In re Marriage of Schmitt

• Decision Date: 30 April 2009
• Docket Number: No. 2-07-0623.,2-07-0623.
• Citation: 909 N.E.2d 221
• Parties: In re MARRIAGE OF Sandra L. SCHMITT, Petitioner-Appellant, and Kim A. Schmitt, Respondent-Appellee.
• Court: United States Appellate Court of Illinois

909 N.E.2d 221

In re MARRIAGE OF Sandra L. SCHMITT, Petitioner-Appellant, and Kim A. Schmitt, Respondent-Appellee.

No. 2-07-0623.

Appellate Court of Illinois, Second District.

April 30, 2009.

Rehearing Denied July 14, 2009.

Randy K. Johnson, Ariano Hardy Nyuli Johnson Richmond & Goettel, PC, South Elgin, Theodore L. Kuzniar, Bochte & Kuzniar, P.C., St. Charles, for Sandra L. Schmitt.

Michael C. Doyen, Law Office of Robert A. Chapski, Ltd., Elgin, for Kim A. Schmitt.

Justice McLAREN delivered the opinion of the court:

Petitioner, Sandra Schmitt, appeals from the trial court's judgment of dissolution of her marriage to respondent, Kim Schmitt. On appeal, Sandra argues that: (1) "[T]he trial court's `non-marital' classification of all parcels of real estate purchased by [Kim] during [the] marriage was against the manifest weight of the evidence and must be reversed"; (2) "The trial court's non-marital classification of Bricks, Inc., a corporation created by [Kim] during [the] marriage, was against the manifest weight of the evidence and must be reversed"; and (3) "When the trial court errs in its classification of property and consequently errs in its distribution of marital property, all interrelated support and fee contribution issues must also be reversed and remanded for redetermination and redistribution." We reverse and remand for further proceedings consistent with this opinion.

FACTS

Sandra and Kim were married on October 13, 1974. Two children were born to the parties during the marriage: Brent, born February 11, 1980, and Samantha, born December 21, 1981. Both children are emancipated. The marriage broke down in 1995 when Kim told Sandra that he wanted a divorce. The grounds of irreconcilable differences were established.

Sandra, age 59, is in good health and earned a college degree prior to the marriage. Early in the marriage, she was employed as an elementary school teacher, working until the parties' first child was born, and then she became a stay-at-home mother. Kim, age 60, is also in good health and earned a college degree prior to the marriage. At the time of trial in February through June 2006 he was the president and sole shareholder of Bricks, Inc., a subchapter S corporation. See 26 U.S.C. § 1366(2006).

Kim testified that he began working at Colonial Brick Company (Colonial), a subchapter S corporation, in 1969. In 1970 he was given partial ownership of Colonial. In 1972, he was given a 49% ownership interest in Colonial by Phillip Mumford, who owned the remaining 51% of the corporation. Before the parties were married, a Colonial balance sheet labeled "February 1974" showed that Kim had an accumulated earnings and savings account in the sum of $5,661.82, which represented his share of the business.

Kim testified that in 1977, Kim and his partner, Mumford, bought two parcels of property on Kedzie Avenue in Chicago.¹ The titles to the properties were not held in the name of Colonial, but individually, by Kim and Mumford. The down payments and mortgages for these properties, $17,500 and $100,000, respectively, were paid out of Colonial's retained earnings account. At the end of the year, these payments, made on behalf of Kim and Mumford, were reflected on Colonial's books as distributions to Kim and Mumford in their respective ownership percentages. In addition to the Kedzie properties, between 1974 and 1978 Kim and Mumford bought real estate in Kentucky and on Cermak Road in Chicago. They also formed the following companies or business interests: Aggressive Leasing, Emergency Demolition Contractors, Appalachian Hardwood Products, and a saw mill.

Kim testified that in 1976 Kim and Mumford formed a partnership, Aggressive Leasing, for the purpose of maintaining and leasing heavy equipment. In 1978 Kim and Mumford formed a Missouri corporation, CBC Bricks, Inc., for the purpose of reselling used brick, demolishing and developing real estate, and selling off the assets. Kim and Mumford owned CBC Bricks equally. In 1978 Kim and Mumford ended their business relationship, and as part of their separation agreement Kim received, among other things, 100% of the CBC Bricks stock.

The trial court admitted into evidence the June 1978 agreement that dissolved all business interests between Kim and Mumford. Kim testified that the agreement provided that Kim was to receive both Kedzie properties, a partnership interest in Aggressive Leasing, and a percentage interest in Emergency Demolition Contractors. Deeds to the Kedzie properties were placed in a land trust with Kim as sole beneficiary, agent, and nominee of the trust. Between 1974 and 1978, Sandra and Kim paid tax on income distributions received from Colonial.

