Right before a divorce is filed, spouses are usually in a hurry to try and protect their assets from a possible distribution at the time of a divorce. Sometimes this is done clearly in a bad-faith manner, such as gifts or transfers of money to a sister or girlfriend’s account. However, other times, the parties are not aware that certain transfers or gifts, such as the transfer of an account to a child either of or outside of the marriage are problematic.
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Gifts or Transfers of Funds to a Child and Dissipation
While transferring or gifting money or assets to a child may sound harmless, these types of transfers or funds or “gifts” are considered dissipation of marital assets. Dissipation is briefly explained in Section 750 ILCS 5/503 of the Illinois Marriage and Dissolution of Marriage Act. Generally, expenditures held to constitute dissipation are extraordinary expenses that clearly do not further common marital interests. If the gifts or funds are marital assets then they must be included as part of the division of assets in the divorce.
Transfers to Children of the Marriage
A typical example is the transfer of an asset to that child, such as a savings account, CD, money market account, car purchases, or actual cash funds to a child. The issue does not usually become contested for children that are of the marriage as the award can be counted as part of child support or college contribution. However, for children that are outside of the marriage, a court may consider the transfer as dissipation and may award the other party a portion of the amount that was transferred.
Were the Funds a Marital Asset?
An important point to realize, however, is if this money was in fact a marital asset to begin with, or if marital money was added during the marriage. If the funds that were used were acquired prior to the marriage or through a non-marital source, then the court will not consider the transfer as dissipation. However, if the funds were acquired prior to the marriage, but income acquired during the marriage was used to fund the account, then 50% of the amount contributed would be considered the other party’s contribution amount. This can be problematic for larger contributions if the funds given to a child have already been used or cannot be returned to the parent.
If you are concerned about a certain savings account that was being held for the benefit of your child but was not under the child’s name, seek trusted legal advice first. Speaking to an experienced divorce attorney first will about the best way to preserve these funds from being distributed at the divorce. For one, your spouse may agree to leave the funds to the children. Secondly, you may be better off using these funds to pay off your debts, which will free up money to re-fund the savings account. Before you actually transfer these accounts, it is important to be fully advised of the consequences. If you have already transferred or gifted accounts to your children, it is important to disclose it in Court than to hide it and face possible sanctions.