Appeal from the Circuit Court of White County; the Hon. Robert
W. Whitmer, Judge, presiding.
PRESIDING JUSTICE KARNS DELIVERED THE OPINION OF THE COURT:
Judgment of dissolution of the marriage of Frances A. Brown and Michael W. Brown was rendered by the circuit court of White County on December 10, 1980. Judgment on the remaining issues of property division, maintenance, child custody and child support was entered June 1, 1981. Frances Brown appeals from the trial court's decision respecting property division, maintenance and child support. Michael Brown cross appeals on the issue of maintenance. The parties do not question the judgment of dissolution nor that custody of the children was granted to Frances Brown.
The parties were married January 18, 1964, and have two children now living with their mother. During the marriage, Michael Brown's sole employment was at his father's business, Brown's Feed and Chemical Store. He started drawing a salary in 1962; in 1971 he and his father formed a partnership, each owning a one-half interest in the business. Frances Brown was not employed outside the home. Her primary responsibilities were at home as homemaker and mother. She did help the business periodically by doing bookkeeping and payroll, attending business meetings, entertaining business guests, cosigning notes and guarantees, making sales at the store and in general performing any task or errand as requested by her husband. Her actual time spent working at the business, however, was very limited.
The parties owned a significant amount of property. Much of it was acquired by Michael Brown as a partner of Brown's Feed and Chemical Store. The remaining property consists of the parties' home and miscellaneous personal property. The trial court classified these latter interests as marital and divided the property between the parties. The division of this property is not contested on this appeal.
Michael Brown's one-half interest in the partnership was classified as non-marital property by the trial court. It was valued at $198,000. It is this part of the trial court's distribution of property that Frances Brown contests.
• 1 The trial court's judgment regarding division of the property is governed by section 503 of the Illinois Marriage and Dissolution of Marriage Act (Ill. Rev. Stat. 1981, ch. 40, par. 503). Section 503(b) of the Act states that all property acquired after marriage is presumed marital property unless rebutted with proof that the property was acquired by one of six non-marital methods. (Ill. Rev. Stat. 1981, ch. 40, pars. 503(a)(1) through (6).) The trial court held that Michael Brown had rebutted the statutory presumption favoring marital property by proving that his one-half interest in Brown's Feed and Chemical Store was a gift from his father, Archie Brown, as provided in section 503(a)(1) of the Act.
A valid gift requires proof of donative intent and delivery of the subject matter. (In re Estate of Duncan (1979), 77 Ill. App.3d 927, 397 N.E.2d 497.) In this case, donative intent is presumed because the transfer was from parent to child. (In re Estate of Nelson (1971), 132 Ill. App.2d 544, 270 N.E.2d 65.) As a result, Mrs. Brown was required to present evidence that Archie Brown acted without donative intent. Although she attempted to show that Archie Brown had a business motive in transferring the one-half interest to his son, we find the argument unpersuasive. The evidence most relevant in determining Archie Brown's intent is his own testimony. He testified that he wanted his son to share in the business, "to have half the income" and to give him "the opportunity to buy the rest in case something happened to me." The testimony is indicative of a gift and was not contradicted.
Although we find the one-half interest in the partnership to be a gift and thus non-marital property, we also hold that it was transmuted into marital property.
• 2 Transmutation of non-marital property to marital property can take place in two ways. One involves converting the separate ownership of non-marital property into a form of common ownership. (In re Marriage of Rogers (1981), 85 Ill.2d 217, 422 N.E.2d 635.) The second type of transmutation is at issue here. It involves commingling of non-marital property with marital property, thereby converting the entire non-marital property interest into marital property. (In re Marriage of Westphal (1981), 99 Ill. App.3d 1042, 426 N.E.2d 303.) The Supreme Court of Illinois has specifically recognized the transmutation of property theory. In In re Marriage of Smith (1981), 86 Ill.2d 518, 427 N.E.2d 1239, the court stated, "where a spouse who holds non-marital property causes it to be commingled with marital property, or with non-marital property of the other, we hold that the commingled property is presumed to be marital property." (86 Ill.2d 518, 529, 427 N.E.2d 1239, 1244.) There, the parties' home was held to be marital property even though one spouse traced non-marital property into the purchase price. Rental property acquired by the husband as settlement of his mother's estate was presumed to be marital property because improvements were made with marital funds.
In Smith, the court emphasized that the contribution to non-marital assets must be by an affirmative act of the parties and not due to economic appreciation alone. Secondly, transmutation will not occur if the owner of the non-marital property can prove that he has kept his property separate from the marital property.
The court in Smith pointed out that its decision effectuated the legislative purpose of the statute. Presuming transmutation of non-marital property gives further recognition to the equal partnership theory of the Act and to the contribution of the homemaker. Further, the court found that transmutation promotes the statutory preference for classifying property as marital which, even when the contribution of the spouse is insignificant, allows for more equitable distribution of property because the pool of marital property is greater.
In In re Marriage of Lee (1981), 87 Ill.2d 64, 430 N.E.2d 1030, the court used the transmutation theory to hold that the parties' home was entirely marital property even though the husband acquired the home prior to the marriage with his own funds. The transmutation theory was applicable because marital assets were used to make improvements to the home.
While it has been suggested that the decision in Smith has "rendered the concept of non-marital property nearly illusory" (Feldman and Becker, Classification of Property Upon Dissolution of Marriage: Suggestions for Maintaining our "Dual System" in the Aftermath of Smith, 71 Ill. Bar J. 100, 101 (1982)), we have reviewed the supreme court cases at length, and while the present case does not fit the factual situation of any decided case, we believe the same policies and statutory purposes require use of the transmutation theory here.
The one-half interest of Michael Brown in the partnership was non-marital property at the time of the transfer. During the marriage, the value of the partnership has increased substantially. For the most part, the increase in value reflects the earnings of the partners that have been retained in the business. One-half of these retained earnings represent the income Michael Brown has received for his "employment" by the partnership. We hold that these retained earnings are marital property. We have held that business interests can be classified as marital property. (In re Marriage of Westphal (1981), 99 Ill. App.3d 1042, 426 N.E.2d 303 (assets of sole proprietorship); In re Marriage of White (1981), 98 Ill. App.3d 380, 424 N.E.2d 321 (interest in professional dental corporation); In re Marriage of Olsher (1979), 78 Ill. App.3d 627, 397 N.E.2d 488 (stock in closed corporation).) Further, we fail to see any difference between the income Michael Brown receives as a partner in Brown's Feed and Chemical Store and the income one receives while employed during the marriage in any other capacity, or the income earned on non-marital property during marriage, both clearly being marital property. In re Marriage of Smith (1981), 86 Ill.2d 518, 533, 427 N.E.2d 1239, 1246 (marital funds used to renovate non-marital business real estate); In re Marriage of Komnick (1981), 84 Ill.2d 89, 417 N.E.2d 1305 (non-marital farm remains non-marital where its increase in value is the ...