Opinion ID: 2020959
Heading Depth: 1
Heading Rank: 1

Heading: the sackville farm

Text: The appellate court, in ruling that the Sackville farm was not marital property at the time of dissolution, based its holding on the theory that property held by a spouse becomes marital property only upon entry of an order of dissolution and can be alienated free from any claim by the other spouse until that time. It assumed that the farm would have been marital property had it remained in Roger's possession and therefore did not rule on that issue. Roger and his parents maintained before the circuit and appellate courts, as they continue to do as appellees here, that the farm was essentially a gift to Roger under the installment sale contract and thus comes under an exception to the statute creating marital property rights. They also argue that Sandra expressly agreed to the provision of the sale contract precluding her from acquiring an interest in the farm, and thus attempt to invoke another exception to the marital-property statute for property excluded from its reach pursuant to a valid agreement between spouses. The statute governing marital property in Illinois is section 503 of the Illinois Marriage and Dissolution of Marriage Act (Ill. Rev. Stat. 1977, ch. 40, par. 503), which provides in relevant part: (a) For purposes of this Act, `marital property' means all property acquired by either spouse subsequent to the marriage, except the following, which is known as `non-marital property': (1) property acquired by gift,   ; [or]    (4) property excluded by valid agreement of the parties. The statute creates a rebuttable presumption that all property acquired after marriage is marital property. See Kujawinski v. Kujawinski (1978), 71 Ill.2d 563, 571, citing Ill. Rev. Stat. 1977, ch. 40, par. 503(b). Roger and his parents base their assertion that the contract for sale of the Sackville farm was a gift on the fact that the property was valued at considerably more than the contract sale price in 1977 and on statements made by Roger and his father in court to the effect that, although the father was aware that Roger was a poor businessman, he had earlier sold a farm to a daughter for a bargain price and wished to treat Roger similarly. The circuit court noted that although the parents may have sold the farm to Roger reluctantly, they sold it for a higher price than they had paid for it five years earlier and ruled that the property was not even partially a gift, citing testimony by Roger's mother that she considered the sale price to be a fair one. We note the additional possibility, not disproved by the record, that the price was considered fair as an arm's length transaction only because Roger, with his history of insolvency, could not realistically be expected to pay a higher price. The burden of proof rests on those seeking to establish that the transaction was intended as a gift. ( In re Marriage of Severns (1981), 93 Ill. App.3d 122.) The trial court's determination was supported by credible evidence, and we are not free to disturb it in light of the statutory presumption. Roger and his parents point out that the sale contract excluded Sandra from acquiring an interest in the Sackville farm, that Sandra was present during the negotiations and did not object to her exclusion when this was explained to her by the attorney, and that Sandra testified that when Roger informed her that he was going to lose the farm to his parents she replied, What you and your father do is your business. They argue on the basis of this evidence that there was a valid agreement between Roger and Sandra that she should not share in the property, and that this requires us to apply exception (4) to the marital property section (Ill. Rev. Stat. 1977, ch. 40, par. 503(a)(4)) and hold that the Sackville farm was nonmarital property. We do not agree. Sandra's testimony reveals that Roger had not arranged for her to come to the lawyer's office to listen to the negotiation of the contract but that Sandra had suggested that she accompany him, apparently on the spur of the moment, and that Roger had warned her to shape up just before they went. She did not bring a lawyer of her own. In the attorney's office she sat in the back of the room and did not participate in the negotiations; she heard only part of the conversation between Roger, his father and the attorney, and was informed at one point by the attorney that she was not to share in the farm in case a divorce should occur. Under these circumstances, her failure to object and her subsequent actions might be attributed to a conclusion that the lawyer was telling her that she had no legal right to share in the property or to a desire not to anger Roger or his parents, rather than to a knowing and voluntary relinquishment of rights she knew she had. She signed no formal contract, nor did she say anything in the attorney's office to indicate a voluntary surrender of known rights. This case is unlike In re Marriage of Redden (1980), 89 Ill. App.3d 1073, in which the husband's intent to divest himself of his marital interest in certain property was specifically set forth in an agreement transferring the land to his wife. We believe that the trial court's finding that the Sackville farm was marital property was well founded; from our standpoint it would be sheer speculation to conclude that there was ever a valid agreement by Sandra