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In Re Marriage of Preston



APPEAL from the Circuit Court of Madison County; the Hon. JOHN W. DAY, Judge, presiding.


The petitioner, William Preston, was granted a judgment of dissolution of marriage from the respondent, Suzanne Preston, in the Circuit Court of Madison County. Both parties to this action appeal from the circuit court's order with respect to the disposition of property, child support, maintenance and attorney's fees. There is no issue as to the judgment of dissolution of marriage.

The parties were married in 1968 and two children were born of that marriage. The petitioner, William Preston, owns a one-third interest in Marine Power, Inc., and is the only working shareholder. He earns approximately $21,000 a year. Petitioner also receives $4500 in October of each year from the proceeds of the sale of his father's and uncle's business. The respondent is now a college student majoring in accounting and anticipates receiving her degree in two years. She is not presently employed.

The first issue concerns the trial court's disposition of the real and personal property owned by the parties. The court ordered $22,300 paid to the petitioner upon the sale of the home of the parties, finding that these funds constituted non-marital property.

The evidence disclosed that the petitioner had inherited $10,000 from his father in 1969 and $12,000 from his uncle in 1970. The $12,000 inheritance from petitioner's uncle initially was placed in a joint-tenancy savings account owned by the parties. It was further established that petitioner purchased a boat with $7,500 of the $10,000 inheritance and that when the boat was subsequently sold, $7,300 of the proceeds from the sale was used to purchase the lot on which a home for the parties was built. Title to the vacant lot was conveyed to the parties in joint tenancy. Petitioner contends, and the trial court found, that the down payment for the home was made up of the $12,000 inheritance from petitioner's uncle and $3,000 from the annual payment on the sale of his father's and uncle's business. The total of the $7,300 from the sale of the boat, $12,000 from the joint savings account and $3,000 of the annual escrow payment represented the sum of $22,300 which the trial court set aside to the petitioner.

The respondent contends that the trial court erred in setting aside $22,300 as inherited non-marital funds and in finding that no gift was intended when petitioner purchased joint tenancy property with non-marital funds or from the joint saving account established from non-marital funds.

Section 503(a)(1) and (2) of the Illinois Marriage and Dissolution of Marriage Act (Ill. Rev. Stat. 1977, ch. 40, par. 503(a)(1), (2)) provides that "property acquired by gift, bequest, devise or descent" and "property acquired in exchange for property acquired before the marriage or in exchange for property acquired by gift, bequest, devise or descent" shall be considered as non-marital property. Consequently, it must be determined whether it can be said that the $22,300 invested in the home of the parties was the result of an "exchange" for the property acquired by petitioner by inheritance, and, if so, whether by purchasing the property in joint tenancy, a gift to respondent was intended by petitioner.

The petitioner testified at trial that even though title to the home was taken in joint tenancy, the creation of the joint tenancy was for inheritance and tax purposes and that he did not intend to make a gift of any portion of the $22,300 to his wife. The testimony of both petitioner and respondent demonstrated that before the inherited funds were used to purchase the property they were put into a joint bank account. Further, petitioner also testified on rebuttal that the property was purchased and title was conveyed to both parties in joint tenancy as he believed that most marriages are or should be a "fifty-fifty proposition." At the time of the purchase of the property, petitioner stated that he believed their marriage was a "fifty-fifty proposition."

Section 503(b) of the Illinois Marriage and Dissolution of Marriage Act (Ill. Rev. Stat. 1977, ch. 40, par. 503(b)) provides that when property is acquired during the marriage it is considered marital property, regardless of how title is held. Section 503(b) further provides that this presumption may be overcome by showing that the property was acquired by one of the methods enumerated in section 503(a). The petitioner argues that since the property was acquired with funds inherited by him, one of the exceptions enumerated in section 503(a), the trial court did not err in ordering a return of the funds invested by him.

The Illinois Marriage and Dissolution of Marriage Act (Ill. Rev. Stat. 1977, ch. 40, par. 101 et seq.) is a modified version of the Uniform Marriage and Divorce Act, which has been adopted by several of our sister States. Under Section 503(a)(2) of our act, if non-marital property is exchanged after marriage for other property, the property thereby acquired also remains non-marital property. Missouri and Colorado, which have also adopted versions of the Uniform Act, have "exchange exceptions" virtually identical to our own. (Mo. Rev. Stat. § 452.330.2(2) (1978); Colo. Rev. Stat. § 14-10-113(2)(b) (1974).) This provision does not appear in section 307 of the Uniform Act, which is the counterpart to our section 503, as promulgated by the Commissioners on Uniform Laws. See Uniform Marriage and Divorce Act § 307, and Commissioners' Comment, in 9A Uniform Laws Annotated (1979).

