In re CIVIL UNION OF DEBRA HAMLIN, Petitioner-Appellee and Cross-Appellant, and VICTORIA VASCONCELLOS, Respondent-Appellant and Cross-Appellee.
Appeal from the Circuit Court of Du Page County No. 11-D-2248 Honorable Neal W. Cerne, Judge, Presiding.
JUSTICE BIRKETT delivered the judgment of the court, with opinion. Justices Hutchinson and Hudson concurred in the judgment and opinion.
¶ 1 Following a contested hearing before the circuit court of Du Page County, respondent, Victoria Vasconcellos, and petitioner, Debra Hamlin, received a judgment dissolving their civil union. Pursuant to the judgment of dissolution, the trial court classified certain of the parties' assets as part of the civil-union estate and distributed those assets, allocating $1, 259, 283 (73%) to respondent and $462, 459 (27%) to petitioner. Respondent appeals the judgment, arguing that the trial court erred in classifying certain assets as civil-union property. She contends that, because Illinois first recognized civil unions on June 1, 2011, the effective date of the Illinois Religious Freedom Protection and Civil Union Act (Act) (750 ILCS 75/1 et seq. (West 2010) and because the Act should be given only prospective effect, any previously acquired assets must be classified as non-civil-union property. Petitioner cross-appeals, arguing that the trial court's asset distribution was an abuse of discretion because the main asset of the civil union, Cignot, an electronic cigarette (e-cigarette) vending company founded and run by respondent, was awarded wholly to respondent. Petitioner also argues that the trial court's determination that respondent contributed significantly more to the acquisition of civil-union property, as well as its valuation of Cignot, were against the manifest weight of the evidence. We affirm in part, reverse in part, and remand the cause.
¶ 2 I. BACKGROUND
¶ 3 We summarize the factual and procedural history pertinent to the issues raised on appeal and cross-appeal. In 1998, the parties met and, by 1999, they had entered into an exclusive dating arrangement. Shortly after beginning their exclusive relationship, petitioner moved into respondent's Poplar Avenue residence in Elmhurst, Illinois. The relationship progressed to the point that, in 2001, the parties became engaged and, in July 2002, they traveled to Vermont where, on July 20, 2002, they legally entered into a civil union. In 2003, same-sex marriages became legally permitted in parts of Canada, and the parties traveled to Toronto and, in July 2003, legally entered into a marriage. Throughout their civil union, the parties resided at the Poplar Avenue residence. No children were born or adopted during the civil union.
¶ 4 Around May 6, 2011, the parties separated. On June 1, 2011, the Act became effective. In August 2011, petitioner filed a petition for dissolution of the parties' civil union, and on July 10, 2012, she filed an amended petition for dissolution. In January 2013, respondent filed her response to the petition and a counterpetition for dissolution. Respondent also claimed that, beginning in May 2011, petitioner had dissipated nearly $14, 000 of the civil-union estate on expenses related to petitioner's paramour.
¶ 5 On June 24, 2011, respondent filed a motion for "declaratory judgment, " seeking a ruling that, because the Act became effective on June 1, 2011, any property previously accumulated by either party could not be considered civil-union property. Petitioner opposed the motion with statutory and constitutional arguments, as well as a claim that respondent's position in the motion was contrary to those taken in pleadings in which she denominated certain property accumulated before June 1, 2011, as civil-union property.
¶ 6 The trial court denied respondent's motion. The court ruled that under the text of the Act, civil-union property begins to accrue as of the date of the civil union and not as of the effective date of the Act. The court reasoned that the effective date of the Act was only the date on which Illinois recognized civil unions, whereas the civil union was validly formed when the parties fulfilled the applicable requirements and received a legally executed license in Vermont.
¶ 7 On July 25, 2013, the case proceeded to hearing on the dissolution of the civil union. Petitioner testified that she was 46 years of age at the time of the hearing. She had graduated from Michigan State University and secured employment. In November 1997, she began working at Bridgestone Corporation as a senior environmental engineer, in what she described as a multidisciplinary field involving compliance with and remediation according to environmental regulations. She was promoted within the company and, at the time of the hearing, she held the title of senior environmental projects manager. Also at the time of the hearing, petitioner was earning a base salary of $101, 000 supplemented with a discretionary bonus. For the 2012 tax year, petitioner reported $110, 536 of gross income.
¶ 8 Respondent, who was 51 years of age at the time of the hearing, had graduated from high school but had not received a college degree. Instead, she became self-employed. Respondent owned and operated a computer-consulting business that did work for various municipalities. Respondent additionally acted as a construction contractor and engaged in various remodeling projects. During the bulk of the civil union, respondent reported average yearly earnings of around $30, 000. This picture changed, however, in 2009, when respondent founded Cignot.
