Court Opinion

ID: 9743004
Source: CourtListenerOpinion
Date Created: 2023-08-26 21:24:01.172992+00
Date Added: 2024-06-11T07:24:38.401294
License: Public Domain

JUSTICE APPLETON, dissenting: I respectfully dissent from the decision of the majority. While I concur that Janice can, without offending the statute, end up with the same amount awarded to her, the trial court, as affirmed by the majority, took the wrong path to arrive at that result. In a proceeding for dissolution of marriage, the trial court must first assign each spouse’s nonmarital property to that spouse and then divide the marital property into just proportions. 750 ILCS 5/503(d) (West 2002); Phillips, 229 Ill. App. 3d at 817, 594 N.E.2d at 358. We do not disturb the classification of property as marital or nonmarital unless it is against the manifest weight of the evidence. “Against the manifest weight of the evidence” means the opposite conclusion is clearly evident from the evidence or the finding is arbitrary, unreasonable, or not based on the evidence. Farmers Automobile Insurance Ass’n v. Gitelson, 344 Ill. App. 3d 888, 892, 801 N.E.2d 1064, 1067-68 (2003), appeal denied, 207 Ill. 2d 600, 807 N.E.2d 974 (2004). Telemachos argues the classification of his Vanguard Money-Market Reserves Prime Portfolio account (Portfolio account), which we will refer to as account No. 978715072-4, as marital property is against the manifest weight of the evidence. Because the accounts predate the marriage, I agree. Section 503(a) of the Dissolution Act explains the difference between “marital” and “nonmarital property”: “(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’: *** (2) property acquired in exchange for property acquired before the marriage ***; * * * (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 [sjection; 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.” 750 ILCS 5/503(a) (West 2002). Under section 503, each item of property is either entirely marital or entirely nonmarital, not a hybrid of the two, and that rule holds true despite the commingling of marital and nonmarital property. Section 503(c) provides: “(c) Commingled marital and non[ jmarital property shall be treated in the following manner, unless otherwise agreed by the spouses: (1) When marital and non[ ]marital property are commingled by contributing one estate of property into another resulting in a loss of identity of the contributed property, the classification of the contributed property is transmuted to the estate receiving the contribution, subject to the provisions of paragraph (2) of this subsection; provided that if marital and non[ ]marital property are commingled into newly acquired property resulting in a loss of identity of the contributing estates, the commingled property shall be deemed transmuted to marital property, subject to the provisions of paragraph (2) of this subsection. (2) When one estate of property makes a contribution to another estate of property, or when a spouse contributes personal effort to non[ ]marital property, the contributing estate shall be reimbursed from the estate receiving the contribution notwithstanding any transmutation; provided, that no such reimbursement shall be made with respect to a contribution which is not retraceable by clear and convincing evidence, or was a gift, or, in the case of a contribution of personal effort of a spouse to non[ ] marital property, unless the effort is significant and results in substantial appreciation of the non[ ]marital property. Personal effort of a spouse shall be deemed a contribution by the marital estate. The court may provide for reimbursement out of the marital property to be divided or by imposing a lien against the non[ ]marital property which received the contribution.” 750 ILCS 5/503(c)(l), (c)(2) (West 2002). Thus, under section 503(c)(1), the commingling of marital and nonmarital property will result in either of two transmutations, depending on the loss of identity. If, in the commingling of the two estates, the contributing estate loses its identity and the receiving estate retains its identity, the contributing estate is transmuted to the receiving estate. If both estates commingle into new property and thereby lose their identities, the new property is marital property. The parties agree that the Portfolio account existed before the marriage and that, after the marriage, marital assets were commingled with it. (Telemachos argued in trial court that “most of the transfers into this account *** [could not] but be nonmarital in nature.” (Emphasis added.)) “[P]roperty acquired before the marriage” is non-marital. 