You might think that the Illinois divorce process is over when you receive your divorce decree from the court, a document formally known as a Judgment of Dissolution of Marriage. After all, that document includes an itemized list of all your marital debts and assets, with each item either assigned wholly to one spouse or divided between spouses into percentage shares.
However, your work is not yet over. The divorce decree does not legally transfer the title of major assets like cars and real estate from one person to another, nor does it legally relieve a spouse from liability for marital debts. You must take separate legal steps to ensure that your name is added to or removed from each asset title and debt obligation. This is important to protect your credit rating in the event that your ex fails to stay on top of loan or credit card payments.
Gifts and asset transfers between married spouses are generally not taxable transactions, even if the asset has risen in value since the time of purchase. However, the same transaction between divorced spouses could be treated as a sale and subject to income tax if there is a gain on the sale.
In order to avoid taxes on asset transfers incident to a divorce, the transfer must:
Occur within one year after the date of your divorce decree.
Occur within six years of the date of your divorce decree and the asset transfer was specifically documented in your original or modified divorce decree.
Transferring title to a vehicle is relatively simple: Fill out an online transfer document, print it out, and bring it with a copy of your divorce decree to any Illinois Secretary of State’s facility to obtain a revised title.
If the vehicle has an outstanding loan for which both spouses signed, the lender may agree to release one spouse from liability for the loan or may instead require the spouse keeping the car to refinance the loan based on their own credit rating.
Transferring title to real estate is often done through a quitclaim deed. When real estate title transfers from one spouse to another pursuant to a divorce, federal law (12 U.S. Code § 1701j–3) prohibits the mortgage holder from demanding that you pay off the loan. However, if both spouses’ names are on the mortgage, the spouse giving up title will also want to be relieved of liability for future mortgage payments. If the spouse keeping the house has a good credit rating and sufficient income, they may be approved to assume the existing loan in their name alone and the lender should provide the departing spouse with a release of liability. If the assumption of the loan is not possible, the remaining spouse will have to try to obtain a new loan in their name alone.
Alternatively, the property could be sold by one ex-spouse to the other, or the property could be sold to a third party and the spouses split the profits. An experienced divorce financial analyst can run the various scenarios and determine which will be most lucrative.
In order to divide a 401k account or future pension benefits, your attorney must file a Qualified Domestic Relations Order (QDRO) with the administrator of the retirement plan. A QDRO is not needed to divide a self-directed IRA, as the owner can directly transfer funds from their account to the spouse’s account. It is important that you follow up to make sure that your spouse complies with the divorce order in a timely manner.
A financially-savvy lawyer can advise you of the best way to transfer assets pursuant to a divorce settlement so as to minimize any tax implications. If you have substantial assets and debts to be divided in your divorce, contact a knowledgeable Joliet divorce attorney. Call Mevorah Law Offices LLC at 815-726-9200 for a free initial consultation.