| CATLAW™ |
| Takata v Hafley is a July 2008 published Illinois child support enforcement case that allows custodial parents to seize a deadbeats share of marital assets accumulated during the deadbeats subsequent marriage. It does not affect the second spouse's share of those marital assets. Takata v Hafley is a landmark case because pursuant to Takata v Hafley deadbeats in Illinois can no longer hide their income or assets in a new spouse's name and thereby evade child support enforcement. (1) Ex husband (FH) has worked for unreported income as a carpenter for most of his adult life. (2) Since his re-marriage FH has repeatedly concealed his income and assets in his new spouse's name (LH) to evade child support enforcement, and his testimony has repeatedly been found to be not credible. (3) October 2003: ex Wife (CAT) enrolls child support case in Peoria County, Il. (4) December 22, 2005 :By and through his attorney, FH produces the H's joint 2002 Federal Income tax return which shows two retirement account disbursements totaling $80,128, in which FH asserts a $31,000 ownership interest; (a) The H's joint income tax returns for 2002 show that $15,854 is disbursed from a 401k to the H's (FH and LH,jointly); and (b) another $64,274 is disbursed to the H's (FH and LH,jointly) from a "pension or annuity"; and (c)In his December 22, 2005 sworn interrogatory responses FH asserts a $31,000 ownership interest in an IRA now held in the name of LH. (6) FH owes CAT over $25,000 in past due support. |
| Q: Can the income or disbursements from a debtors' retirement account be seized by a creditor? A: As a general rule pursuant to 735 ILCS 5/12-1006(a) the answer is, "no". But if the creditor is a child support creditor, then the answer is,"yes", pursuant to 750 ILCS 28/15(d)and Murphy v Wronke, 338 Ill App 3d 1095, 792 NE2d 12, 274 Ill Dec 917 (4 Dist., 2003)(Former husband's retirement accounts are subject to support enforcement because public policy favors support of children over the rights of deadbeats to accumulate retirement assets, and because the contents of ex husbands retirement accounts were disbursed to him and placed into 4 CD's, thereby extinguishing any exemption); see also Jakubik v Jakubik, 208 ILL App 3d 119, 566 NE2d 808, 152 Ill Dec 931 (2 Dist 1991)leave to appeal denied 139 Ill. 2d 597, 575 NE2d 915,159 Ill Dec 159 (1991) (past due support but not attorney fees may be seized from an obligor's retirement account); In re Support of Matt, 105 Ill. 2d 330, 334, 473 N.E.2d 1310, 1312 (1985) (the General Assembly established that it is the public policy of Illinois to ensure that support judgments are enforced by all available means). Based upon the foregoing authorities, FH's retirement account disbursements are subject to child support enforcement. But the question remains, are either of the 2002 retirement disbursements from FH's retirement accounts? |
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Q: If one or both of the retirement accounts are FH's, can CAT use 750 ILCS 5/505(b) or the Fraudulent Transfer Act to obtain FH's asserted $31,000 interest in the $64,000 retirement account that was disbursed to the H's in 2002 and is now held in an IRA in LH's name? A: No, because the transfer was made in 2002 and CAT did not enroll this case in Peoria County until 2003, therefore fraud cannot be proven because of the timing issue. CAT did not proceed under this statute. |
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Q: Can CAT use 735 ILCS 5/2-1402(c)(1)and Gonzales to obtain FH's asserted $31,000 interest in the $64,000 retirement account that was disbursed to the H's in 2002 and is now in an IRA held in LH's name? A: No, because 1402(c)(1) allows a creditor to intervene in an existing action between a debtor and another party who owes the debtor money. But FH is not suing LH. Gonzales v Profile Sanding Equipment, Inc., 333 Ill. App. 3d 680, 694-95 (2002), was a 2-1402(c)(1) case in which the creditor was denied because an actual cause of action was not pending between the debtor and the third party, which is required under 2-1402(c)(1). This statute requires more than a hypothetical cause of action and more than an illusory interest. (If this language sounds familiar that's because this is the statute and case the trial Judge erroneously used to deny CAT enforcement.) CAT did not proceed under this statute. |
