What Is Included in “Gross Income” For Calculating Spousal Maintenance in Illinois?

gross“How much do you make?” While that may not be an appropriate or welcome question in casual conversation, it is the fundamental inquiry used to calculate the amount of spousal maintenance obligations awarded in an Illinois divorce. But for many divorcing couples, especially for those with high-net-worth, significant investments, or multiple sources of wealth, determining the actual amount of “income” which will be the foundation of these calculations involves a lot more than looking at pay stubs. Whether you are seeking a maintenance award or want to keep any such payments to a minimum, it is important to understand what constitutes “income” under Illinois Marriage and Dissolution of Marriage Act (the “Act”)

New Spousal Maintenance Guidelines  

In response to the 2017 federal tax overhaul that eliminated the tax deduction for spousal maintenance payments, Illinois lawmakers in 2018 changed the guidelines for determining how monthly payments are calculated.

As of 2018, these guidelines now apply to couples with a combined “gross income” of less than $500,000. For divorces finalized in 2019 or later, the award should be 33.3% of the payor’s net (not gross) income, minus 25% of the recipient’s net (not gross) income. The amount calculated as maintenance, however, when added to the gross income of the payee, may not result in the payee receiving an amount that is more than 40% of the combined net income of the parties.

Since net income is derived from gross income, defining the spouses’ “gross income” is the key to figuring out maintenance awards, both under the guidelines and for couples over the $500,000 threshold.

“Gross Income” Defined

Section 504 of the Act, which covers spousal maintenance, defines “gross income” as “all income from all sources,” and refers to the definition of gross income used in Section 505 of the Act regarding child support. Under that section, “gross income” means “the total of all income from all sources, except for:

  • Public assistance benefits
  • Benefits and income received by the parent for other children in the household.

Outside of those exceptions, almost every dollar, every appreciation in value, every dividend paid and every capital gain is included in gross income. The Illinois Supreme Court has ruled that the definition of “income” under the Act mirrors that found in Webster’s Dictionary:

“As the word itself suggests, ‘income’ is simply ‘something that comes in as an increment or addition * * *: a gain or recurrent benefit that is usu[ually] measured in money * * *: the value of goods and services received by an individual in a given period of time.’”

In re Marriage of Rodgers, 213 Ill. 2d 129 (2004)

Over the years, Illinois courts have made decisions about the specific forms of income to be included in gross income for purposes of spousal maintenance calculations. These include:

  • Monetary gifts
  • “Loans” in name only, such as those from a family member, a corporation, or a business the payor spouse has an ownership interest in when there is little or no expectation that the loan will be repaid or any evidence to support the claim that it is a loan rather than a gift -such as documentation, requests for repayment, or reporting the money as a loan on tax returns.
  • Salaries, bonuses, and commissions
  • Pension proceeds
  • Workers’ compensation benefits
  • Interest and appreciation of an IRA
  • Liquidation of an IRA
  • Distribution of stock sold pursuant to an employment bonus-based option

Spousal Maintenance Questions? Call Chicago Divorce Attorney Louis Fine Today

An experienced divorce attorney, working in concert with accounting and tax professionals, can ensure that the amounts used to calculate maintenance obligations include every appropriate income stream and exclude those carved out by the law so that any maintenance award is fair and equitable.

If you have questions or concerns regarding gross income or spousal maintenance generally, please give me a call at (312) 236-2433 or fill out my online form to arrange for a consultation.

You Need Structure: The Importance of Picking the Right Corporate Form for Your Business

qInsulating Yourself from Personal Liability and Other Considerations

If you’re an entrepreneur or small business owner pouring your heart and soul into building and growing your enterprise, the dream is that all of that hard work and investment will be rewarded with success. The nightmare is that you expose your personal finances to significant risk and tax liability that can bring that dream crashing down. One of the ways to minimize those risks and protect yourself is to pick and form the right business entity.

For small businesses, this choice often comes down to two potential corporate structures: a limited liability company (LLC) or an S-corporation (often called an “S-corp”).

As alluded to above, perhaps the most fundamental reason business owners form LLCs or S-corps is to protect their personal assets from business creditors or other liabilities arising out of the operation of the business. Both of these entity types can accomplish this crucial goal, giving owners much needed peace of mind.

However, that protection can be lost if the business owners conduct their affairs in such a way as to render the company a mere “alter ego” of its owners or if they engage in fraudulent conduct. Additionally, both entities provide the benefit of treating your business income as your personal income for tax purposes.

