In re Asta

• Court: Appellate Court of Illinois
• Writing for the Court: Justice ZENOFF delivered the judgment of the court, with opinion.
• Citation: In re Asta, 56 N.E.3d 1088, 404 Ill.Dec. 675 (Ill. App. 2016)
• Decision Date: 27 June 2016
• Docket Number: No. 2–15–0160.,2–15–0160.
• Parties: In re MARRIAGE OF Cathy ASTA, Petitioner–Appellant and Cross–Appellee, and James A. PAPPAS, Respondent–Appellee and Cross–Appellant.

56 N.E.3d 1088

404 Ill.Dec. 675

In re MARRIAGE OF Cathy ASTA, Petitioner–Appellant and Cross–Appellee and James A. PAPPAS, Respondent–Appellee and Cross–Appellant.

No. 2–15–0160.

Appellate Court of Illinois, Second District.

June 27, 2016.

Michael G. DiDomenico and Sean M. Hamann, both of Lake Toback, of Chicago, for appellant.

Steven D. Gerage, of Gerage Family Law, P.C., of Chicago, and Kelly A. Collins, of Riewer & Collins, LLC, of Lake Forest for appellee.

OPINION

Justice ZENOFF delivered the judgment of the court, with opinion.

¶ 1 Petitioner, Cathy Asta, and respondent, James A. Pappas, were married in April 1999. They have no children together. On November 22, 2010, Cathy petitioned to dissolve the marriage. The matter proceeded to trial in August 2014 regarding the distribution of property. The parties significantly narrowed the issues at trial by stipulating to numerous uncontested facts and agreeing to the admission into evidence of hundreds of exhibits. The central dispute between the parties was the proper classification of certain stock that Cathy had acquired during the marriage. Cathy contended that the stock was her nonmarital property because she received it as an inheritance. James argued that Cathy did not sustain her burden of proving that she inherited the stock. The trial court agreed with James and found that the stock was marital property. Cathy appeals both the classification of the stock and the ultimate disposition of marital property. In his cross-appeal, James argues that he should have been awarded a greater portion of the marital estate. For the reasons that follow, we reverse and remand for further proceedings consistent with this opinion.

¶ 2 I. BACKGROUND

¶ 3 In 1967, August Asta (Cathy's father) and two other men founded the company that became known as Olsun Electrics Corporation (Olsun). August later came to own all 150 shares of Olsun stock. He also came to own all 1,000 shares of Olsun Electrics Corporation of Wisconsin (Olsun Wisconsin), an affiliated company that was incorporated in 1994. Cathy ultimately acquired a 100% interest in both companies in December 2005, more than nine years after August died, through a complicated transaction among the Asta family, which we will detail below. Although Olsun Wisconsin is no longer in business, at the time of the trial in these dissolution proceedings, the 150 shares of Olsun stock were worth $7,820,000. In order to understand the parties' respective arguments as to whether the Olsun stock is marital property, it is necessary to explain August's estate plan as well as the December 2005 transaction.

¶ 4 In his will, executed on October 10, 1989, August left his personal effects to his ex-wife, Mary Jane Asta (Cathy's mother), who was to serve as executor. The residuary estate was to pass to the August F. Asta Revocable Trust, u/a/d October 10, 1989 (the AFA Trust). August designated himself as the trustee and listed Mary Jane as the successor trustee. Under the terms of the AFA Trust, upon August's death, any property not used for the payment of debts, taxes, and expenses would be allocated to a residuary trust. Mary Jane was a beneficiary of the residuary trust, as were August's descendants (ultimately, Cathy and her two brothers, Anthony Asta and John Asta). Mary Jane was to receive all of the net income from the residuary trust during her lifetime. With respect to the distribution of principal from the residuary trust, the AFA Trust provided:

“The Trustee is hereby authorized to distribute to any one or more of the beneficiaries of the Residuary Trust, at any time and from time to time during their lifetimes, all or as much of the principal of such trust as the Trustee deems to be in the best interests of said beneficiaries; provided, however, that the Trustee shall only make such distributions as the Trustee deems necessary for the support of Mary Jane Asta during her lifetime.”

Additionally, the AFA Trust stated:

“Upon the death of the Grantor, or upon MARY JANE ASTA's death, whichever date shall later occur, the Trustee shall distribute any unappointed portion of the then remaining trust estate of the Residuary Trust in separate shares per stirpes to the descendants of the Grantor who shall be living on such date * * *. Each such share distributable to a descendant of the Grantor shall be retained in trust by the Trustee, as a separate trust, of which the descendant of the Grantor, for whom such share shall have been allocated [,] shall be a beneficiary * * *.”

The AFA Trust then established the terms of the “descendant's trusts.” Among those terms was the right for a beneficiary to withdraw the entire balance of the trust principal once he or she turned 45 years old.

