A Guide To Marital And Non-marital Property Under The Illinois Marriage And Dissolution Of Marriage Act (“IMDMA”)
A major source of divorce litigation is over the classification of property is either marital or non-marital, and for good reason. Parties’ assets may value in the millions of dollars; an award of a disputed asset as either marital or non-marital can net a party significant proceeds in a divorce. It is important for a spouse to understand how his financial transactions or how she treats a marital or non-marital asset such as a business can affect the asset’s classification.
Non-Marital (Separate) Property
750 ILCS5/503 provides that non-marital property is essentially any property that a spouse owns prior to the marriage or received by gift or inheritance. Hence, gifts given by one spouse to another, such as jewelry, watches, or lavish items such as cars are the separate property of the receiving spouse even though the parties are still married. Further any investment gain or income of non-marital property is also non-marital. Additionally, anything purchased with non-marital property will be non-marital. Finally the parties can agree to classify certain properties as non-marital by a pre-or post-marital agreement.
All property acquired by either spouse subsequent to the marriage that is not considered non-marital, is marital property. This includes all income earned from all employment during the marriage, or any investment income or gain on any marital asset, absent an agreement to the contrary.
Separate Property Can Become Marital
A separate asset will become marital if a party appears to have contributed it to the marriage. This includes putting the other spouse’s name on the title of the asset, or depositing the asset or funds into a marital account. Such transactions are presumed to be contributions to the marriage, and the burden of proof is on the spouse claiming that an asset is separate, which must be shown by clear and convincing evidence. Further, separate assets or funds can become marital if they are co-mingled with marital funds to the extent that their identity as separate funds is lost. The key in the situation is to be able to clearly identify, or “trace”, the disputed funds.
Marital Contribution To A Separate Asset
Oftentimes a spouse will own an asset, such as a business or investment property, prior to entering the marriage – making it non-marital property. However, that spouse might contribute significant efforts to improve the value of that business or investment. In this case the marriage is entitled to reimbursement for the marital efforts of the spouse to improve that separate asset. The court may reimburse the marital estate for such efforts by either awarding the reasonable value of the amount or effort that was contributed, or adjust the amount of the increase in value that resulted from the contribution. However, the court will not award a reimbursement if it finds that the marital estate was already sufficiently compensated.
This becomes a problem for business owners who are underpaying themselves in order to reinvest in their business. Illinois courts have decided that retained earnings of a non-marital business can be considered marital if the contributing spouse earns a salary below what would reasonably be expected for a similar position. The net effect is that marital retained earnings reinvested into the non-marital business can “taint” the business and cause it to become marital.