APPEAL from the Circuit Court of Peoria County; the Hon.
WILLIAM J. REARDON, Judge, presiding.
MR. JUSTICE STOUDER DELIVERED THE OPINION OF THE COURT:
This is an appeal from a judgment of the circuit court of Peoria County regarding the division of property pursuant to the Illinois Marriage and Dissolution of Marriage Act (Ill. Rev. Stat. 1977, ch. 40, par. 101 et seq.). On November 1, 1978, a judgment of dissolution was entered granting a dissolution to appellant Harry Lee and appellee Jeanetta Lee. The issue of distribution of property was reserved. Appellee filed a petition for property settlement contending that the principal marital assets consisted of the proceeds from the sale of a residence at 2626 N. Isabelle in Peoria and that she is entitled to one-half of those proceeds. Appellant denied that the proceeds from the sale were marital assets.
At the hearing on the distribution of property, the evidence showed that the residence had been owned by appellant prior to his marriage. After marriage to appellee, appellant expended a total of $20,000 on improvements on the property. $8,000 had been borrowed and the balance of $12,000 was the remaining cost of the improvements, which came from marital funds. Appellant sold the house for $32,500 to his adopted daughter. He arrived at that price by adding the total purchase price, the borrowed money, and what had been spent in remodeling and materials. It is undisputed that appellee had no ownership interest in the house as such. On September 10, 1979, the court entered a judgment order which gave appellee judgment against the appellant for $6,000 as her aliquot share of the net proceeds from the sale of the residence. In its memorandum of decision the court held that $20,000 was the value of the improvements. Of this, $8,000 was borrowed. The court held that the improvements were marital property and that appellee was entitled to one-half of the remaining $12,000. The only issue presented in this appeal is whether the improvements to the non-marital home which were paid for with marital funds are to be considered non-marital property.
Section 503(a) of the Marriage and Dissolution of Marriage Act (Ill. Rev. Stat. 1977, ch. 40, par. 503(a)) provides:
"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':
(5) the increase in value of property acquired before the marriage."
Appellant contends that this language means that any increase, regardless of the source of the increase, must be considered as non-marital property. We reject this construction of the statute. The trouble with appellant's argument is that it fails to take into account the rest of the statute and its purpose. Section 503(a) must be read in conjunction with sections 503(b) and (c). These sections classify property interests as marital and non-marital for the purpose of equitably distributing the property upon termination of the marriage. Kujawinski v. Kujawinski (1978), 71 Ill.2d 563, 376 N.E.2d 1382.
In the instant case, the principal asset involved is the residence at 2626 N. Isabelle. The property was bought by appellant before the marriage. Had there been no contributions subsequent to the marriage, the property clearly would have remained non-marital property and the appellee would not be entitled to any of the proceeds. However, in the case at hand, there were significant contributions to the property made after the marriage. The appellant sold the house for $32,500, which included the $12,500 original purchase price plus the $8,000 borrowed jointly by appellant and appellee, and $12,000 which was the remaining cost of the improvements. This $12,000 which was expended was all marital funds. In other words, substantial marital property was diverted to the enhancement of the residence. To interpret the statute to mean that the improvements are non-marital property and deny appellee any share in them despite her contribution would be grossly inequitable and flout the purpose for which the statute had been enacted. Rather, we believe that in light of sections 503(b) and (c) there has been a commingling of marital property and non-marital property which serves to transmute the entire property into marital property.
The effect on non-marital property of commingling it with marital property has not yet been addressed by the Illinois Supreme Court. The appellate districts have split in their analyses of the commingling of non-marital property with marital property. The Fourth and Fifth Districts have held that when there has been commingling and a subsequent increase in value, each party is entitled to a refund of its investment of non-marital funds and the balance of the property is considered marital property. See In re Marriage of Dietz (1979), 76 Ill. App.3d 1029, 395 N.E.2d 762; In re Marriage of Key (1979), 71 Ill. App.3d 722, 389 N.E.2d 963.
The First and Second Districts have held that when non-marital property has been commingled with marital property, it loses its character as non-marital property and becomes marital property. See In re Marriage of Amato (1980), 80 Ill. App.3d 395, 399 N.E.2d 1018; Klingberg v. Klingberg (1979), 68 Ill. App.3d 513, 386 N.E.2d 517.
• 1 Although this precise issue has not been previously decided by this court, we find the rationale of the transmutation theory persuasive. In Klingberg, the court held that where non-marital property is commingled with marital property, this evinces an intent to treat it as marital property. This presumption is particularly apt in the present case. There was clearly commingling of non-marital property (the residence) and marital property ($12,000 in improvements). The circumstances clearly show an intent to treat the house as marital property. The family lived in the residence and substantial amounts of marital funds were invested in it to improve it. Appellant has presented no evidence to rebut this presumption.
Treating the residence as marital property will not be inequitable to the appellant, who made a substantial investment of non-marital property in the residence. Under section 503(c), in dividing marital property the court must take into account the "contribution * * * of each party in the acquisition, preservation, or depreciation or appreciation in value, of the marital and non-marital property * * *." (Ill. Rev. Stat. 1979, ch. 40, par. 503(c)(1).) In the instant case, to guarantee an equitable distribution the court need simply take into account appellant's contribution.
Appellant places heavy reliance on In re Marriage of Glidden (1979), 71 Ill. App.3d 376, 389 N.E.2d 657. In Glidden the wife owned her own home before marrying. After marriage the property became the marital residence, and the husband made $7,200 worth of improvements on the house. The trial court held that the property was non-marital and awarded it entirely to the wife. On appeal, the Second District Appellate Court affirmed, holding that the property was non-marital and that the trial court had properly adjusted the marital property to compensate the husband for his contribution to the non-marital property.
We decline to follow Glidden, believing that its interpretation of the statute would often lead to an unequitable distribution of property. In many cases, such as the one at bar, the primary asset of the marriage is the marital residence. To hold that where one spouse owned the residence prior to marriage, the residence is non-marital property of which the other spouse is entitled to nothing despite significant contributions is to guarantee an unequitable distribution of property in contravention of the purpose of the statute. Further, such a reading of the statute would have the anomalous effect of transforming marital property into non-marital property in that marital funds would be used to ...