to give up a marital right. Roger points out in his brief that the property appreciated greatly in value between 1976 and 1978, the years during which he was under contract to buy it, and argues that In re Marriage of Komnick (1981), 84 Ill.2d 89, requires this inflationary increase to be considered as nonmarital property. The simple answer is that In re Marriage of Komnick held that inflation would not transform nonmarital assets into marital assets merely because it occurred during the marriage. In this case the trial court found, and we agree, that the Sackville farm was marital property from the beginning. Just as inflation cannot create marital property where none existed before, neither can it spontaneously generate nonmarital property from property which was marital when acquired. Roger finally argues that the presumption of marital property should not apply where the property was not acquired with the help of the spouse, as manifested either directly through financial contributions or independent earnings or indirectly through domestic help. He bases this argument on the following language in Kujawinski v. Kujawinski (1978), 71 Ill.2d 563, 576: [B]y giving both spouses an interest in `marital property' upon dissolution of marriage, the legislature sought to award economic credit in the distribution of property for indirect or domestic contributions to the accumulation of property and sought to replace the concept of post-marital support through alimony with one of post-marital stability through a just distribution of marital property and assets. We believe, however, that even if this statement were not immediately preceded in Kujawinski by the qualifying words [f]or instance and accurately defined the outer limits of the statutory concept of marital property, as Roger seems to argue, the presumption of marital property would still apply in this case. Sandra's uncontradicted testimony was that she worked to support the family during 1976 and 1977, the years during which Roger owed and attempted to make payments on the Sackville farm. Although Roger borrowed the $20,000 for the down payment from a bank, it is unrealistic to assume that Sandra's labors did not account in some part for Roger's ability to make the payments he made in 1977, or for the bank's willingness to make a $20,000 loan to a businessman whose reputation for solvency could only be described as questionable. (See In re Marriage of Lee (1981), 87 Ill.2d 64, 66; In re Marriage of Smith (1981), 86 Ill.2d 518, 531-33.) We therefore conclude that the trial court properly treated the Sackville farm as marital property during the time Roger had an equity in it. Roger and his parents next argue that the evidence does not conclusively establish fraud in the forfeiture of the Sackville contract, and that, even assuming that Roger's acts were attributable to a desire to deprive Sandra of marital property, there can be no cause of action for an attempt to defeat a spouse's marital rights in property in Illinois prior to a decree of dissolution. We consider the latter argument first. The commissioners' note to section 503 of the Illinois Marriage and Dissolution of Marriage Act states that [s]ubsection (b) [of the Act] defines marital property only for the purposes of division on dissolution of marriage or legal separation. No attempt is made to regulate the respective interests of the spouses in property during the existence of the marriage. (Ill. Rev. Stat. 1977, ch. 40, par. 503, Commissioners' Note, at 475 (Smith-Hurd 1980).) This court in Kujawinski v. Kujawinski (1978), 71 Ill.2d 563, 573, a case which did not involve an allegation of fraud, declared that the Act does not purport to affect property interests during the marriage. The term `marital property' is a nomenclature devised to realize an equitable distribution of property upon termination of the marriage. Operation of the term `marital property' under the Act is not triggered until the time of dissolution. Section 503(b) does not prevent married persons from owning property separately during the marriage and disposing of it in any fashion that the property-owning spouse may choose. [Citations.] Commentators in the wake of Kujawinski have been of the opinion that a taxable event occurs when property is apportioned on dissolution of a marriage in Illinois, a result that does not obtain in States in which property acquired during marriage is deemed to be held in common ownership. (See J. DuCanto, Federal Tax Treatment of Transfers of Marital Property Under the New Illinois Marriage and Dissolution of Marriage Act, 59 Chi. B. Rec. 286 (1978).) From this, Roger and his parents reason that Roger was free to do as he pleased with his property prior to the decree of dissolution, subject at most to the caveat that he not engage in fraud as manifested by the absence of donative intent to make a conveyance of a present interest in the property conveyed ( Johnson v. La Grange State Bank (1978), 73 Ill.2d 342, 351; see Lesnik v. Estate of Lesnik (1980), 82 Ill. App.3d 1102, 1105; Payne v. River Forest State Bank & Trust Co. (1980), 81 Ill. App.3d 1128, 1131), which Roger and his parents suggest cannot be found in this case because the forfeiture was an involuntary transfer in which donative intent could of necessity play no part. They urge that to permit Sandra any more control over Roger's disposition of his assets prior to a