Mixing Money In An Illinois Divorce

Russell Knight

Russell D. Knight has been practicing family law as a Chicago divorce lawyer since 2006. Russell D. Knight amicably resolves tough cases while remaining a strong advocate for his client’s interests.

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Transmutation of Assets In An Illinois Divorce

Mixing Money In An Illinois Divorce

When people get married, they join their lives…at least on an ongoing basis. There are still items from their past that will always remain with them. Whether it is a keepsake or an entire house, what you bring into a marriage you get to take out of the marriage after a divorce.

There is a big exception, however. If a property from before your marriage or outside of your marriage gets mixed up with a property your spouse owns or owns jointly with you, that property will be deemed to have been “transmuted” into marital property and will, thus, be divisible in an Illinois divorce.

Transmutation is “a doctrine in property law which allows the conversion of a separate property interest into marital or community property by agreement between spouses or by contribution of marital or community assets to the separate property (as for maintenance or improvements)” Merriam-Webster’s Dictionary of Law ©1996

After a divorcing party understands the distinction between marital and non-marital property, they must investigate whether any transmutation occurred which turned non-marital property into marital property for the purposes of the division of assets in their Illinois divorce.

How Is Property Initially Determined As Either Marital Or Non-Marital In An Illinois Divorce?

Illinois divorces divide assets between married couples. In 90% of Illinois divorces those assets are divided based on preference and private negotiations of the parties. Should either party be unsatisfied with the proposed Marital Settlement Agreement, that party may go to the Illinois divorce court and ask the court, directly, to divide the assets that the parties hold both jointly and individually.

Before the divorcing parties’ assets are divided by an Illinois judge, they are classified by the divorce court.

“All the property of the parties to a marriage belongs to one of three estates, the estate of the husband, the estate of the wife, or the marital estate. Property brought to the marriage by the husband belongs to him. Property brought to the marriage by the wife belongs to her.” In re Marriage of Werries, 247 Ill. App. 3d 639, 641-42 (Ill. App. Ct. 1993)

The husband’s estate remains with the husband, the wife’s estate remains with the wife and the marital estate is divisible by the court.

“In order to distribute property upon the dissolution of marriage, the trial court first must classify the property as either marital or nonmarital property.” In re Marriage of Henke, 313 Ill. App. 3d 159, 166 (Ill. App. Ct. 2000)

“After the trial court classifies the property, it awards each spouse their non-marital property and divides the marital property into just proportions.” In re Marriage of Biedermann2017 IL App (2d) 151174-U

This division of assets into the simple categories of 1) husband’s, 2) wife’s. 3) the marriage’s is very simple if the parties get divorced just a few days or months after the wedding date. But, in reality, assets are fungible. They can be bought, sold, traded, liquidated and essentially turned in to other, new assets. How does a court classify those new assets?

“Under the Illinois Marriage and Dissolution of Marriage Act (Act) (750 ILCS 5/101 et seq. (West 2008)), there is a rebuttable presumption that all property acquired by either spouse after the marriage and before a judgment of dissolution of marriage is marital property regardless of how title to the property is held.” In re Romano, 2012 IL App (2d) 91339, 968 N.E.2d 115, 360 Ill.Dec. 36 (Ill. App. 2012)

“[This] presumption of marital property is overcome by a showing that the property was acquired by a method listed in subsection (a) of [750 ILCS 5/503].” In re Marriage of Smith, 86 Ill. 2d 518, 527 (Ill. 1981)

750 ILCS 5/503(a) of the Illinois Marriage and Dissolution of Marriage Act lists the various exceptions to the rule: If you got it after the marriage date…it’s marital property.

“(1) property acquired by gift, legacy or descent or property acquired in exchange for such property;

(2) property acquired in exchange for property acquired before the marriage;

(7) the increase in value of non-marital property, 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” 750 ILCS 5/503(a)

Gifts and inheritances are non-marital property no matter when acquired (so long as they are individually acquired).

Property from before the marriage which was traded, sold for, or otherwise transformed into some other kind of property shall retain its non-marital character.

The increase in value due of any non-marital property due to appreciation, income, rents, etc. will also remain non-marital.

If a property was acquired after the date of marriage, the party claiming the property is non-marital must prove that they 1) received the property as non-marital property and 2) that the property retained its non-marital character throughout the course of the marriage.

“In order to preserve the status of property as non-marital, one must prove that the entire property was acquired exclusively by one of the methods listed in section 503(a), and that its character was not subsequently altered by action of the owner.” In re Marriage of Smith, 2012 IL App (2d) 110522 at 531

“The party claiming that the property is nonmarital has the burden of proof, and any doubts as to the nature of the property are resolved in favor of finding that the property is marital.” In re Marriage of Schmitt, 391 Ill. App. 3d 1010, 1017 (Ill. App. Ct. 2009)

The first thing to prove, that the property was received as non-marital, is fairly simple. Testimony that the property was a gift from the gift-giver is sufficient. Also, a written will can easily establish that a property was an inheritance.

It is, however, harder to prove that a property retained its non-marital character because there are so many actions or events that irrevocably turn a non-marital property into a marital property.

How Non-Marital Property Becomes Marital Property

Transmutation is a concept that Illinois courts have used to interpret the Illinois Marriage and Dissolution of Marriage statute’s distinctions between marital and non-marital property when the two become mixed or entangled.