¶ 9 In September 2009, respondent incorporated Cignot. She is currently the sole shareholder and is employed by the company. Respondent testified that Cignot proved to be a "gold mine, " beginning at the initial upswing of the e-cigarette business. Petitioner sources her products largely from China and sells them via the Internet and at physical locations. The e-cigarette business remained unregulated at the time of the hearing, but regulations were expected to be enacted in the near future. The regulations were expected to have a significant impact on the Internet aspect of Cignot's business, so respondent had opened two physical locations by the time of the hearing and, at the time of this appeal, there are four physical locations. Respondent related that, in 2009, she reported roughly $54, 000 in adjusted gross income. In 2010, Cignot's first full year of operation, respondent reported over $736, 000, and in 2011 she reported over $745, 000. Respondent kept open her computer-consulting business and received a "nominal" amount of income from it, but she received nearly all of her compensation from and devoted nearly all of her time to Cignot.
¶ 10 The parties testified about their responsibilities and efforts during the time the civil union was intact. Both contributed to the payment of the expenses of the civil union, but they also kept some of their financial accounts separate. The parties created a joint checking account, a joint investment account, and a joint credit-card account, all of which were devoted to the expenses of the civil union. They accumulated cash and other investments, which were generally kept separate. Before the hearing, the parties stipulated as to which assets were to be deemed civil-union and non-civil-union. They disputed the classification of other assets including, most significantly, Cignot. The classification of some of the parties' real property was also disputed.
¶ 11 Respondent paid the expenses associated with the Poplar Avenue residence from her personal checking account, into which she deposited income from her employment. According to respondent, she and petitioner agreed that petitioner would not pay rent to live in the Poplar residence, because petitioner, with her salary and benefits through Bridgestone, was expected to fund the parties' retirement. Petitioner testified that she was primarily responsible for household duties, like cutting the lawn, housecleaning, cooking, doing laundry, and grocery shopping. Petitioner testified that she also assisted in remodeling and renovating the Poplar residence. According to petitioner, as the civil union continued she eventually took over the payments for the parties' monthly living expenses of roughly $1, 000 per month. The parties shared other expenses, such as those incurred in traveling on vacation.
¶ 12 During the span of the civil union, the parties purchased investment properties. In March 2002, the parties, along with the Kaminskis, their neighbors, purchased a property on Glenview Avenue in Elmhurst. The property was titled solely in petitioner's name, as was the mortgage. Despite the titling and financing, the parties and the Kaminskis had an oral and informal agreement to share equally the purchase price of the property and the proceeds from any subsequent sale. Both the parties and the Kaminskis contributed equally to the down payment, and the mortgage payments were derived from the Glenview property's rental income. In 2006, the Glenview property was subdivided into two separate properties: 198 Glenview and 200 Glenview. In 2008, 198 Glenview was sold and the parties retained 200 Glenview. After the sale of 198 Glenview, petitioner alone paid the real estate taxes and maintenance expenses associated with 200 Glenview. In 2012, 200 Glenview was sold. According to petitioner, the parties and the Kaminskis all agreed that before they all shared the proceeds of the sale petitioner was entitled to reimbursement for paying the taxes and maintenance expenses. However, the sale occurred during the dissolution proceedings, so the proceeds were initially escrowed and then disbursed to the parties as advances on their portions of the civil-union estate (and were used to pay attorney and witness fees). The parties reported that, at the time of the hearing on the dissolution, the Kaminskis had initiated a suit against petitioner to recoup their portion of the proceeds and that they expected that respondent would also be named a party in the Kaminskis' suit. The parties stipulated that the proceeds were civil-union property.
¶ 13 In April 2007, the parties purchased an interest in real estate located on Glade Avenue in Elmhurst. According to petitioner, the parties, particularly respondent, wanted to purchase the property with Annette Cunningham, respondent's sister, to allow respondent's nephew to reside at the property and possibly to develop the property in the future. Thus, petitioner executed a power of attorney to allow respondent to purchase a 50% interest in the Glade property with Cunningham. The mortgages for the property were informally consolidated and petitioner, Cunningham, and respondent's nephew each paid one-third of the mortgages. From June 2011 to February 2012, after petitioner had left the Poplar residence, Cunningham made the mortgage payments for the Glade property. According to petitioner, beginning in February 2012, the mortgage and utility bills for the Glade property were sent to her and she paid those bills from that time forward. Petitioner testified that, when Cunningham reduced her contribution to the expenses associated with the Glade property during the pendency of the dissolution action, petitioner covered the shortfall; respondent did not provide any funds for the Glade property. According to petitioner, the Glade property was underwater at the time of the hearing. The parties stipulated that their 50% interest in the Glade property was civil-union property.