750 ILCS 5/503(a)(6) (West 2002). The trial court found — and the evidence supports the finding — that, during the marriage, Telemachos used his earnings as a professor to buy additional shares in the Portfolio account. Those earnings were marital property. See 750 ILCS 5/503(a) (West 2002). On the authority of Davis, 215 Ill. App. 3d 763, 576 N.E.2d 44, Janice argues the commingling of marital and non-marital funds in the Portfolio account transmuted the account to marital property. In Davis, 215 Ill. App. 3d at 767, 576 N.E.2d at 47, J. Nathaniel Davis, Jr. (Nat), inherited assets from his mother during his marriage and used the inheritance to open a money-market account with Merrill Lynch. A year later, he inherited assets from his father and deposited that inheritance into the account as well. Davis, 215 Ill. App. 3d at 767, 576 N.E.2d at 47. Still later, he sold stock he had bought during the marriage and deposited the proceeds into the same account. Davis, 215 Ill. App. 3d at 767-68, 576 N.E.2d at 47. Clearly, the assets from his parents’ estates were his nonmarital property (see Ill. Rev. Stat. 1987, ch. 40, pars. 503(a)(1), (a)(2)), and the stock he had bought during the marriage was marital property (see Ill. Rev. Stat. 1987, ch. 40, par. 503(a)). Nat argued he had created the money-market account with nonmarital property and, under section 503(c)(1), any subsequent deposits of marital property into the account were transmuted to his nonmarital property. Davis, 215 Ill. App. 3d at 768, 576 N.E.2d at 47. The First District disagreed with Nat because, according to its reasoning, items of both marital and nonmarital property were commingled into new property, resulting in the third type of transmutation in section 503(c)(1). Davis, 215 Ill. App. 3d at 769, 576 N.E.2d at 48. By depositing funds into the money-market account, he had bought shares in the account, and Merrill Lynch in turn had used those shares to buy new stock and bonds. Davis, 215 Ill. App. 3d at 769, 576 N.E.2d at 48. Although the shares in the account were initially nonmarital property, he later began buying more shares with marital property. Davis, 215 Ill. App. 3d at 769, 576 N.E.2d at 48. It was impossible “to distinguish which *** shares were used to purchase additional stocks or bonds.” Davis, 215 Ill. App. 3d at 769, 576 N.E.2d at 48. “Thus, newly created assets came into being. Once marital and nonmarital funds are commingled and lose their identity through acquisition of a newly created asset during the marriage, the asset is marital.” Davis, 215 Ill. App. 3d at 769, 576 N.E.2d at 48. Davis is, however, irreconcilable with section 503(c). Nat established the Merrill Lynch account with assets he had inherited from his parents. Therefore, the account was his nonmarital property. When he later deposited marital funds into the account, those funds lost their identity. The account, however, retained its identity. It remained the same account; only the number of shares changed. At the instant of their deposit into the account, the marital funds were transmuted to Nat’s nonmarital property (subject to reimbursement of the marital estate). See Ill. Rev. Stat. 1987, ch. 40, par. 503(c)(1). Wfiien Merrill Lynch in turn used the shares in the account to buy stocks and bonds, it was using Nat’s nonmarital property (to which the marital funds had already been transmuted). Only if both contributing estates lost their identity in the acquisition of new property were they transmuted to marital property. See Ill. Rev. Stat. 1987, ch. 40, par. 503(c)(1). That, apparently, was not what happened in Davis. Instead, the marital funds were transmuted to nonmarital property upon their deposit into the account, and, after that transmutation, Merrill Lynch used the funds in the account to buy other securities. As the Second District has repeatedly held, the deposit of marital funds into a nonmarital investment account transmutes those funds to nonmarital property. In Phillips, 229 Ill. App. 3d at 812, 594 N.E.2d at 355, for example, Ann Phillips participated in a stock ownership plan through her employment. She began participating in the plan, and accumulating stock therein, before her marriage. Phillips, 229 Ill. App. 3d at 812, 594 N.E.2d at 355. After the marriage, she bought additional stock with marital funds. Phillips, 229 Ill. App. 3d at 818, 594 N.E.2d at 359. The trial court erroneously classified the stock ownership plan as a marital asset. Phillips, 229 Ill. App. 3d at 819, 594 N.E.2d at 358-59. In its decision reversing the judgment, the Second District explained: “Under section 503(c)(1) of the [Dissolution] Act, the stock ownership plan is a nonmarital asset that increased after marriage through contributions based on Ann’s salary, a marital asset. As such, the entire stock plan, all 137.682 shares, should be classified as nonmarital property subject to reimbursement to the marital estate for contributions made to the plan during the marriage.” Phillips, 229 Ill. App. 3d at 819, 594 N.E.2d at 360. In Perlmutter, 225 Ill. App. 3d at 378, 587 N.E.2d at 619, Kathryn Perlmutter’s father gave her some stock as a gift. She sold the stock and deposited the proceeds into an investment account. Perlmutter, 225 Ill. App. 3d at 378, 587 N.E.2d at 619. According to the Second District, the account was her nonmarital property, and when marital funds were later deposited into it, “the classification of the marital funds was transmuted to Kathryn’s nonmarital estate, subject to the reimbursement provisions of section 503(c)(2).” Perlmutter, 225 Ill. App. 3d at 379, 587 N.E.2d at 620. In In re Marriage of Di Angelo, 159 Ill. App. 3d 293, 295, 512 N.E.2d 783, 785 (1987), N. Joseph Di Angelo had a profit-sharing account through his employment, and immediately before his marriage, the account had a cash value. After the marriage, he rolled the profit-sharing account into an IRA. Di Angelo, 159 Ill. App. 3d at 295, 512 N.E.2d