Courts> do not agree on the interpretation of this "exchange exception." (See Kalcheim, Intention Controls: The Theory of Transmutation — The Effect of Placing Property Which was Initially Non-Marital into Joint Tenancy; the Theory of Commingling — The Effect of Intermingling Marital and Non-Marital Funds, 68 Ill. Bar. J. 320 (1980).) As we understand it, the emerging rule in Missouri is that separate property which has been commingled or transferred into joint names is presumed to become marital property absent proof of contrary intent. (In re Marriage of Badalamenti (Mo. App. 1978), 566 S.W.2d 229; Daniels v. Daniels (Mo. App. 1977), 557 S.W.2d 702; Jaeger v. Jaeger (Mo. App. 1977), 547 S.W.2d 207; Conrad v. Bowers (Mo. App. 1975), 533 S.W.2d 614).) In Colorado also, when separate funds are used to purchase property held in joint names, a gift to the marital estate is presumed unless a contrary intention is manifest. In re Marriage of Killgore (Colo. App. 1975), 532 P.2d 386; In re Marriage of Moncrief (1975), 36 Colo. App. 140, 535 P.2d 1137.

• 1 We reach a different conclusion in interpreting the exchange exception of the Illinois Act. We believe that assets purchased with separate funds remain separate property, regardless of the manner of holding title and regardless of the number of post-marital exchanges. We base our conclusion on sections 503(a)(2), 503(a)(5), and 503(b) of the Act. Section 503(b) states that all property acquired after marriage is presumed to be marital property "regardless of whether title is held individually or by spouses in some form of co-ownership such as joint tenancy, tenancy in common, tenancy by the entirety, or community property" unless the property falls within one of the exceptions enumerated in section 503(a) which includes "property acquired in exchange for property acquired before the marriage or in exchange for property acquired by gift, bequest, devise or descent." It should follow that if the manner of holding title is of no consequence in applying the presumption of marital property, then under the last sentence of section 503(b), the manner of holding title is not to be considered in determining the status of non-marital property, including property acquired in exchange for non-marital property, under section 503(a). Otherwise, the presumption of marital property under section 503(b) would engulf and render largely meaningless the exception in 503(a)(2) by limiting the exchange exception to separate property which the owner retains in its original form, a patent contradiction in terms. We think, therefore, that the legislature intended property acquired exclusively with non-marital property to remain non-marital property, so long as the source of funds can be traced to the initial non-marital asset without affirmative proof of an intention to "transmute," as the cases say, the non-marital property into marital property. This is what we meant when we said in In re Marriage of Dietz (1979), 76 Ill. App.3d 1029, 1032, 395 N.E.2d 762, 764, that the new Act destroyed the presumption of gift in these factual circumstances. (For cases antedating the new Act and applying the presumption of gift, see Brongel v. Brongel (1977), 48 Ill. App.3d 27, 362 N.E.2d 750; Fraase v. Fraase (1975), 29 Ill. App.3d 281, 330 N.E.2d 285; Lawyer v. Lawyer (1974), 19 Ill. App.3d 571, 312 N.E.2d 7; and Larocco v. Larocco (1973), 10 Ill. App.3d 366, 293 N.E.2d 756.) We do not mean that a gift could not have been intended nor does our decision prohibit a finding that a gift was in fact intended under proper factual circumstances.

If the contested property were grandmother's brooch that a spouse had inherited and put into a jointly owned safe deposit box, or kept in a jointly owned home, we have little doubt that upon dissolution the brooch would remain separate property regardless of the manner of safekeeping. We see no reason to regard other forms of personal property, such as boats, stocks, bank accounts, or the sale proceeds thereof, any differently so long as the parties did not intend conversion of the exchanged property.

Admittedly, there has been no uniformity in the construction of the Act. In Klingberg v. Klingberg (1979), 68 Ill. App.3d 513, 386 N.E.2d 517, the wife deposited separate funds into a joint bank account. Upon dissolution, she sought assignment of the account in the amount of her separate deposits as non-marital property. The court rejected her claim, relying on decisions in Colorado and Missouri for the proposition that "failure to properly segregate non-marital property by commingling it with marital property evinces an intent to have the former property treated as part of the marital estate." (68 Ill. App.3d 513, 516-17, 386 N.E.2d 517, 520.) Although the court regarded the bank account as marital property, it held that the wife should be compensated for the husband's dissipation of marital funds in the account, applying the factors set out in section 503(c) to be considered in dividing marital property. It is interesting to note, in this regard, that "divide" does not mean divide, as the court is to consider, among other factors, "the contribution or dissipation of each party in the acquisition, preservation, or depreciation or appreciation in value, of the marital and non-marital property, * * *." Thus, even though the property be considered marital, the result we reach here also may be reached by applying the factors set out in section 503(c) of the Act.