¶ 14 Respondent was involved in the ownership of a three-flat investment property located on West Olive in Chicago. Originally, respondent invested in the Olive property with another couple. In 2005, when the couple relocated, the parties discussed how to buy out the relocating couple. The parties decided that, rather than petitioner buying the interest, respondent would refinance and use the funds from the refinance to buy out the relocating couple. Petitioner believed that respondent paid the mortgage on the Olive property using the rental income generated by the property. The parties disputed whether it was civil-union property.
¶ 15 In May 2011, petitioner purchased a new residence on Pick Avenue in Elmhurst. Around that time, petitioner moved out of the Poplar residence. The parties stipulated that the Pick property was civil-union property.
¶ 16 The parties disputed whether Cignot was civil-union property. The record shows that, in September 2009, respondent initially funded the incorporation and capitalization of Cignot with funds taken from a home equity line of credit associated with the Poplar residence. Respondent testified that line of credit existed before the civil union. She withdrew funds for various expenses and repaid the funds with income from her employment. Respondent withdrew $27, 000 from the line of credit and combined it with funds from other sources to fund the startup of Cignot. In 2009, Cignot repaid the $27, 000.
¶ 17 Petitioner testified that respondent started Cignot for two reasons: to provide funds for the parties' retirement and to help a neighbor, Terry, whose spouse had died and who needed a job. At first, Cignot was solely an Internet-based business, and respondent and Terry operated it out of the basement of the Poplar residence. According to petitioner, she helped as needed with the initial startup activities by running errands (approximately once a month), packaging and organizing the inventory and deliveries, and helping out customers who came to the Poplar residence to purchase products. Respondent testified that petitioner was effectively uninvolved with the usual operations of Cignot and that, if she did help out, it was only occasionally and on an ad hoc basis. Eventually, Cignot grew out of the Poplar residence basement and, in 2010, it moved into a rental residence across the street. Petitioner testified that she helped to move Cignot and that she set up the new location. Petitioner also testified that she and respondent created the name and the logo for the business together; respondent testified that she created the logo alone.
¶ 18 Cignot grew from a basement-run Internet vendor with two employees into a much bigger enterprise that had two physical locations (four by the end of the hearing) and a $600, 000 annual payroll. Cignot moved from 100% Internet sales to 85% Internet and 15% physical.
¶ 19 Each party presented expert testimony on the value of Cignot. Both experts commented on the newness of the industry and the challenges facing it. Both discussed the near certainty that e-cigarettes would come under federal and state regulation and that, when this came to pass, Internet sales could be expressly or effectively prohibited (effectively because non-postal carriers would not deliver e-cigarettes and the post office demanded some sort of reliable age verification before it would deliver to a customer). However, at the time of the hearing, the anticipated regulatory shoe had not dropped and e-cigarettes remained unregulated, so there were no limitations or prohibitions regarding Internet-based sales of e-cigarettes.
¶ 20 Brian Potter testified as petitioner's expert on the value of Cignot. Potter testified that Cignot had experienced substantial growth from its inception in 2009. In 2010, it had sales of $2.2 million and net income of $581, 000. In 2011, it had sales of $2.8 million and net income of $571, 000. In 2012, although sales declined slightly, to $2.6 million, the decline in Internet sales was offset by growth in physical sales. Cignot demonstrated increased efficiency because its net income as a percentage of sales increased. Potter concluded that the stability exhibited in Cignot's sales would continue in at least the short to medium term, notwithstanding the anticipation of federal and state regulations. Potter valued Cignot using a forecasted-earnings approach and opined that, as of March 31, 2013, respondent's 100% ownership interest in Cignot was worth $1, 710, 000.
¶ 21 Joseph Glawe testified as respondent's valuation expert. He valued Cignot using a net-asset value approach. He anticipated the implementation of regulations to eliminate the Internet component of Cignot's sales in the near term. Glawe opined that sales could continue at physical locations and observed that physical sales were increasing. Based on the uncertain regulatory picture, Glawe presented his valuation as the amount a willing buyer would pay for Cignot's assets on the date of valuation, because it was uncertain that Cignot would continue as a going concern. Glawe opined that Cignot's value, as of December 31, 2012, was $828, 000.
¶ 22 On November 7, 2013, the trial court entered a judgment of dissolution of the parties' civil union. The trial court initially held that civil unions, in contrast with same-sex marriages, were not against public policy in Illinois. The court then held that the parties' Vermont civil union was valid as of July 20, 2002, the date on which it was entered into. The court declared the Canadian marriage null and void, because it was a second civil union entered into while the Vermont ...