How LLCs and S-Corps are Different

While both LLCs and S-corps provide the benefit of protecting personal assets, there are several key distinctions between LLCs and S-corps. A few of those differences include:

  • Both LLCs and S-corps are “pass-through” entities for tax purposes, which means business profits pass through the business entity and get taxed as the personal income of the owners. Here’s how it works:
    • Single Owner LLCs. If you run a single-owner LLC, you are taxed like a sole proprietorship, which means you can simply attach a Schedule C form to your personal tax return.
    • Multiple Owner LLCs. If your LLC has several owners, you can choose to be taxed as a corporation or a partnership.
    • S-Corps. In an S-corp, the corporation’s income is reported on the shareholders’ personal income taxes, based on their percentage of shares owned, regardless if they received distributions of the corporation’s income.
  • Allocation of Income. If you have others who will have an ownership share in the business, you will have to figure out how income will be allocated between you and your partners:
    • S-corps don’t give you much of a choice, as income must be distributed evenly among all owners regardless of how much labor or money each owner has contributed to the enterprise.
    • In an LLC, however, you can distribute income however you wish.
  • Corporate Formalities. One of the appealing things about an LLC is that, as a general rule, fewer corporate formalities are required than in S-corps and certainly fewer than in regular corporations. But being too casual can lead to serious problems:
    • As noted, failure to treat the LLC as a distinct entity by commingling funds, undercapitalizing the company, failing to hold meetings, etc. can result in the loss of that all-important personal liability protection.
    • While Illinois LLCs are not required to have written operating agreements, I strongly recommend that a written operating agreement be drafted and signed by all members to clarify the parties’ rights and obligations and avoid future conflicts as to its provisions.
  • Ownership Restrictions. An S-corp can have no more than 100 shareholders. By contrast, LLCs can have any number of owners and can even be owned by corporations and other LLCs.

There are numerous other nuances and distinctions regarding ownership, management, and operation of both LLCs and S-corps, and there are special types of LLCs called “Series LLCs” and “Low-profit LLCs” that may be best suited for your business. Additionally, there are other potential entities available, including general partnerships, limited partnerships, and specialized partnerships for the provision of professional services.

The Law Offices of Louis R. Fine

I understand that every business is different and that the goals and concerns of every business owner are unique. That’s why I work closely with my clients to evaluate their specific situation and determine which business structure will best set them up for success and growth. Please give me a call at 312-236-2433 or fill out my online form to arrange for your free initial consultation.

Who Should Pay for U? – College Costs After Divorce

tuitionOverjoyed or crushed? For high school seniors across the country at this time of year, acceptance or rejection letters from the colleges they wish to attend are determining which of those emotions they feel upon opening their mail. For parents of those seniors, the pride they feel about their child’s acceptance is likely accompanied by confusion and anxiety about the financial aid process and how they will help pay for four (or more) years of tuition that seems to increase at an exponential rate every year.

For divorced parents, a child heading off to college also means the end of child support and with it the question of who is going to foot the bill for their child’s college expenses. In Illinois, college costs are referred to as “post-majority expenses” and the question of who pays them depends on several factors.

Look to Your Judgment of Dissolution First

First, check your judgment of dissolution. If your marital settlement agreement, which divided all your property and set forth provisions regarding child custody and support, addressed post-majority expenses, they will be incorporated into the court’s final judgment. Illinois law gives family law courts the right to require one or both parents to pay a child’s higher education costs, even after the child graduates high school and turns 18.

The Illinois Marriage and Dissolution of Marriage Act

If your marital settlement agreement says nothing about college costs, and the judgment of dissolution is also silent on the issue, all hope is not lost. In Illinois, either parent can petition the court for college expenses, both before and after a child becomes a legal adult. More importantly, it doesn’t matter if your marital settlement agreement or final divorce decree failed to address the issue of post-majority expenses.

Section 513 of the Illinois Marriage and Dissolution of Marriage Act allows both moms and dads to ask the court to order the other parent to contribute to “the educational expenses of the child or children of the parties, whether of minor or majority age.” Such an application for educational expenses “may be made before or after the child has attained majority” and any order for the payment of college expenses terminates when the child receives a baccalaureate degree,” so no order will include the costs of graduate school.

In the majority of cases, the parent with the higher income is required to pay a larger percentage of the expenses, although courts occasionally order the child to kick in a portion of the bill.

Act Quickly to Receive the Support You Need

Too often, parents delay filing a petition for post-majority expenses until college fees are upon them. If you wait until your child is packing up for the first day of school, you could get stuck with the bill for the first semester.

If you have questions or concerns regarding your child’s college costs after a divorce, please give me a call at (312) 236-2433 or fill out my online form to arrange for a consultation.