After divorcing thousands of people and seeing their finances during the process, I can tell you that the average American has two main assets: 1) Their house and 2) Their 401(k). Houses and 401(k)s are the two main assets that get divided in the average Illinois divorce.
A house’s value is never truly known until the house is sold. A 401(k)’s value can be determined on a day-to-day basis. Furthermore, a 401(k) typically receives contributions on every pay cycle.
If a 401(k) is divisible in an Illinois divorce it begs the questions: “Should a person getting a divorce in Illinois stop contributing to their 401(k) during their divorce proceedings?”
Everything Is Divisible Until The Day Of Divorce In Illinois
Marital property is divisible in an Illinois divorce. An Illinois divorce court “shall divide the marital property without regard to marital misconduct in just proportions” 750 ILCS 5/503(d)
Marital property includes all contributions to a 401(k) up and to the date of the divorce.
“‘[M]arital property’ means all property, including debts and other obligations, acquired by either spouse subsequent to the marriage” 750 ILCS 5/503(a)
“For purposes of distribution of property, all property acquired by either spouse after the marriage and before a judgment of dissolution of marriage or declaration of invalidity of marriage is presumed marital property.” 750 ILCS 5/503(b)
Pensions (the cousin of a 401(k)) are specifically acknowledged to be marital until the date of the actual divorce.
“For purposes of distribution of property pursuant to this Section, all pension benefits (including pension benefits under the Illinois Pension Code, defined benefit plans, defined contribution plans and accounts, individual retirement accounts, and non-qualified plans) acquired by or participated in by either spouse after the marriage and before a judgment of dissolution of marriage or legal separation or declaration of invalidity of the marriage are presumed to be marital property.” 750 ILCS 5/503(b)(2)
Why should a 401(k) be divided using different dates than a pension?
Asking The Court To Award You The Post-Separation 401(k) Contributions
You can ask an Illinois divorce court to award you the entirety of the contributions to the 401(k) after the filing of the Petition for Dissolution Of Marriage.
“[I]n determining the value of the marital and non-marital property for purposes of dividing the property, has the discretion to use the date of the trial or such other date as agreed upon by the parties, or ordered by the court within its discretion, for purposes of determining the value of assets or property.” 750 ILCS 5/503(f)
“The court has the discretion to use the date of the trial or such other date as agreed upon by the parties, or ordered by the court within its discretion, for purposes of determining the value of assets or property.” 750 ILCS 5/403(e)
Illinois divorce courts are hesitant to set valuation dates for marital property that are far in the past, however.
“It is permissible for a trial court to value the assets as of the date of trial, if that date is not too far removed from the entry of the dissolution judgment.” In re Marriage of Wojcik, 838 NE 2d 282 – Ill: Appellate Court, 2nd Dist. 2005
[M]arital assets must be valued as near in time as possible to the date the marriage is dissolved.” In re Marriage of Hamilton, 128 NE 3d 1237 – Ill: Appellate Court, 5th Dist. 2019
“[T]he date of dissolution is the proper date for valuation of the parties’ [marital assets].” In re Marriage of Morrical, 576 NE 2d 465 – Ill: Appellate Court, 3rd Dist. 1991
More importantly, you will not know if the court will not consider your post-separation 401(k) contributions until you have already made those contributions. So, the strategic decision “should I stop contributing to my 401(k) during my divorce?” remains even if you think a judge might award those contributions to you in the end (I suppose you could ask at pretrial, though)
What Happens If I Stop Contributing To My 401(k) During An Illinois Divorce?
There is no automatic consequence if you direct your payroll to stop deducting your contribution to your 401(k) during an Illinois divorce.
Illinois does not have an “automatic stay” for financial matters which requires all the parties to maintain their status quo during a divorce.
The only question your soon-to-be-ex-spouse might have is “where did that money go that you used to put in your 401(k)?”
The maximum you can save in a 401(k) each year as an employee is $ 20,500 (as of this writing in 2022). If you saved that money somewhere else, you’ll still have to divide it with your spouse.
More likely, you took the money out in cash or spent the money in the hopes of not sharing it with your spouse.
This action would expose you to a claim of dissipation of assets.
“Dissipation is defined as the use of marital property for one spouse’s sole benefit for a purpose unrelated to the marriage at a time when the marriage is undergoing an irreconcilable breakdown.” In re Marriage of Tietz, 605 NE 2d 670 – Ill: Appellate Court, 4th Dist. 1992
Your spouse would have to point out to the court that you used to always save significantly via a 401(k) prior to the divorce filing. This would satisfy a prima facie dissipation of assets claim.
“The party alleging dissipation must first make a prima facie showing that dissipation has occurred.” In re Marriage of Hamilton, 128 NE 3d 1237 – Ill: Appellate Court, 5th Dist. 2019
Prima facie means “sufficient to establish a fact or raise a presumption unless disproved or rebutted.” Black’s Law Dictionary (11th ed. 2019)
After the prima facie dissipation claim is established the burden of proving what happened to that money that should have been saved falls on the person who should have saved the money.
“The general principle is that a person charged with the dissipation is under an obligation to establish by clear and specific evidence how the funds were spent…General and vague statements that the funds were spent on marital expenses or to pay bills are inadequate to avoid a finding of dissipation.” In re Marriage of Petrovich, 507 NE 2d 207 – Ill: Appellate Court, 2nd Dist. 1987
“In making its decision as to dissipation, the trial court must determine the credibility of the spouse charged with dissipation.” In re: the Marriage of Berberet, 2012 IL App (4th) 110749
What You Should Do Instead Of Hiding Contribution Money That Would Have Gone Into Your 401(k)
Just get divorced! Nothing is marital after you are divorced. Once you have settled your Illinois divorce you will actually know what your financial situation and future financial prospects are. At that point, you can save like crazy without any fear of your former spouse getting a penny.
Hiding money (or even appearing to) always leads to more litigation in an Illinois divorce.
If you have questions about the best divorce strategy to preserve your assets…I have answers! Contact my Chicago, Illinois family law firm to schedule a consultation with an experienced Illinois divorce attorney.