes And Forum Shopping In An Illinois Divorce
Most divorcing couples separate and live in different homes before filing for divorce. Virtually all couples that own two homes have had one party decamp to the second home before filing for divorce.
Living separately creates two households. This allows either party to file for divorce in the state and county their first or second home is located in.
Different states and different counties have different laws, different procedures and different judges. In a divorce, being able to choose the venue which would be the most favorable to your positions would be a huge strategic benefit.
Divorce law between different states is completely different. For example, I am licensed in Illinois and Florida. In Illinois, assets are divided equitably not equally and maintenance (formerly known as alimony) is determined by a formula. In Florida, assets must be divided equally (with exceptions) and alimony is determined based on needs and ability to pay. The difference in outcomes based on these rules can be drastic!
Therefore, a careful examination of the divorce laws of each home’s state is necessary in order to decide where to file (you can almost always file in either state).
The limiting factor is usually the length of time a party has resided in a state. In Illinois, you must have lived in Illinois 90 days continuously to have Illinois jurisdiction for your divorce. Other states require six non-continuous months of residency in order to claim jurisdiction in that respective state.
Who Gets To Stay In The Second Home During An Illinois Divorce
As mentioned above, the parties have usually claimed their respective homes when a divorce is filed. Either party may petition the court for the use of a particular home during the pendency of the divorce based on good cause.
“Allocation of use of marital residence. Where there is on file a verified complaint or verified petition seeking temporary eviction from the marital residence, the court may, during the pendency of the proceeding, only in cases where the physical or mental well-being of either spouse or his or her children is jeopardized by occupancy of the marital residence by both spouses, and only upon due notice and full hearing, unless waived by the court on good cause shown, enter orders granting the exclusive possession of the marital residence to either spouse, by eviction from, or restoration of, the marital residence, until the final determination” 750 ILCS 5/501(c-2)
Whereas a family with a single home may be forced to sell the home in order to adequately divide the final marital assets, a family with two homes rarely needs to sell their assets in order to effectual an equitable division of assets. Instead, each party keeps a house.
So, the temporary allocation of homes has more of an air of permanence than the allocation of a single home. Because of this, the parties long term goals will be taken into heavy consideration when determining the temporary use of each house. After all, it would be odd to force the parties to switch houses later in the divorce case.
If there is no agreed acknowledgement of both parties’ long-term plans with respect to each home. The children’s residence and whoever’s job is closest to which house will largely determine who stays in which home.
If, for some reason, both parties are still living in one home, the court will often order one party to retreat to the other home unless their job is inaccessible from that home.
Courts are inclined to require each party to pay for the home they occupy but either party can make a motion for “appropriate temporary relief including, in the discretion of the court, ordering the purchase or sale of assets and requiring that a party or parties borrow funds in the appropriate circumstances.” 750 5/501(a)(3)
Such a motion would require either party to pay the ongoing expenses through either income or sale of assets in just proportions until the final disposition of debts and assets as ordered in the Marital Settlement Agreement.
Division Of A Second Home In An Illinois Divorce
Both homes will be allocated or divided by an Illinois divorce court after first considering whether the homes are marital or non-marital assets.
“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
In the case of a house, a non-marital property is a house which was purchased before the marriage and remains in one party’s name exclusively.
[T]he court shall assign each spouse’s non-marital property to that spouse.” 750 ILCS 5/503(d)
In an Illinois divorce, marital property is ANY property that was acquired after the date of the marriage.
‘[M]arital property’ means all property, including debts and other obligations, acquired by either spouse subsequent to the marriage” 750 ILCS 5/503(a)
It does not matter if the property is in one spouse’s name only if the property was acquired after the wedding date, that property is marital.
Once a property is deemed marital in an Illinois divorce court, that property is divisible by that court.
Illinois divorce courts “shall divide the marital property without regard to marital misconduct in just proportions considering all relevant factors
(1) each party’s contribution to the acquisition, preservation, or increase or decrease in value of the marital or non-marital property
(3) the value of the property assigned to each spouse;
(4) the duration of the marriage;
(5) the relevant economic circumstances of each spouse when the division of property is to become effective, including the desirability of awarding the family home, or the right to live therein for reasonable periods, to the spouse having the primary residence of the children” 750 ILCS 5/503(d)
So, the court will not award one spouse a million dollar home and the other spouse a $100,000 cottage in the woods far from their work and children. The court will allocate the houses and all the other assets “in just proportions.” 750 ILCS 5/503(d)
Courts in Illinois are not required to determine an “equalizer payment” that ensures a perfect 50/50 division of assets should one party be awarded the more valuable house. Therefore, the party who is awarded the less valuable house needs to advocate for themselves in order to receive a greater proportion of other assets in furtherance of the statutes requirements for a “just proportion[ment]” 750 ILCS 5/503(d)
The final allocation of each home almost always depends on whether there has been an order entered regarding “the custodial provisions for any children” 750 ILCS 5/503(d)(9)
The final consideration in awarding homes is whether the proposed future single homeowner can afford the upkeep of the awarded home. While this seems like it may stymie a non-working spouse from being awarded a home, it actually creates an argument for maintenance to meet, at the very least, the upkeep of the home.
Second homes in foreign countries are so far out of an Illinois divorce court’s applicable jurisdiction that they are often ordered reserved or sold if the parties cannot come to an agreement amongst themselves.
Second homes make one thing easier: dividing up household items. Parties will usually just keep everything in the house the are awarded and only need to exchange a few keepsakes.
Second Homes And Income
If a second home is unoccupied a big issue comes up. Should the second home be rented out and, if so, to whom should the rental income be allocated.
On a temporary basis, the rental income should cover the expense of the rental property and be distributed amongst the parties by agreement or held in escrow by one of the parties’ divorce attorneys until final apportionment of all assets and liabilities.
Once the properties are allocated in the final divorce decree, if the property is being rented, the final owner will be have to count that rent as income.
A rental property is a business and the income from the rental property shall be treated as business income for the purposes of calculating child support.
For purposes of calculating child support, net business income from the operation of a business means gross receipts minus ordinary and necessary expenses required to carry on the trade or business. As used in this paragraph, “business” includes, but is not limited to, sole proprietorships, closely held corporations, partnerships, other flow-through business entities, and self-employment.” 750 ILCS 5050(a)(3.1)
In Illinois, maintenance (formerly known as alimony) uses the exact same rules to determine what is income as child support does. “Net income. As used in this Section, “net income” has the meaning provided in Section 505 of this Act [the child support section]” 750 ILCS 5/504(b-3.5)
This means that only the income AFTER expenses shall be included in the owner’s income for the purposes of child support and maintenance. Any real estate investor knows that real estate does not generate a lot of income. Rather, real estate generates equity in the form of increasing values, decreasing loan balances and lots of tax advantages.
Unfortunately, one of the best tax advantages of a real estate investment, depreciation, cannot even be used to reduce income for the purposes of child support and maintenance after an Illinois divorce.
The Illinois Marriage and Dissolution Of Marriage Act decrees that “[t]he accelerated component of depreciation and any business expenses determined either judicially or administratively to be inappropriate or excessive shall be excluded from the total of ordinary and necessary business expenses to be deducted in the determination of net business income from gross business income” 750 ILCS 5050(a)(3.1)(A)
Owning real estate has great rewards long-term but it is also a challenge to be an owner of multiple homes. Getting divorced with multiple homes makes it even more challenging…but also provides some opportunities if you are prepared. If you’d like to be better prepared, contact my Chicago, Illinois family law firm to schedule a free consultation with an experienced Chicago divorce attorney.