Kim testified that in June 1978 he incorporated a new company, Bricks, Inc., a subchapter S corporation. Bricks received the assets from Colonial when Kim and Mumford dissolved their business interests. Bricks continued to make the mortgage payments on the two Kedzie properties.

Kim stated in an affidavit that in 1978 he and Mumford, each as individuals (Kim, d/b/a Schmitt Farms), bought 160 acres in Sublette, Illinois (Schmitt Farms). Colonial paid the down payment for the property in the percentages of ownership held by Kim and Mumford (i.e., 49% and 51% respectively). Subsequently, Mumford withdrew from the contract, and Kim's parents were substituted and given a one-third interest with Kim retaining a two-thirds interest. Kim stated that his interest was paid for by Bricks, through a joint checking account held in the parties' names. Kim's parents gave Sandra a check for their portion. Sandra consolidated the mortgage payments, issuing checks from Sandra and Kim's joint checking account from 1979 through 1989. Sandra submitted copies of cancelled checks showing that she paid the mortgage payments on Schmitt Farms from the parties' joint checking account for the subject period. Sandra testified that the payments were made using funds from Bricks, which Kim deposited into the joint checking account. Kim stated in his affidavit that he subsequently bought an additional 80 acres, for $1,100 an acre. Bricks paid the down payment and the mortgage payments for the additional 80 acres. Title to the additional 80 acres was held in the land trust of which Kim was the sole beneficiary. In 2003 Kim sold to his mother his entire interest in Schmitt Farms for approximately $160,000. Kim testified that Bricks had no interest in Schmitt Farms.

In 1980 the parties bought a home in Woodstock, Illinois, for $160,000 to $170,000, with the title held jointly by the parties. It was sold in 1988 for $258,000. In 1982 the parties bought a home in Batavia, Illinois, for $210,000. The family continued to live in the Woodstock home until extensive renovations were completed at the Batavia home in 1988. The mortgage for the Woodstock home was paid by Bricks until 1988, and title was held by Bricks. Sandra testified that the mortgage payments were paid from the parties' joint checking account, using funds that Kim received from Bricks. According to Sandra, in 1992 Kim told her that he would pay the mortgage from that point forward using Bricks' funds only.

Kim also testified that in December 1986 he bought 22.3 acres of land in Geneva, Illinois, for $188,887. The price was paid in full in February 1989. The Geneva land was titled in Kim's name, solely. Kim testified that the payment was charged against his capital account and that he assumed that Bricks paid for the land, but he was unsure if the payment was charged against him personally at year end, against his retained earnings account. Then Kim testified that he did not know how the purchase was addressed on Bricks' accounting books. The Geneva land was subdivided into 60 lots, and homes were built on them by CBC Bricks, the Missouri corporation completely assigned to Kim in 1978 when he and Mumford ended their business relationship.

An affidavit submitted by Kim stated that in the 1980s he bought 289 acres of land in Pontiac, Illinois, for $400,000. Kim testified that the funds used to buy this property came from the Bricks operating checking account. He also testified that he had no idea if the funds were charged against his retained earnings account. Title to the property was held by a land trust in which Kim was the sole beneficial interest holder. Bricks made all of the mortgage payments on the property and satisfied the mortgage prior to its sale in 2004, for $604,548.

Kim's affidavit also stated that in the 1980s Kim bought 149 acres of land on Randall and Orchard Roads in Batavia, Illinois, directly west of Mooseheart, for approximately $400,000. Title to the property was held by a land trust in which Kim held sole beneficial interest. The down payment and all mortgage payments were made by Bricks. Kim did not know if these payments were "adjusted" as charges against his retained earnings account.

Kim's affidavit stated that in the early 1990s he purchased 50 acres of land at Interstate 88 and Orchard Road in Batavia, Illinois, for $1 million. The mortgage payments were paid by Bricks, and title to the property was held by a land trust in which Kim was the sole beneficial interest holder. This property has been cross-collateralized with a business loan. However, only interest, not principal, on the note has been paid. Kim did not know if these payments were adjusted to charge his retained earnings account.

Kim testified that in the mid- to late-1990s he bought property on LaSalle Street in Aurora, Illinois. Kim testified that he bought other real estate in Aurora at the same time he bought the LaSalle properties. This constituted a "bulk deal" for a $60,000 payment.² Bricks paid for the property; the titles were held in Kim's land trust, which named him as sole beneficiary, agent, and nominee. Bricks used the property as an extension of its business but did not pay rent to the trust or to Kim. Kim testified that he did not know...