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In Re Marriage of Malters

OPINION FILED MAY 7, 1985.

IN RE MARRIAGE OF PENELOPE W. MALTERS, PETITIONER-APPELLEE, AND EDWARD H. MALTERS, RESPONDENT-APPELLANT.


Appeal from the Circuit Court of Cook County; the Hon. Allen F. Rosin, Judge, presiding.

JUSTICE PERLIN DELIVERED THE OPINION OF THE COURT:

Respondent, Edward H. Malters (Edward), appeals from the distribution of property and child support orders entered by the trial court in dissolution of marriage proceedings. Edward and Penelope Malters (Penelope) were married on March 28, 1967, in Las Vegas, Nevada. Following their marriage, they resided at 25 Brinker Road in Barrington. *fn1 It was Penelope's first marriage. Edward had been married previously and had three sons from his first marriage who resided elsewhere. Penelope and Edward's marriage produced four children, three of whom were living at the time of the dissolution.

On April 28, 1983, a judgment of dissolution was entered and custody of the couple's two sons, aged 14 and 10, was awarded to Edward. Custody of the couple's daughter, Penelope Ann, aged 6, was awarded to Penelope. On October 20, 1983, the trial court entered an order distributing the marital assets and awarding Penelope child support. It is from this order that Edward now appeals.

On appeal, Edward contends that the trial court erred: (1) in finding the Brinker Road residence to be marital property, since it was acquired by Edward "prior to the marriage"; (2) in finding that property located in Montana was marital property when that property was allegedly obtained "in exchange" for Edward's non-marital property; (3) in improperly valuing the parties' assets and in subsequently awarding Penelope an inequitably large share of marital property; and (4) in ordering child support payments without a separate hearing on that issue.

At the hearing on the valuation and distribution of marital property, Edward testified to the following:

He was a physician and surgeon, licensed to practice medicine in Illinois.

In 1965, prior to his marriage to Penelope, Edward, in his own name, purchased a three-flat apartment building in Berkeley, Illinois. He lived in one apartment and rented the others. In 1967, he purchased the Brinker Road property "as an investment." Title thereto was placed in trust, with Edward as the sole beneficiary. To make the down payment, Edward borrowed $5,000 from "a friend" *fn2 and used $5,000 of "his own funds." *fn3 After renting the house for a time and applying the rental income to the mortgage payments, he moved into the house alone. Penelope did not contribute to the initial down payment nor to any mortgage payments on the house. After their marriage in 1967, Penelope moved into the house with him. The parties continued to live there with their children until Penelope left in 1979.

After Penelope left in 1979, Edward made extensive additions and repairs to the Brinker Road property. He added a kitchen, a living room, an alarm system and a swimming pool. Although Edward did much of the construction himself, he borrowed $35,000 from the First National Bank of Barrington and $45,000 from various "friends" to finance the work. When Penelope left in 1979, the house was appraised for $242,000. At the time of the dissolution proceedings, Edward believed the value to be $325,000. A mortgage of $47,000 remained on the property.

Over the past 15 years, Edward purchased certain airplane hangars. He was currently making monthly payments of $600 on two hangars in Huntley, Illinois. The original cost of one hangar was $50,000; the other, $18,000 or $19,000. He still owed "a lot of money on the hangars," and although he was "still in title," he had sold his "vested interest" in the hangars. At one time he had formed a corporation, Malters Aviation, "to lease planes and create a tax deduction"; but the corporation had been dissolved prior to the marriage dissolution proceedings. Edward owned two airplanes: a $100,000 Cessna for which he still owed $86,000, with monthly payments of $1,500; and a Piper Cub purchased for between $12,000 to $15,000, with $7,000 or $8,000 still owing. One plane was leased to a son from his first marriage, who paid him an unspecified amount on a yearly basis.

In 1969, Edward purchased property in Montana consisting of several thousand acres of land, cattle and a house. He set up a corporation, Malters, Inc., for this purpose of which Penelope was an officer and a shareholder. Although "most" of the Montana property was sold in 1979 for $900,000, Edward did not personally receive any of the proceeds because of "debts on the property which had to be satisfied." He still owned 300 acres of the Montana property which were also pledged as security for debts. His annual expenses for the Montana property were $4,600. In order to obtain the necessary down payment for the purchase of the Montana property, Edward had "refinanced" the three-flat in Berkeley and also the Brinker Road property. "Quite a while ago," Edward transferred title to the Montana property to his "office pension fund."

In 1981, Edward's medical corporation, Edward Malters, M.D.S.C., purchased a condominium in Elgin which he used as a medical office. The cost of the condominium was $144,000, and he had borrowed $20,000 for a down payment. His monthly mortgage payments were $2,500 and his monthly condominium assessment was $200. His medical corporation also owned two automobiles: a 1980 Honda and an AMC Eagle on which the corporation still owed $10,000.

Edward was a sole practitioner. At the time of the property hearing, his medical practice had declined by 50%. He had reduced his office staff from three secretaries to one. He was unable to afford the $2,500 per month premium necessary to cover his medical-malpractice insurance. Including the condominium and the automobiles, the debts of the medical practice approximated $175,000. Although his gross income in 1979 had been $320,000, in 1982 it was $119,305. Edward was currently serving two to three months per year on active duty in the United States Navy. The preceding year he had received $3,800 income from this activity. While on active duty, he received no income from his medical practice.