decree of dissolution would be tantamount to adopting a community property system of marital rights, a step which our legislature stopped short of taking when it adopted section 503 of the Marriage and Dissolution of Marriage Act. We believe that this view of the law is too grudging an interpretation of the intention of the Act and the cases decided under it. The Johnson, Lesnik and Payne decisions clearly recognize that fraud against marital property is not to be condoned even though it occurs before dissolution; the question in those cases involved the characterization to be given an inter vivos transfer by one spouse of funds to a trust. Fraud in such a context is properly assessed by referring to the donative intent of the settlor. (See Holmes v. Mims (1953), 1 Ill.2d 274; Toman v. Svoboda (1976), 39 Ill. App.3d 394; Annot., 49 A.L.R.2d 521 (1956).) By contrast, fraud cannot logically be assessed in cases such as this, which involve no voluntary transfer, by inquiring into the donative intent of the transferor. In the context of a forfeiture of lands which Roger and his parents claim was involuntary, we believe that fraud can be measured by determining whether the forfeiture was essentially collusive in nature or only partial where it purported to be total, as opposed to a complete forfeiture in which the forfeiting party gives up his interest in the property in an arm's length transaction as a result of economic necessity or a reasonable or understandable business decision. (See Johnson v. La Grange State Bank (1978), 73 Ill.2d 342, 359 (discussing illusory transfers); Draper v. Draper (1873), 68 Ill. 17 (voiding a transfer of property justified as payment of a debt on a showing that the sale in fact overpaid the debt by $6,000); Klingberg v. Klingberg (1979), 68 Ill. App.3d 513 (holding a husband's withdrawal of funds from a bank account to pay former wife for child support to be fraud against second wife's marital property on a showing that the child-support payment was excessive and that husband left his second wife shortly thereafter); Harley v. Harley (1934), 255 Ky. 370, 74 S.W.2d 195 (voiding a transfer of property to a son for no consideration shortly before divorce, it appearing significant to the court that the son was capable of reconveying the property).) This rule accords with the statutory requirement that a transfer of property can be voided in Illinois only on a showing of an intent to defraud (Ill. Rev. Stat. 1977, ch. 110 1/2, par. 601), and it prevents spouses from intentionally shielding all of their property from distribution in case of divorce by simply arranging for its forfeiture before dissolution occurs. We do not consider such a rule to be in derogation of the terms of the Illinois Marriage and Dissolution of Marriage Act or to be tantamount to adoption of community property law contrary to the intention of that act. Section 503 of the Act was enacted in 1977 with a remedial purpose in mind  to remedy the inequities of the common law title doctrine, which took an inflexible approach to real property distribution depending on which spouse held title to the property and subject only to narrowly defined special equities in the other spouse. Section 503 replaced the title approach with a common-enterprise theory of marriage and a broad grant to trial courts of discretion to reach a just distribution of assets accumulated during the marriage. (Ill. Rev. Stat. 1977, ch. 40, par. 503, Historical and Practice Notes, at 455-58 (Smith-Hurd 1977); Kujawinski v. Kujawinski (1978), 71 Ill.2d 563, 576.) The purpose of the Act was to expand the panoply of equitable remedies available to the courts, not to contract it. Fraud in various forms against property potentially distributable to the wife was remediable in Illinois before the enactment of section 503, even though it occurred before a decree of dissolution was entered (see, e.g., Draper v. Draper (1873), 68 Ill. 17); it would be anomalous to hold that section 503 was intended to change that. We must therefore determine whether Roger's forfeiture was in fact a fraud on his wife's marital property, as measured by whether it was intended collusively with intent to regain the property or as the result of understandable business decision making. The trial court found that it was the former. As fraud will not be presumed in this State and must be proved by clear and convincing evidence ( Ray v. Winter (1977), 67 Ill.2d 296), we can uphold this finding only if we conclude that the trial court arrived at that conclusion by evidence of this sort. We note in this regard, however, that the fact that the forfeiture was in effect a transfer from a son to his parents calls for stricter scrutiny of it than is normally accorded to a conveyance. See generally 37 C.J.S. Fraudulent Conveyances secs. 96, 251 (1943). Sandra's argument is that because Roger had a $420,000 equity in the Sackville farm and paid other debts on less expensive farm equipment in 1977 while sacrificing the farm, his actions were not those of a rational or responsible businessman and could only be explained by an intent to defraud. She points out that while it would have taken only $5,000 to salvage his equity in the farm, he chose instead to pay $31,000 on farm equipment which was valueless without the farm. Roger and his parents attempt to justify his conduct by pointing out that acreage the size of the Sackville