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Divorce Settlements – Don’t Assume You Will Get A Second Bite Of The Apple

In re Marriage of Onishi-Chong, 2020 IL App. (2d) 180824

Under Illinois law, it is extremely difficult to get out of a martial settlement agreement that was incorporated into a divorce judgment. If a party does not trust the information provided by the other side in a divorce action, or believes the other side is concealing information, aggressively pursuing discovery is typically the best option. Discovery does not always answer all of the questions that a spouse may have concerning the other spouse’s finances. Even when some unresolved issues and doubts remain, settlement may still make sense in lieu of a full trial. In a settlement, typically neither side receives everything they want because one important function of a settlement is to avoid the risk that a trial may turn out unfavorably.

In Onishi-Chong, Karen Onishi-Chong settled her divorce action against her husband (Michael Chong) despite her concerns that he was concealing his true income. In her Martial Settlement Agreement (“MSA”) with Michael, Karen agreed to receive $12,500 per month from Michael in unallocated support. About two years after the divorce judgment was entered, Karen moved, under 735 ILCS 5/2-1401, to have the judgment and the MSA vacated on the grounds that Michael had concealed his true income. The Circuit Court granted Michael’s motion for summary judgment and dismissed Karen’s motion. The Second District affirmed.

A.   The Underlying Facts

Karen is an optometrist, although it appears from the Second District’s decision that Karen was not working as an optometrist when the parties were getting divorced. Michael was a co-owner of a company named “Voyage” that was described as a financial planning firm. Michael earned a considerable salary from Voyage.

Karen filed her divorce petition in August of 2012. For approximately two years following, Karen and Michael actively litigated their divorce, which included extensive discovery and an expert valuation of Voyage. One of the key issues presented in the litigation was Michael’s true income as co-owner of the company.

Michael claimed that he earned “$240,000 to $365,000 per year from 2012 through 2014.” Karen had doubts about the veracity of Michael’s representation. In a pretrial memorandum, Karen presented to the court during the divorce action, she argued that Michael and his partner (Thomas Royce):

Each received equal compensation from the company through 2011. . . Interestingly, in 2012, the same year in which Karen filed for divorce, Michael’s income suddenly diverged from Thomas’ income resulting in a difference of $25,798. . . Again in 2013 while the parties’ divorce was still pending, Michael and Thomas’ income differed by $196,669. . . . Based on the divergence coinciding with the filing and pendency of her petition for dissolution, Karen believes Michael intentionally reduced his income to reduce maintenance and child support…

Despite her stated concerns about Michael’s actual income, Karen agreed to settle the case. Michael agreed to pay Karen $12,500 per month in unallocated support, which he claimed was based on a higher level of income than the $240,000 to $365,000 per year in income he reported, and that Karen questioned. According to Michael, if Karen had “used the average of his and Royce’s income for 2012 and 2013 (the years they diverged), [Michael’s] income would have been $454,313 in 2012 and $469,888 in 2013.” Using the average of those two years would have, according to Michael, resulted in a guideline support amount of only $11,552. In other words, Michael claimed that he agreed to pay Karen significantly more than she would have received had they gone to trial, and the court agreed that Michael’s income was $240,000 to $365,000 per year. One inference from this claim by Michael was that Karen agreed to resolve her concerns about Michael’s income by getting a higher level of unallocated support.

The prove-up hearing was held on April 16, 2014. The judgment dissolving the parties’ marriage was entered on May 13, 2014.

Karen filed her Petition to vacate the Judgment on May 10, 2016, approximately 2 years after the Judgment was entered. Karen claimed that after they were divorced, Michael’s income at Voyage substantially increased. Karen alleged that during the two years following the entry of the Judgment, Michael had a lifestyle inconsistent with the income he disclosed during the divorce proceeding.

According to Karen, the increase in Michael’s income was due to him and his partner conducting a “true-up” of Michael’s income. More specifically, Karen claimed that Michael and Thomas agreed to have Voyage pay Michael substantially less in 2012 and 2013, only to have the difference paid to Michael after his divorce was concluded. Karen claimed that Michael’s true annual income in 2012 and 2013, when the “true-up” is taken into consideration, was approximately $518,000.