Usually, the way the property is held is sufficient to transmute a non-marital property into a marital property in an Illinois divorce.

“The placing of nonmarital property in joint tenancy or some other form of co-ownership with the other spouse will raise a presumption that a gift was made to the marital estate, and the property will become marital property.” In re Marriage of Benz, 165 Ill. App. 3d 273, 280 (Ill. App. Ct. 1988)

Specifically, when non-marital property is held in real estate with any kind of joint deed, that non-marital property becomes marital.

“[C]ourts will presume a spouse who placed non-marital property in joint tenancy with the other spouse intended to make a gift to the marital estate” Berger v. Berger, 357 Ill. App. 3d 651 (2005)

Transmutation Via Gift In An Illinois Divorce

If a property is not held in a joint account or deed, then the property can lose its non-marital content via evidence of the intent of the original owner to make a gift of the property to the marriage.

“A gift is a voluntary, gratuitous transfer of property by one to another where the donor manifests an intent to make such a gift and absolutely and irrevocably delivers the property to the donee.” In re Marriage of Cook, 117 Ill. App. 3d 844, 849 (Ill. App. Ct. 1983)

Between a married couple the concept of a gift is a high standard. To “irrevocably deliver” property to a marriage as a whole when you’re in the marriage seems both vague and difficult.

Because of this, a “gift to the marriage” is almost always only invoked when a property is placed in a joint account or in joint title. After that has occurred, the property is marital unless the rebuttal evidence is overwhelmingly strong.

This presumption of a gift to the marriage is not automatic. “In dissolution proceedings, the “donor” spouse may rebut the presumption of gift with clear, convincing and unmistakable evidence” In re Marriage of Rink, 136 Ill. App. 3d 252, 257 (Ill. App. Ct. 1985)

The gift-giver can testify as to their intention but actions speak louder than words. There will always be a rebuttal to the rebuttal that “[t]here are steps [a spouse] could have taken to make sure his nonmarital assets retained their distinct identity, if that was [their] desire.” In re Marriage of Gattone, 317 Ill. App. 3d 346, 354 (2000). Failure to undo the mix of properties or to preserve non-marital character of the properties is evidence, in itself, of a party’s true intent to make and preserve a gift to the marriage.

If the true nature of the gift is at all unclear “any doubts as to the nature of the property are resolved in favor of finding that the property is marital.” In re Marriage of Schmitt, 391 Ill. App. 3d 1010, 1017 (Ill. App. Ct. 2009)

Transmutation Via Contribution In An Illinois Divorce

Marital money flowing into a non-marital property are “proceeds attributable to the improvements to which both parties contributed constitutes marital property, thereby creating the presumption, unrebutted in this case, that the entire residence was transmuted into marital property” In re Marriage of Lee, 87 Ill. 2d 64, 67-68 (Ill. 1981)

Non-financial effort (sweat equity) of a homemaker’s maintenance of a non-marital house or a spouse’s rehabilitation and repair of a non-marital home can create “a rebuttable presumption that the contribution is intended to change the character of the property to marital.” In re Marriage of Smith, 86 Ill. 2d 518, 531 (Ill. 1981

Mere appreciation of a non-marital property during the marriage does not constitute the creation of marital property either in whole or in part. “[T]he appreciation of the value of nonmarital property…is to be regarded as nonmarital property” In re Marriage of Komnick, 84 Ill. 2d 89, 96 (Ill. 1981)

Reimbursement For A Gift To A Marriage

If one party makes a massive gift to the marriage, should they not walk away with at least something in return that reflects that contribution? After all, when dividing marital property the courts are to consider “each party’s contribution to the acquisition, preservation, or increase or decrease in value of the marital or non-marital property” 750 ILCS 5/503(d)(1)

While this is a valid argument, the argument will be quickly rebutted by another section of the same statute.

“When one estate of property makes a contribution to another estate of property, the contributing estate shall be reimbursed from the estate receiving the contribution notwithstanding any transmutation. No such reimbursement shall be made with respect to a contribution that is not traceable by clear and convincing evidence or that was a gift.” (emphasis mine) 750 ILCS 5/503(c)(2)

Remember, we are only establishing whether a property is marital or non-marital. Marital property is NOT divided 50/50 in Illinois. While a gift to the marriage will make the gifted property marital, the court will allow an unequal division of that property based on its source (with the right arguments).

Gifts vs. Commingling In An Illinois Divorce

Property placed in both parties’ names is presumed to be a gift to the marriage. Should this presumption be rebutted, the property needs to be disentangled into the respective parties’ non-marital possession.

“While there is no right to reimbursement when a gift has been made, there is a right to reimbursement when assets have changed character by reason of commingling as long as the contributions between estates can be traced by clear and convincing evidence.” In re Marriage of Werries, 247 Ill. App. 3d 639, 642 (Ill. App. Ct. 1993)

Commingled property stays commingled until it can be clawed back via tracing. The presumption of a gift during commingling is so strong that I have rarely seen a tracing argument used to any positive effect.

Transmutation And Illinois Divorce Law

The rule should be clear: In an Illinois divorce, property is either marital or non-marital. Non-marital property can become marital property if it becomes held jointly.

An Illinois divorce lawyer’s job is to clarify what the initial nature of the property was and how that nature either changed or did not change.

If you’d like to discuss the possible transmutation of your or your spouse’s non-marital property, contact my Chicago, Illinois family law firm to speak with an experienced Illinois divorce attorney.