farm could not be farmed economically without using a combine, one of the pieces of equipment on which he made payment in 1977, and that he could have made future payments on the Sackville farm contract only by having the income from a crop which he could not plant or harvest without such equipment. They claim that the sharecrop and lease arrangements into which Roger entered after the forfeiture allowed him to continue to make an income from farming. They also suggest that it was financially wise of Roger to default on a contract with his parents rather than on a loan from someone else when faced with a shortage of funds, as this course would be less harmful to his reputation in the community for solvency. We must reject these contentions on this record. Roger and his parents testified on several occasions that rental land was impossible to find in the vicinity of the Sackville farm, while the value of the farm itself appreciated rapidly during the time Roger had an equity in it. There is nothing in the record to indicate that Roger knew the terms on which he would be sharecropping or renting the farm back at the time of forfeiture, and the unavailability of rental land placed him more or less at the mercy of his parents, given his desire to continue farming. As it turned out, the rental cost of the land to him in 1979 was $25,000 per year paid to his parents, more than he would ordinarily have been paying to them on the installment sale contract. The farm bins which he installed on the Sackville property, and on which he paid $14,998.83 in 1977, might have been lost with the farm, and the combine on which he paid $13,752.55 in 1977 would have been worth less without the Sackville acreage. It did not make sense to spend money on these things rather than on the farm unless he was assured that no matter what happened he would be operating the farm. We are not impressed by Roger's theory that his creditworthiness might be improved by his defaulting to his parents rather than to an outsider. Surely the bank which lent him the $20,000 for the down payment expected some return on its investment and would eventually learn about the forfeiture. Without an immediate assurance of land to farm, Roger might have had to inform it the hard way. We have trouble understanding why Roger allowed the Sackville farm to be forfeited without concluding that he was assured by his parents that he would get the land back from them after the dissolution at the same or similar terms as those he enjoyed before the forfeiture, free of any claims Sandra may have had. Although we cannot point to any specific agreement between Roger and his parents, that was not an obstacle to finding fraud in Draper v. Draper (1873), 68 Ill. 17. We note that the transferor and transferee were father and son and observe, as the Supreme Court of Kentucky did under similar circumstances in Harley v. Harley (1934), 255 Ky. 370, 74 S.W.2d 195, that the transferee was capable of reconveying the property after dissolution on the same terms. (See 37 C.J.S. Fraudulent Conveyances secs. 79, 96 (1943).) Here this could have been done by inheritance, if not sooner. We finally observe that Roger continues to live on and farm the property, enjoying all of the revenues therefrom subject to a yearly rental fee payable to his parents. The trial court could reasonably have found, by clear and convincing evidence, that, in permitting his parents to extinguish his ownership interest, Roger's intent was to defraud his wife of her inchoate marital interest in the farm rather than to promote his financial interest straightforwardly in an arm's length transaction. Roger's parents contend that inasmuch as any fraud found in this case was attributable to Roger and not to them, the trial court erred in assigning Sandra a lien against their title to the Sackville farm. The general rule is that a transferee is chargeable with acquiescence in a fraudulently intended transfer where he is in possession of facts and circumstances which are not reconcilable with ordinary business integrity or would otherwise put a prudent person on inquiry. (37 C.J.S. Fraudulent Conveyances sec. 127 (1943); see Renn v. Renn (1944), 207 Ark. 147, 179 S.W.2d 657.) The evidence shows that the parents knew there were marital difficulties between Roger and Sandra in 1976 when the contract for the sale of the farm, including the forfeiture provision, was prepared. The parents had in fact participated in negotiating a provision in that contract which was designed to protect their interest and Roger's in case of a dissolution of marriage. While the parents granted Roger a brief extension of the time for payment in December 1977, they were all too ready to foreclose in February 1978 and in fact did so one day before expiration of the period they had given Roger to cure his breach. We believe that Roger's fraudulent intent in forfeiting his interest in the farm shortly after his wife filed for divorce was fairly chargeable to the parents, by acquiescence if not by design. See Renn v. Renn (1944), 207 Ark. 147, 179 S.W.2d 657. The appellate court decision regarding the Sackville farm is reversed, and the circuit court's treatment of that farm as marital property is affirmed subject to current valuation of the farm to take account of possible diminution in its value as a result of the general decrease in farm prices since the circuit court ruled.