¶ 5 August also established the Asta Real Estate Trust, u/a/d December 24, 1992 (the Real Estate Trust), designating himself and his son Anthony as co-trustees. The corpus of the Real Estate Trust included a 100% beneficial interest in a land trust. That land trust, in turn, owned a property located at 10901 Commercial Street in Richmond, Illinois (the Commercial Street property), where Olsun operated. The Real Estate Trust was for the benefit of August's children: Cathy, Anthony, and John. During August's lifetime, the trustees were authorized to distribute all or any portion of income or principal to the beneficiaries. Upon August's death, the remaining trust estate would be distributed per stirpes to separate children's trusts. Cathy, Anthony, and John would serve as trustees of their respective real estate subtrusts.

¶ 6 When August died in September 1996, both the 150 shares of Olsun stock and the 1,000 shares of Olsun Wisconsin stock were titled in his name. Shortly thereafter, Mary Jane designated Anthony as co-trustee of the AFA Trust. In May 1997, August's will was admitted to probate and letters of office were issued to Mary Jane as independent executor. The family faced a substantial estate-tax liability and elected to make payments to the Internal Revenue Service in installments pursuant to section 6166 of the Internal Revenue Code (26 U.S.C. § 6166 (2012) ). Accordingly, the probate estate remained open for more than nine years, and the Olsun and Olsun Wisconsin stock was not actually transferred into the AFA Trust pursuant to the pourover will until 2005.

¶ 7 Anthony apparently ran the family businesses for a number of years after August died. It seems that, during that time, Mary Jane, Cathy, and John had less direct involvement, if any, with business operations. In early 2005, discord within the Asta family came to a head over Mary Jane's alleged mismanagement of both the AFA Trust and the probate estate. John and Anthony contended that Mary Jane had made excessive withdrawals for her own benefit to the detriment of her children. On January 18, 2005, John filed a “Verified Petition to Remove the Executor, For Accounting, Recoupment, and Other Relief.” Two months later, Anthony filed a “Verified Petition for Temporary Restraining Order, Injunctive Relief, Removal of Executor and Trustee, and For Other Relief.”

¶ 8 Mary Jane, Cathy, Anthony, and John negotiated a settlement agreement, which was signed on November 15, 2005, and subsequently amended (“the settlement agreement”). We will describe only those terms of the settlement agreement that are directly relevant to the present appeal. The settlement agreement referenced the pending probate litigation as well as a lawsuit filed in the circuit court of McHenry County by Olsun and Olsun Wisconsin against Anthony and John for conspiracy and breach of fiduciary duties. The settlement agreement contained certain provisions regarding the AFA Trust. Specifically, Olsun and Olsun Wisconsin guaranteed Mary Jane employment for life at an annual salary of $150,000. In exchange, Mary Jane waived her interest in the AFA Trust. Contingent upon financing, Cathy agreed to “purchase” from the AFA Trust all of the stock of Olsun and Olsun Wisconsin for $2 million. It was agreed that Olsun and Olsun Wisconsin could participate as borrowers to finance this transaction. The AFA Trust would distribute $2 million to Anthony's subtrust and $2,117,000 to John's subtrust (the record does not explain the disparity in these distributions). The balance of the AFA Trust would then be distributed to Cathy's subtrust under the AFA Trust, which would be treated as the residuary beneficiary for tax purposes.

¶ 9 The settlement agreement also contained provisions pertaining to the Real Estate Trust. Specifically, that trust would borrow at least $1,217,000 from a bank, and the loan would be secured by mortgaging the Commercial Street property (recall that the corpus of the Real Estate Trust included a 100% interest in a land trust that held title to the Commercial Street property, where Olsun did business). The Real Estate Trust would then distribute $550,000 to Anthony's real estate subtrust and $550,000 to John's subtrust. The Real Estate Trust would simultaneously (1) convey to Cathy's real estate subtrust, subject to any mortgage, 100% of the beneficial interest in the land trust holding title to the Commercial Street property and (2) distribute any remaining funds in the Real Estate Trust to Cathy's real estate subtrust, which would be treated for tax purposes as the residuary beneficiary. This arrangement was contingent upon the Real Estate Trust procuring the necessary financing, and once again Olsun and Olsun Wisconsin were permitted to serve as borrowers.

¶ 10 The terms of the settlement agreement were effectuated on December 13, 2005, as a single transaction, whereby Cathy acquired 100% interests in both Olsun (150 shares) and Olsun Wisconsin (1,000 shares). The transaction was funded by more than $3.6 million in cash from August's estate and the AFA Trust, a $1,750,000 revolving loan to Olsun, a $533,500 term loan to Olsun, and a $1,740,000 mortgage loan to the corporate trustee of the land trust. First DuPage Bank was the...