Dividing Tax Refunds in Illinois Divorce Cases

When a married couple acquires property during their marriage, both spouses have ownership rights to such property (assuming there is no prenuptial agreement providing for the contrary). For example, the curtains that adorn the windows of the couple’s house typically do not belong to one spouse at the exclusion of the other. However, when a couple gets divorced, both are entitled to own and use the marital home, including its curtains.

Ordinarily, in the State of Illinois, property acquired by either party during the marriage is subject to division upon divorce. Property division also applies for tax refunds. This article explores the rules that govern how tax refunds are distributed in divorces.

General Principles of Equitable Distribution in Illinois

Under Illinois law, courts must conduct an equitable distribution of marital property in divorce cases. Marital property includes any asset acquired after the marriage of the parties and before their date of divorce. Conversely, any property that a spouse acquires solely in their name before marriage, after marriage, or through gift or inheritance during the marriage, qualifies as separate nonmarital property that is typically not subject to equitable division upon divorce.

Property—for the purposes of equitable distribution of marital property upon divorce—does not necessarily mean physical or tangible things, such as real estate and personal property. Courts have long recognized that income or money may be characterized as marital property as long as it was acquired during the marriage. As a result, the salary and earnings a spouse receives while married is generally understood to qualify as marital property subject to equitable distribution in divorce cases.

Specific Rules Regarding the Division of Tax Refunds in Illinois

Under Illinois law, tax refunds are considered marital property subject to division if earned while the couple was married. The Illinois court of appeals has consistently held that “[w]here the right to a tax refund accrues during the parties’ marriage, the refund is treated as marital property subject to division…The fact the refund [is] not received until after the marriage [is] dissolved does not change or detract from its characterization as marital property.”

For example, imagine that a spouse was paid $75,000 for their work in 2015. The spouse files their 2015 tax return in April 2016 but also filed for divorce in January 2016. The divorce is finalized in July 2016, but the spouse ultimately receives a tax refund for the 2015 tax year in October 2016, subsequent to the date of divorce. A good attorney will want to consider the tax refund as part of the marital estate, even if it is not received until after the date of dissolution. The refund represents money the government took from the spouse’s earnings in 2015—when they were stilled married, and should be considered part of the marital estate.

Therefore, tax refunds resulting from income earned (and taxes paid) during the marriage are appropriately characterized as marital property, even if they are potentially received after the date of dissolution of marriage. Furthermore, an income tax refund earned during marriage is considered marital property even if the refund relates to a year where one spouse did not have any income.

For Quality Chicago Divorce Representation, Call the Law Offices of Jonathan Merel, PC

Do you need an experienced attorney who is familiar with property division issues in Illinois divorce cases? Fortunately for you, our legal team at the Law Offices of Jonathan Merel, PC has dedicated years of their practice to resolving family law issues such as the division of marital property.