CHICAGOLAWBULLETIN.COM THURSDAY, NOVEMBER 1, 2018 ® Volume 164, No. 214 Serving Chicago’s legal community for 163 years Stock market’s wild ride can make divorce allocations a bit tricky F ollowing more than a to complete the transfer of funds. other spouse is conceptually year of stock market To put this time period in per- MODERN FAMILY more insulated. Therefore, risks euphoria, 2018 served spective relative to the market, on that may be associated with as- as a harsh reminder of Jan. 17, the Dow Jones Industrial sets a client is to receive need to the concept of market Average closed at 26,115.65. Ap- be considered. vo l at i l i ty. proximately 30 days later, the In representing high net worth In divorce cases, litigants have Dow Jones closed 24,893.49 —a individuals and distributing mul- the option to take their case to drop of more than 1,222 points or BRETT M. timillion-dollar and diverse es- trial or reach a settlement. When almost 5 percent. BUC K L EY tates, it is incumbent on the litigants opt for the latter, their In the first several days of lawyer to advise their client of rights and obligations concerning February alone, the market en- scenarios like these where one issues of property allocation, tered a correction. The market’s An associate attorney with Schiller morning the client may wake up spousal and child support and the spiral eventually cooled off as in- DuCanto & Fleck LLP, Brett M. Buckley to find their million-dollar asset like are outlined in a marital set- vestors experienced lukewarm represents business owners, executives, worth significantly less. tlement agreement. growth year to date, until early professionals, celebrities, professional At the same time, however, the athletes, people with multigenerational The Illinois Marriage and Dis- October at least. On Oct. 5, the inverse holds true, as does the wealth and their spouses in divorce and solution of Marriage Act vests Dow Jones closed at 26,632. As of risk. It is important to help make custody disputes. He can be reached at courts with the discretion to value the drafting of this article, the bbuckle y@sdflaw.com. thoughtful decisions about this is- assets and liabilities for purposes average stands at 25,396 —an - sue for clients to weigh risks and of property division as of the date other downward swing of approx- rewards inherent in the assets of trial, or such other date as imately 5 percent. gains. Similarly, both will want to they receive. agreed upon by the parties or or- Where spouses express a per- absorb only their ratable share of Tax consequences of asset der by the court. 750 ILCS centage division of particular as- market losses. a l l o c at i o n 5/503(f ). sets, they inherently share in In a continuing 401(k) plan In addition, periods of market Generally speaking, when liti- market gains and losses from the where there will be additional volatility stand to impact capital gants reach a settlement of their effective date of the agreement contributions by the employee gains and losses generated by in- case, they use the date of divorce until the date the assets are di- spouse, the contributions, appre- vestment assets. The former can or one very close thereto as a vided or transferred. However, in ciation and income need to be create a tax liability (e.g. where a valuation date. some circumstances there is a subtracted from the former holding is sold for more than its Allocating market gains and specified amount of cash to be s p o u s e’s share. purchase price), whereas gener- losses paid to a spouse to buy out a Other allocation considerations ally speaking the latter results in For better or worse, the value specified number of shares of Periods of market volatility an asset (e.g. where a stock’s sales of investment, retirement and oth- stock from a holding to be re- must also be considered in overall price is less than its purchase er assets consisting of securities tained by the other spouse. property allocation. As a general price, thus creating an offset is subject to change with virtually against present or future capital each passing minute. ga i n s ) . With investment and retire- For better or worse, the value of investment, Section 503(d)(12) of the mar- ment asset allocation, the physical riage act directs courts to con- transfer of funds generally does retirement and other assets consisting of sider the tax consequences of not happen within minutes, hours property division. In marital set- securities is subject to change with virtually or, in some cases, even days of the tlement agreements for high net finalization of a divorce case. each passing minute. worth divorce cases, the parties Thus, where these assets are are able to plan how to best deal not split equally between the lit- with holdings that carry positive igants, it is crucial to account for In those circumstances, it is proposition, take for example a or negative tax consequences and allocate market gains and crucial to include language allo- scenario where a spouse is al- when they are sold. losses in the time period between cating market gains and losses located 100 percent of a 401(k) In these circumstances, it is divorce and the actual allocation. pro rata so the buyout fairly re- (and perhaps a reasonable dis- good practice to consult with fi- To divide a qualified retirement flects the real value when the deal count applied given that the nancial advisers and accountants plan (e.g. 401(k), 403(b)), the court is closed. This is true even where 401(k) is a qualified asset), while when considering asset allocation must enter a qualified domestic a vast majority of market analysts the other spouse is allocated non- to ensure that assets and liabil- relations order directing the plan agree timing the market is nearly market assets (e.g. cash or real ities are being apportioned and administrator to effectuate the i m p o s s i b l e. e s t at e ) . allocated as the litigants contem- transfer of funds from the plan A litigant who is allocated a A market swing akin to those plated, and to avoid an unintend- participant (employee) to the al- larger share of a 401(k) wants to in February and October could ed result of one spouse being al- ternate payee (nonemployee). be assured that in periods of conceptually cost the spouse be- located a vastly disproportionate With some plans, it can take up steady market growth she re- ing allocated the 401(k) tens of share of assets with ingrained to 90 days from the date of divorce ceives her pro rata share of the thousands of dollars, while the capital gains or losses. 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