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Q: If one or both of the 2002 retirement account disbursements are FH's, can CAT use 735 ILCS 2-1402(c)(3) to obtain FH's asserted $31,000 interest in the $64,000 retirement account that was disbursed to the H's in 2002 and is now held in an IRA in LH's name? A: Yes, because that is precisely what 2-1402(c)(3) is for; where a debtor could sue a third party and recover but won't. The creditor steps into the shoes of the debtor and hypothetically sues the Third Party Defendant. See, for example: Bentley v Shipley, 248 Ill App 3d 647, 619 NE2d 816, 189 Ill Dec 115 (4 Dist., 1993); leave to appeal denied Bentley v Shipley, 153 Ill 2d 557, 624 NE 2d 804, 191 Ill Dec 616 (1993); (Workman's compensation creditor wins $18,000 judgment against Shipley Enterprises, Inc., a closely held corporation. The corporation does not pay. A year before the WC award the company paid $18,000 of the owners personal expenses directly to their creditors. Bentley steps into the shoes of the closely held corporation and hypothetically sues the owners for the $18,000. The trial court denies Bentley for the reason that "no fraud was shown" and because the money was never in the hands of the Shipley's. The Appellate court reverses because there is no fraud requirement under section 2-1402(c)(3), and it does not matter that the money was never in the Shipley's hands.) Citing Froehlich v. J.R. Froehlich Manufacturing Co. (1981), 93 Ill.App.3d 179, 186, 48 Ill.Dec. 612, 617, 416 N.E.2d 1134, 1139.) the Bentley court held, "If the creditor can show the third party has property of or is indebted to the judgment debtor, the court is empowered under section 2-1402(b)(3) of the Code to compel the third party to deliver up any assets so discovered or the value thereof, if those assets are held under circumstances in which the judgment debtor could recover them in an appropriate action. Froehlich, 93 Ill.App.3d at 186, 48 Ill.Dec. at 617, 416 N.E.2d at 1139. Lorillard Tobacco Company v Canstar (USA) Inc., 2005 U.S. Dist. LEXIS 35884 (N.D. Ill., August 24, 2005.) (Creditor steps into the shoes of husband and successfully recovers husband's share of marital property from his happily married wife. Wife successfully defends her seperate savings account.) Dowling v Chicago Options Associates, Inc.,365 Ill App 3d 341, 847 NE 2d 741 (1 Dist., 2006); reversed on other grounds Dowling v Chicago Options Associates, Inc., 226 Ill 2d 277, 875 NE 2d 1012, 314 Ill Dec 725 (IL 2007). (Creditor steps into the shoes of debtor seeking turn over of debtors 401k and IRA. Debtor seeks exemption hearing but trial court never holds the hearing and instead orders the assets turned over to the creditor. Appellate court indicates that if no exemption hearing had been affirmatively requested, debtor would not have been entitled to claim any exemptions and the trial court would be affirmed. However, in Dowling the debtor had requested an exemption hearing. Case is remanded for an exemption hearing.) CAT specifically argues her claim under this statute. |
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Q: If FH sued LH for divorce is the IRA "marital property"? A: Section 503(a) specifically defines "marital property" as "any property acquired by either spouse subsequent to the marriage, except the following, which is known as 'non-marital property': (1)property acquired by gift, legacy or descent; (2) property acquired in exchange for property acquired before the marriage or in exchange for property acquired by gift, legacy or descent; (3)property acquired by a spouse after a jdugment of legal separation; (4) property excluded by valid agreement of the parties; (5)any judgment or property obtained by judgment awarded to a spouse from the other spouse; (6)property acquired before the marriage; (7) the increase in value of property acquired by a method listed in paragraphs (1) through (6) of this subsection, irrespective of whether the increase results from a contribution of marital property, non-marital property, the personal effort of a spouse, or otherwise, subject to the right of reimbursement provided in subsection (c) of this section; and (8) income from property acquired by a method listed in paragraphs (1) through (7) of this subsection if the income is not attributable to the personal effort of a spouse." Section 503(b) defines all retirement accounts as marital property, regardless of how title is held. Allocation of such assets are determined on equitable principles. Section 503(e) states, "Each spouse has a species of common ownership in the marital property which vests at the time dissolution proceedings are commenced [...]