at 785. Because property obtained in exchange for nonmarital property was nonmarital property (Ill. Rev. Stat. 1985, ch. 40, par. 503(a)(2)), the IRA was Joseph’s nonmarital property, as the trial court correctly held. Di Angelo, 159 Ill. App. 3d at 295-96, 512 N.E.2d at 785. During the marriage, the IRA increased in value, and, as the court also correctly held, that increase in value was Joseph’s nonmarital property under section 503(a)(7) (Ill. Rev. Stat. 1985, ch. 40, par. 503(a)(7)) — regardless of whether the source of the increase was marital or nonmarital. Di Angelo, 159 Ill. App. 3d at 296, 512 N.E.2d at 785. But the court erred in stopping there. As the Second District explained: “The problem lies in the court’s failure to make findings regarding the source of the increase in the value of the *** IRA ***. This is a problem because, while the increase in value is [Joseph’s] non-marital property irrespective of its source, it is ‘subject to the right of reimbursement provided in’ section 503(c) of the [Act] (Ill. Rev. Stat. 1985, ch. 40, par. 503(c)(2)) ***.” Di Angelo, 159 Ill. App. 3d at 296-97, 512 N.E.2d at 786. In the present case, rather than follow Phillips, Perlmutter, and Di Angelo, the trial court and the majority rely on another Second District case, Henke, 313 Ill. App. 3d 159, 728 N.E.2d 1137, to hold that the Portfolio account was marital property. In Henke, 313 Ill. App. 3d at 163, 728 N.E.2d at 1140, Marvin W Henke, Jr., a farmer, had a checking account in his name, and the account existed before his marriage to Adele. Marvin testified that during the marriage, he deposited his farm earnings into the checking account, from which he paid family expenses and business expenses. Henke, 313 Ill. App. 3d at 164, 728 N.E.2d at 1141. Those earnings were marital property. Henke, 313 Ill. App. 3d at 167-68, 728 N.E.2d at 1143. The Second District conceded that “under a strict application of section 503(c)(1) of the [Dissolution] Act,” the contribution of marital earnings to the nonmarital checking account would have caused those earnings to lose their identity as marital property and become transmuted to Marvin’s nonmarital property. (Emphasis added.) Henke, 313 Ill. App. 3d at 167, 728 N.E.2d at 1143. Section 503(c)(2) would have allowed reimbursement to Adele only insomuch as she retraced each such contribution, by clear and convincing evidence, to a marital source. Henke, 313 Ill. App. 3d at 167, 728 N.E.2d at 1143. Considering that the parties had been married for 16 years, retracing the deposits of marital funds into the checking account would have been, as practical matter, impossible for Adele. Henke, 313 Ill. App. 3d at 167, 728 N.E.2d at 1143. In the Second District’s view, the legislature could not have intended section 503(c) to apply to such a situation. Henke, 313 Ill. App. 3d at 168, 728 N.E.2d at 1143. The legislature had amended section 503(c) in 1983 in response to In re Marriage of Smith, 86 Ill. 2d 518, 427 N.E.2d 1239 (1981). Henke, 313 Ill. App. 3d at 168, 728 N.E.2d at 1143. In Smith, the supreme court had held that a nonmarital apartment building worth $45,000 had been transmuted to marital property because of a relatively small contribution of $3,800 in marital funds to renovate the building. Henke, 313 Ill. App. 3d at 168, 728 N.E.2d at 1143-44. The Second District reasoned in Henke: “The instant case presents the opposite situation of that sought to be ameliorated by the amendment to section 503(c) of the [Dissolution] Act, where a small amount of marital property was contributed to a large amount of nonmarital property. *** Presumably, the amount of marital funds contributed over 16 years greatly exceeded the amount of nonmarital funds initially present in the account.” Henke, 313 Ill. App. 3d at 168, 728 N.E.2d at 1144. Thus, “under the unique circumstances of [the] case,” the Second District classified Marvin’s checking account as marital property. Henke, 313 Ill. App. 3d at 168, 728 N.E.2d at 1144. On the authority of Henke, the trial court in this case held that the Portfolio account was likewise marital property: “As in Henke, a large amount of marital funds or presumably marital funds[,] over a period of 14 years[,] was contributed to an account that had just $26,059.68 at the time of the marriage and that[,] by the time the parties separated[,] had $755,865.68. The [c]ourt does not find that [respondent has proven his exact non-marital contribution to that account by clear and convincing evidence.” In applying Henke to the Portfolio account, the trial court seems to have overlooked the paragraph of Henke in which the Second District expressly distinguished Phillips and Perlmutter. The Second District said: “It does not appear in either [Phillips or Perlmutter] that funds were ever withdrawn from the nonmarital accounts or that funds from the nonmarital accounts were ever used to pay family and household expenses.” Henke, 313 Ill. App. 3d at 168-69, 728 N.E.2d at 1144. The present case is distinguishable from Henke for similar reasons. In exhibit No. 106, Janice purports to describe the “[m]ovement of monies [in the Portfolio account] during the marriage, other than income reinvested.” According to this exhibit, during the period of June 30, 1987, through April 3, 