In In re Marriage of Gustke (1979), 78 Ill. App.3d 274, 397 N.E.2d 146, a joint back account into which the wife deposited income from her separate property was used by the parties to purchase the marital home. The wife argued that the home was therefore her separate property but the court held to the contrary, citing Klingberg for the proposition that "commingling marital and non-marital property in a joint bank account resulted in [the] entire account becoming marital property; * * *." (78 Ill. App.3d 274, 277, 397 N.E.2d 146, 147.) Again in Gustke, however, the wife ultimately received the amount of non-marital property she had invested in the marital home. The court considered her investment of separate funds in the marital home as contributions to the acquisition of marital property under section 503(c)(1) of the Act.

In In re Marriage of Stallings (1979), 75 Ill. App.3d 96, 393 N.E.2d 1065, we noted that there was sufficient evidence to regard $5,000 of the wife's separate property, which she used as a down payment for the marital home, either as her separate property or as marital property, and accordingly, we were obliged to affirm the trial court's finding of marital property in the down payment. The wife's marital earnings, undeniably marital property, were used to make mortgage payments on the home. The trial court found that the entire value of the home was marital property, but in the division of marital property awarded the home to the wife on the basis of section 503(c)(1), in recognition of her contribution to the marital estate.

Still other decisions have adopted the construction we here place on section 503 of the Act. In In re Marriage of Key (1979), 71 Ill. App.3d 722, 389 N.E.2d 963, a wife who invested $50,000 of premarital assets in jointly owned land during marriage received upon dissolution an interest of $50,000 in the property. The husband argued that the wife's non-marital funds were converted into marital property by way of gift and that the property should be divided equally. The court rejected this argument and held that where "identifiable, non-marital assets, whether in the form of cash or tangible property, have been exchanged for jointly held property, the parties, upon dissolution of marriage are entitled to a refund of their original contribution under section 503(a)." (71 Ill. App.3d 722, 723, 389 N.E.2d 963, 964.) The court further concluded, based on the wife's testimony, that she never intended to make a gift to her husband of that portion of the property acquired with her assets.

In In re Marriage of Dietz (1979), 76 Ill. App.3d 1029, 395 N.E.2d 762, we affirmed the assignment of $43,000 from the sale of the marital home to the wife in recognition of her investment of $43,000 of her separate property toward the construction costs. Although there had been substantial commingling of the separate funds, we found no evidence of the wife's intention to make a gift of those funds to the marital estate.

We recognize the inevitable difficulties in proving intent retrospectively. The parties' intention to devote their separate property to their mutual welfare is rarely articulated in a functioning marriage; only after the union has faltered do the parties recognize it is an issue, as, no doubt, when individuals marry, they always think in terms of a "fifty-fifty proposition." To the extent that proof of contemporaneous intent must be regarded as a legal fiction, however, it is no stranger to the law, and arises in conveyancing and probate matters with regularity.

We regard it as a contrivance, however, to identify a spouse's separate property that has been invested in a marital home as marital property, but to return it to the original owner under the guise of recognizing it as a contribution under paragraph 503(c)(1). (Ayers v. Ayers (1978), 61 Ill. App.3d 936, 378 N.E.2d 792; In re Marriage of Gustke; Klingberg v. Klingberg.) In making such awards, the court is going to unnecessary lengths. The result remains the same whether the court proceeds under section 503(c)(1) or under section 503(a)(2), as we interpret that subsection, but the Act cannot be logically applied with consistency when section 503(c)(1) may be used to undo the effect of a determination of marital property.

We affirm our position in Dietz that separate property remains separate, regardless of the manner of holding title and regardless of intervening exchanges, so long as there is no positive evidence of intent to make a gift. We further reject use of the term "transmutation," a word which appears in various opinions but which has no import in legal terminology (Black's Law Dictionary (rev. 4th ed. 1968)) or English usage (Fowler, Modern English Usage (2d ed. 1965); Evans v. Evans, Dictionary of Contemporary American Usage (1957)) save as a synonym for "change" or "convert" (Webster's Third New International Dictionary 2430 (1971)).

Applying our interpretation to the case at bar, when petitioner here used his inheritance to purchase a boat, then invested sale proceeds from the boat in securities, subsequently liquidated the securities, and finally used their proceeds toward purchase of the marital home, we believe that he may assert separate ownership in a corresponding portion of the value of the house as long as there was no evidence that he intended any of the intermediate purchases to be marital property. The same reasoning applies to petitioner's second inheritance which he put into a bank account and then withdrew for further payments on the home. We note the scarcity of evidence concerning the title of the bank accounts; petitioner testified that he did not know whether the accounts were held in his name alone or jointly, and the respondent testified that they were joint accounts. We do not regard the title as dispositive, however, as we have already stated. Instead, it is the parties' intent that controls. The trial court determined, after hearing the evidence and assessing the parties' ...

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