Commingling Marital and Non-Marital Property -- Transmutation
by Wes Cowell; updated 5 June 2016 -- suggest a correction
When marital and non-marital property are commingled, the commingled property transmutes into the the receiving estate, subject to a right of reimbursement. Need advice? Call, leave your info, or scheduleschedule a consult.
The term "transmutation" means "converts" -- it refers to the situation where property from one estate (marital or non-marital) is commingled into the other estate and loses its identity. When that happens, the contributed property transmutes (converts) into the receiving estate. The last part of the definition -- loses its identity -- is critical. If property is transferred from one estate to another but does not lose its identity, then no transmutation occurs. 750 ILCS 5/503(c)(1(A)(ii). If the contributed property does lose its identity, then the contributed property is transmuted into property of the receiving estate. 750 ILCS 5/503(c)(1)(A)(i).
The contributing estate must be reimbursed by the estate receiving the contribution. The right-to-reimbursement exists only if:
the contribution is retraceable by clear and convincing evidence;
was not a gift; or
in the case of a contribution of personal effort of a spouse to non-marital property, the contribution must be significant and result in substantial appreciation on the non-marital property.
Non-marital - Into - Marital: This is the most common scenario. Typically, a spouse will deposit non-marital money into a joint, marital account. The comingled deposit loses its identity and becomes marital property. If the spouse keeps a good record of the transaction, he or she might hope for a reimbursement. The evidence must be "clear and convincing."
Example: After the wedding you buy a minivan and finance part of the purchase with a loan. Later, you sell the car you owned before the marriage (non-marital) and apply the proceeds from the sale (the cash from the sale of a non-marital asset is still non-marital property) against the loan balance. You've contributed non-marital assets (your non-marital cash) to the marital estate. The minivan doesn't become partly non-marital. Instead, it remains marital property and your non-marital estate should be reimbursed by the marital estate.
Marital - Into - Non-marital: The law works both ways. Martial property can be transmuted into non-marital property in a number of ways. Consider the situation where prior to the marriage one spouse owns a house but is still making mortgage payments. Once married, the couple moves into the home and the marital estate eventually pays off the mortgage. The marital funds are transmuted into the non-marital estate of the spouse whose name is on the house title, but the marriage retains a right to reimbursement for those payments. 750 ILCS 5/503(c)(2)(A)
Exception to Marital Estate Reimbursement: There is an exception to the right of reimbursement argument, however. In re: Marriage of Crook, 334 Ill.App.3d 377, 778 N.E.2d 309 (4th Dist., 2002). No right to reimbursement arises for contributions made by the marital estate that enhance the value of non-marital property where the marital estate has already been compensated by the parties' use of the property during the marriage. The unique facts of each case will determine whether the reimbursement should, or should not, be made.
Non-marital- Into - Nonmarital: What if one spouse uses non-marital funds to help fix up the other spouse's non-marital property or to pay the mortgage of the other's non-marital home? When that happens, the contributing spouse can seek a reimbursement from the receiving spouse's estate. 750 ILCS 5/503(c)(B)(2)(A)
The "Conduit Prophylactic": Rights of reimbursement are not guaranteed. Courts often consider whether a party transferred an asset through an estate merely as a conduit. Consider the case of Paul and Karen Wojcik: Paul inherited money. Injerited money is non-marital in character. He deposited it into a marital account, however, where it lost its identity. That raised the presumption that the deposit was a gift from Paul to the marriage. From there he transferred the money between various accounts over several months and, eventually, bought a motorcycle. The motorcycle was found to be marital property.
Karen, on the other hand, deposited non-marital funds (gifts fromher brother) into the same account, transferred them out after only one day, and bought a car. The court concluded that she used the joint account merely as a “conduit” and the car was her non-marital property.
Got that? They each put money in the same account, withdrew it, she bought a car and he bought a bike. She won, he lost. When Paul Appealed the court said:
Although Paul testified that he believed that he had used the inheritance money to purchase the motorcycle, Paul introduced no documentary evidence to show that the specific funds inherited were segregated and ultimately used for the purchase. As Paul had the burden to prove that the motorcycle was nonmarital, it was incumbent upon him to establish that he did not intend to make a gift to the marital estate at the time he deposited the inheritance into the parties' joint checking account. See Hegge, 285 Ill.App.3d at 141, 220 Ill.Dec. 853, 674 N.E.2d 124. Given the length of time that the money was in the marital accounts prior to the purchase, and in light of Paul's inability to specifically trace the assets used for the purchase, we cannot say that the trial court's classification of the motorcycle as marital property was against the manifest weight of the evidence.
. . .
. . . we are unpersuaded by Paul's argument that the process that he used to purchase the motorcycle was the same process used by Karen when she purchased her Mercury Sable, which the trial court classified as nonmarital property. Karen testified that she purchased the Mercury Sable with money that she had received as a gift from her brother. Although Karen placed the money in the parties' joint account prior to purchasing the vehicle, Karen testified that the funds were in the parties' joint account for only one day and that she had placed the funds in the account merely as a conduit to transfer the money. Based upon such evidence, the trial court could have reasonably concluded that Karen had established by clear and convincing evidence that she had not intended to make a gift to the marital estate of the money her brother had given her.
In re Marriage of Wojcik, 838 N.E.2d 282 (2d Dist., 2005)
Marital and Non-marital - Into - New Property: When marital and non-marital property are combined to acquire new property and the contributions lose their identity, the newly acquired property is marital but both the marital and non-marital estates hold a right of reimbursement for their respective contributions. 750 ILCS 5/503(c)(1)(B)
Physical Effort into Non-Marital: Physical effort of a spouse is a marital asset. When a spouse contributes physical effort to non-marital property, the marital estate has a right to be reimbursed for the contribution. Imagine a husband owns a (non-marital, paid off) six-unit rental-income property. He takes a year away from his career to fix up the rental property. During that year he puts on a new roof, re-plumbs the building, installs a new furnace and updates the units. Supplies are purchased with Husband's non-marital money and he is the only laborer. His efforts increase the value of the building by $150,000. His physical effort is an asset contributed by the marriage and the marriage has a right to be reibursed. 750 ILCS 5/503(c)(2)(B)