Planning Ahead: Protecting Streams of Income from Consideration for Maintenance
Under Illinois law, when a party files for divorce, the path to dissolution of marriage can often feel predetermined and optionless. The state’s laws are built on guidelines, formulas, and structures which are meant to cater to the majority of people. Fortunately, prenuptial agreements are available as a resource to parties who wish to craft an agreement that deviates from some of Illinois’ laws. In this regard, a common question we are asked is whether a party can protect certain future streams of income from being considered for determining a spouse’s “net income” in a support calculation.
While this question may seem simple, it has recently become more controversial in light of the Illinois Supreme Court decision, IRMO McGrath. In McGrath, the Court ruled on whether money that an unemployed parent regularly withdrew from a savings account must be included in the calculation of income when setting child support. In its decision, the Court emphasized that a court is not permitted to deviate from the measure of net income to which the guidelines apply. In other words, a court does not have discretion to exclude certain streams of income when determining a party’s net income.
Consequently, McGrath could be read broadly to prohibit parties from contracting out of the definition of “net income” under any circumstances. However, by taking a look at the foundational principles underlying prenuptial agreements, it is clear that McGrath should be read as limited to situations where parties contract out of the definition of “net income” specifically for calculating child support, not maintenance (our term for alimony in Illinois).
According to longstanding public policy, a prenuptial agreement cannot modify either spouse’s child support obligations. Furthermore, a prenuptial agreement cannot address issues related to the allocation of parental responsibilities (child custody, a/k/a “major decision-making”) or parenting time (visitation). Illinois reasons that courts must make determinations regarding a child based on factors that affect the child’s best interests at the time of the parents’ separation, rather than basing decisions on any arrangements that were previously made between the parents, which may no longer be in the child’s best interest.
On the other hand, parties have extensive authority to contract as it relates to their financials in prenuptial agreements. These agreements are meant to provide a practical and concise way to express future desires between spouses, specifically related to property division and maintenance obligations. The parties may even contract to entirely waive a maintenance obligation in a prenuptial agreement if the waiver is given in exchange for consideration.
Following this reasoning for the distinguished treatment of child support and maintenance in prenuptial agreements, McGrath, when read as being limited to situations related to child support, conforms with public policy quite neatly. Conversely, a broad reading of McGrath, which would prohibit narrowing the definition of “net income” for any purpose, including maintenance, would invalidate a key motivation for pursuing a prenuptial agreement as well as invalidate many previously entered into agreements, and create a tidal wave of litigation on a going forward basis when such agreements were sought to be enforced. For these reasons, such a result would be absurd and therefore any interpretation of McGrath that would apply to maintenance as well as child support is highly unlikely.
Despite the ripple caused by McGrath, parties should feel confident that they are able to protect certain streams of income in a prenuptial agreement from being considered as “net income” for calculating future maintenance obligations.
Thomas T. Field, Partner
Robert Friend, Associate