Michael moved for summary judgment in order to have Karen’s Petition dismissed. The Circuit Court granted Michael’s motion for summary judgment. The Circuit Court stated that if Michael, his partner and the valuation expert all lied “at the pretrial, at the prove-up, or at some earlier time, all this was discoverable by [petitioner] if she chose to pursue it . . . She did not.”

The Second District affirmed the Circuit Court’s dismissal.

B.   The Second District’s Analysis

The Second District started its analysis by pointing out that a Section 2-1401 Petition does “not give the litigant a ‘new opportunity to do that which should have been done in an earlier proceeding’ or to relieve the litigant ‘of the consequences of his mistake or negligence.’” Karen argued that this basic rule did not apply to her claim because Michael engaged in a scheme to conceal his actual income: Michael and Royce agreed to reduce Michael’s compensation from Voyage during the divorce proceeding with an understanding that Voyage would increase his income after the divorce. The second part of Karen’s argument was that she could not have known or proven the scheme until after Michael’s income increased.

The Second District had a number of issues with Karen’s argument. First, Karen expressly argued in the divorce case that Michael was engaging in the income scheme that she later claimed Michael concealed from her. Second, Karen’s argument relied heavily on events that happened after the divorce, but a petition under Section 2-1401 generally cannot be based on events that happened after the divorce. Third, Karen engaged in extensive discovery during the divorce proceeding and apparently did not identify specific reasons why she could not have learned about Michael and Royce’s scheme through discovery.

The Second District rejected Karen’s argument that she could not have known about Michael and Royce’s scheme until Michael’s income increased after she entered into the MSA. The Second District pointed out that Karen obtained evidence during the divorce showing that Michael’s income dropped after the divorce proceedings began. The drop in Michael’s income was as significant, in the Second District’s view, as the subsequent increase in Michael’s income. The Second District expressly stated that Karen could have argued at a trial that the Circuit Court should impute the missing income to Michael.

Finally, Karen might have claimed that Michael engaged in fraud during the divorce proceeding, which can relax the due diligence requirement. The problem Karen had was that she believed Michael was engaging in fraud during the divorce proceeding, but nonetheless chose not to attempt to prove her theory at a trial. The fact that Karen may have thought she would be unable to prove the fraudulent scheme at a trial does not mean she lacked knowledge of the scheme.

An undertone in the Second District’s decision is that Karen chose not to try to prove her theory at a trial and instead entered into a settlement agreement that appears to have given her more unallocated support than she would have received under the maintenance and child support guidelines. When Michael’s income increased, Karen tried to get a second bite at the apple with the same theory, but with some post-divorce evidence. Unfortunately for Karen, this, in the Second District’s view, was not an appropriate use of Section 2-1401.

Closing Thoughts

Instead of moving under Section 2-1401, Karen could have tried filing a motion to modify the unallocated support due to a substantial change in circumstances. A motion to modify the unallocated support, however, would have been retroactive only to the date she filed the motion, instead of the filing of the divorce proceeding, which is what Karen asked for in her Petition.

The most important takeaway from the decision in Onishi-Chong is that misconduct by the other side in a divorce proceeding will not automatically trigger a right to reopen the judgment by invoking Section 2-1401 after the divorce action ends. Courts expect litigants who have concerns about the information they receive in a divorce proceeding to address those concerns in the divorce action itself. If they choose to settle the case instead of trying to prove misconduct at a trial, a court will generally not allow them to revisit the case at a later time and try to relitigate their claims with new evidence.

When navigating the divorce process, it is crucial that you employ competent legal counsel to account for all your assets, handle the valuation of those assets, develop strategies for finding hidden assets, and allocate those assets in a way that makes sense. As an accomplished Chicago divorce lawyer, George M. Sanders provides dependable legal guidance and straightforward communication that allows his clients to make the best decisions possible. Contact him for a consultation today.

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