Edward's medical practice had two pension plans from which, since 1977, he had borrowed $900,000 to "meet living expenses," to "buy cattle" and to "buy airplanes."

Edward was currently paying medical school tuition for two sons from his first marriage. He also sent them spending money. His expenses for the two boys were approximately $2,000 monthly. His total monthly expenses were $16,016.59 and his monthly income was $4,006.92. He was unable to meet his mortgage payments, and his real estate tax bill was two months overdue. He had not yet begun to pay off the loan for the swimming pool.

Norman Richter, Edward's accountant, testified: Based on its corporate assets and liabilities, he valued Edward's medical corporation at $40,000, after considering the existing assets of the corporation, its accounts receivable, and its bills outstanding. He placed no value on the "good will" of the corporation since Edward was a sole practitioner. Edward's practice had two pension plans: a "defined benefit" plan and a "money purchase" plan. Although Richter had been familiar with Edward's finances only since 1977, he believed the money had been borrowed over a number of "different periods," since the "defined benefit" plan was adopted in 1972. At the time of the hearing, no further loans could be taken from either plan. Due to a change in IRS regulations, Edward was obligated to repay by 1988 all but $50,000 of the amount borrowed from his pension funds. If he failed to do so, or if he withdrew additional funds from the plans, Edward's tax liability would be as much as $450,000.

Penelope testified to the following: She currently resided with the couple's daughter, Penelope Ann, age 7, at 676 Hillside Lane in Elmhurst. Her monthly apartment rental was $575. Although Penelope had a B.A. in nursing and had been employed as a nurse before her marriage, she was presently unemployed. She was enrolled in a "counseling masters program" at George Williams College and expected to graduate in 1 1/2 years.

Penelope met Edward in 1958 when she was a nursing student and he was an intern at Cook County Hospital. She was living with Edward in the Berkeley three-flat purchased by him in 1965 when he purchased the Brinker Road residence in 1967. She and Edward were "pooling" their money for living expenses at that time and they had a joint account at the Elmhurst National Bank. They "had been talking" about buying a home in the Barrington or Elgin areas for "about a year." Penelope and Edward both accompanied the real estate agent when they inspected the Brinker Road property for the first time. They both signed the offer to purchase. They borrowed $5,000 from Penelope's parents and used $5,000 of their "joint funds" to purchase the house. Edward borrowed an additional $45,000 from "somewhere else" for the remainder of the down payment, and they both assumed the existing mortgage on the Brinker Road property. They bought the house "in order that we could live there and raise a family. We could live there until we grow old." Originally they rented the house and applied the rentals to their mortgage payments. The remainder of the mortgage payment came from their joint account. Contrary to Edward's testimony that she did not move into the house until 1967, she and Edward both moved into the house in the fall of 1966, a year prior to their marriage, and continued to live there until Penelope left in 1979.

Penelope "cared for" the Brinker Road premises since its purchase. She planted gardens during the period it was rented. After moving into the house, Penelope did all interior maintenance work, including wallpapering, painting, refinishing windows, and moving a partition in the kitchen. Penelope also cared for the barn and the horses in the stable. She "kept the pasture," planted "over 500 evergreen trees" and "put in a beach in the area around the pond." The contents of the house were valued at $120,000 for insurance purposes while she lived there.

In 1966, according to Penelope, Edward was an anesthesiologist at Sherman Hospital; conducted a private practice in Elgin; worked for the coroner's office in Cook County; and worked for the Cook County jail. In 1971, he added a family practice in Elgin and began to work at night in the emergency room at Sherman Hospital. While he was in private practice, Penelope "kept the books" for Edward until the birth of their second child in 1973. Thereafter she "supervised" the bookkeeping. At the time of their separation in 1979, their monthly expenses were between $18,000 and $30,000.

In 1969, Penelope and Edward formed a corporation to purchase land in Montana. Edward was president of the corporation and Penelope, secretary. They were both shareholders, and Penelope "kept the books." There were two ranches on the property with cattle and equipment. Edward subsequently sold the property in "small lots" and the buyers made monthly payments directly to Edward. The payments totaled $18,000 annually at the time of the marriage dissolution, when the property was worth $1,000 per acre.

Penelope also "kept the books" for Malters Aviation while it was in existence. In 1977, when Penelope was "handling all the books," Edward transferred large sums of money to his pension funds. He later transferred the money to other accounts, such as Malters Aviation, "to pay the bills." Penelope testified, "If a bill needed to be paid out of the personal account, he would put [money] in the pension trust fund, take it out, and put it in the account that needed it."

Penelope valued Edward's gun collection to be worth over $40,000. Penelope testified that at the time of the marriage dissolution, Edward owned seven automobiles, including four Mercedes Benz.

Michael McDermott, called by Penelope, testified that he was a pension actuary and had worked with Edward's pension plans through July 1982. The pension plans had a value of $935,647 at the end of the 1982 fiscal year. McDermott was aware that Edward had taken loans ...


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