1997, Telemachos bought shares in the Portfolio account a total of 59 times, and he exchanged shares for other shares 8 times. The exhibit shows only one “check redemption” for that entire nearly 10-year period: it was on May 11, 1998, in the amount of $31,000. We learn from exhibit Nos. 72 and 83 that the purpose of this solitary “check redemption” was not (as in Henke) to pay family or household expenses but, rather, to buy shares in a different investment account, the Vanguard Index Trust 500 account (Index 500 account). Statements from the Vanguard Group of Investment Companies (Vanguard) show the transaction. Thus, according to the undisputed evidence, this case lacks the “unique circumstances” of Henke. The Portfolio account was not a checking account from which the parties routinely (or, it appears, ever) paid household expenses. This case is closer to Phillips, Perlmutter, and Di Angelo than to Henke. Not only is Henke distinguishable, but I respectfully disagree with that decision because, like Davis, it is irreconcilable with the plain, unambiguous language of section 503(c)(1). Gitlin observes: “While the Henke opinion states the appellate court is not making a ‘strict’ application of [section] 503(c)(1), the fact is that [section] 503(c)(1) simply was not applied by the appellate court. While classifying the checking account funds as marital appears to be equitable, the [S]econd *** [District did not adhere to the statutory prescription of [section] 503(c)(1).” 1 H. Gitlin, Gitlin on Divorce § 8 — 10(c), at 8 — 57 n.40 (May 2002). We have a duty to apply the clear provisions of section 503(c)(1) without reading into the statute any exceptions or limitations— regardless of whether we think the statute is a bad idea in a given case. See Eads v. Heritage Enterprises, Inc., 204 Ill. 2d 92, 114, 787 N.E.2d 771, 783 (2003). Nowhere does the statute say it is inapplicable to accounts used to pay household expenses. Nowhere does the statute say it is inapplicable to nonmarital accounts that began with a low balance and grew during the marriage because of marital contributions. The contributions of marital funds had no effect on the identity of the Portfolio account. The marital deposits lost their identity, but the Portfolio account remained the same account — with the same account number, the same investment company, the same shareowner, and the same contractual terms. The number of shares changed, but not the essential identity of the account. The Portfolio account is Telemachos’s nonmarital property, subject to reimbursement to the marital estate for contributions that are retraceable by clear and convincing evidence, including Telemachos’s earned income. See 750 ILCS 5/503(a)(7), (c) (West 2002). The crystal-clear language of sections 503(a)(6) and (c)(1) admits of no other conclusion. The classification of this account as marital property is against the manifest weight of the evidence. Also in reliance on Henke, the trial court classified the Index 500 account, which we will refer to as account No. 984196452-6, as marital property. The court found that Telemachos opened this account on June 15, 1987 — five days before the marriage. Ergo, it is Telemachos’s nonmarital property (see 750 ILCS 5/503(a)(6) (West 2002)), subject to reimbursement of the marital estate (see 750 ILCS 5/503 (c) (West 2002)). Its classification as marital property is against the manifest weight of the evidence. Telemachos also argues that the trial court erroneously classified his Vanguard Money-Market Reserves Prime Portfolio IRA (Portfolio IRA) as marital property. He contends that he opened this account on December 29, 1994, with $2,000 from a nonmarital account, the Portfolio account. Exhibit No. 83, pertaining to the Portfolio account, contains an account statement showing a transfer on December 29, 1994, of $2,000 from the Portfolio account to an account which we will refer to as No. 9784700300, which is the account number of the Portfolio IRA. The first statement in exhibit No. 6, pertaining to the Portfolio IRA, shows a “beginning balance” of $2,000 on the “trade date” of December 29, 1994. Property acquired during the marriage is presumed to be marital property, but one can rebut that presumption by showing the property was acquired by a method listed in section 503(a) of the Dissolution Act (750 ILCS 5/503(a) (West 2002)). 750 ILCS 5/503(b)(l) (West 2002). The account statements from Vanguard, in exhibit Nos. 6 and 83, prove that the Portfolio IRA is “property acquired in exchange for property acquired before the marriage.” See 750 ILCS 5/503(a) (2) (West 2002). Therefore, Telemachos rebutted the presumption that the Portfolio IRA was marital property, and it should have been classified as nonmarital property. In short, the trial court should have reimbursed the marital estate for these three accounts to the extent that Janice retraced the marital contributions by clear and convincing evidence, and then the court would have been free to divide the marital estate in “just” proportions to arrive at the same or similar total asset allocation between the parties. The use of Henke in circumstances that do not match the special ones presented by the facts of that case is simply a shortcut to avoid the analysis required by the statute.