." In Lorillard the court adjudicated marital property rights where a creditor made the debtor's spouse a third party in 2-1402(c)(3) proceedings. The creditor only got a few small items, including a TV, and the third party wife successfully defended her savings account. Based upon the foregoing, the H's $64,274 retirement account that was disbursed to the H's in 2002 and is now held in LH's name, and in which FH has asserted a $31,000 actual, not illussory, ownerhip interest, is 'marital property'. If LH fails to prove any of it is hers, CAT can collect her past due child support from the IRA. For additional information regarding the seizure of IRA's for past due support, see, e.g.: ISBA Article, and Tax Consequences. CAT litigated the case based upon the foregoing authorities, and she used dissolution of marriage as the underlying cause of action pursuant to section 2-1402(c)(3), which triggered the Section 503(e) "marital property" nomenclature. |
| (1) April 7, 2006: CAT commences 2-1402 Third Party citation proceedings against LH, naming her as the Third Party Defendant, to determine whether LH is claiming any interest in the IRA in which FH has asserted a $31,000 interest. (2) Both H's receive notice and both fail to request an exemption hearing despite being duly notified of their right to do so as required by statute. (3) May 9, 2006: At the Citation hearing LH testifies that the $15,854 was taken out of her 401k to repay her own attorney fees and her own credit card debts, and that the present value of her 401k is $34,000. LH also testifies that she knows nothing about the $64,274 retirement account or any subsequent IRA. (4)On August 24, 2006 CAT files her Motion for Turn Over seeking turn over of her past due support from FH's unconctested $31,000 interest in the IRA which is now held in LH's name. (5) The trial court denies CAT's Motion by: (a)erroneously asserting that CAT was seeking turn over of LH's 401k instead of the IRA; and (b) by applying dicta from Gonzales, a 2-1402(c)(1) case, to Takata, which was the wrong statute and therefore a completely irrelevant case; and (c)by asserting that CAT failed to prove the IRA is not LH's non-marital property. (The actual burden of proof was on LH to prove the asset was her non-marital property; LH not only failed to do this, she testified repeatedly that she had no knowledge of the asset at all.) (6) CAT files her Motion to Reconsider and supporting Memorandum of Law, which is also denied. |
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CAT appeals arguing that the IRA is not exempt pursuant to Murphy v Wronke, and 750 ILCS 28/15, that exemptions not affirmatively asserted were waived, and that the trial court erred when it: (a) applied the wrong statute; and (b) addressed the wrong asset; and (c) reversed the statutorily mandated burden of proof. |
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The trial court is unanimously reversed on all counts. What Takata stands for: (1) A debtors' share of marital property is subject to seizure by creditors where the claim is brought under section 2-1402(c)(3) and the underlying cause of action is for dissolution of marriage. (2) Divorce is an appropriate hypothetical underlying cause of action in a 2-1402(c)(3) case. (3) Kujawinski has nothing whatsoever to do with creditors rights, nor does it bar ligitation of marital property rights in a 2-1402(c)(3) case where divorce is the underlying hypothetical cause of action. (4) Public policy favors support of children over an obligor's right to accumulate retirement benefits and assets to which he would be entitled in the event of divorce against a subsequent spouse. (5) Martial Property is specifically defined by section 503(a) of the IMDMA, not by section 503(e), which simply states when spouses obtain common ownership in marital property; using dissolution as the underlying cause of action in a 2-1402(c)(3) case triggers the section 503(e) "marital property" nomenclature. (6) An innocent spouse's separately held property is not at risk under Takata, unless the innocent spouse fails to defend it. In Lorillard the innocent spouse successfully defended her separately held substantial savings account. In Takata LH denied the account even existed; it was not her property, it was simply placed in her name in 2002. Two different cases, two different sets of facts, two different outcomes. See; The Rights of Married Person's Act (750 ILCS 65/5). (7) An innocent spouse's separate income is also not at risk under Takata because income is not even at issue under section 503 of the IMDMA. Assets are at issue in a child support enforcement case, not income. See; The Rights of Married Person's Act (750 ILCS 65/5). |
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