Marriage of Davis, In re, 1-88-2302

• Decision Date: 14 May 1991
• Docket Number: No. 1-88-2302,1-88-2302
• Citation: 215 Ill.App.3d 763,576 N.E.2d 44
• Parties: , 159 Ill.Dec. 375 In re MARRIAGE OF Diane Marie DAVIS, Petitioner-Appellee and Cross-Appellant, and James Nathaniel Davis, Jr., Respondent-Appellant and Cross-Appellee.
• Court: United States Appellate Court of Illinois

Page 44

576 N.E.2d 44

215 Ill.App.3d 763, 159 Ill.Dec. 375

In re MARRIAGE OF Diane Marie DAVIS, Petitioner-Appellee and Cross-Appellant and James Nathaniel Davis, Jr., Respondent-Appellant and Cross-Appellee.

No. 1-88-2302.

Appellate Court of Illinois First District, Second Division.

May 14, 1991.

Rehearing Denied July 11, 1991.

Pedersen & Houpt, Chicago, (Marc D. Janser, Marilee Roberg, of counsel), for respondent-appellant and cross-appellee.

Schiller, DuCanto and Flect, Ltd., Chicago, (Donald C. Schiller, Sarane C. Siewerth, of counsel), for petitioner-appellee and cross-appellant.

Justice DiVITO delivered the opinion of the court:

Following a nine-day trial, the circuit court granted the dissolution of the marriage of petitioner Diane Davis (Diane) and respondent J. Nathaniel Davis, Jr. (Nat). Nat appeals and Diane cross-appeals from that portion of the judgment which classified and distributed their property. The issues presented are whether the circuit court properly (1) classified securities held in a Merrill Lynch account as marital property; (2) determined that Nat failed to provide clear and convincing evidence of tracing to support his claim of reimbursement for contributions to the marital estate from his non-marital estate; (3) classified their residence as Diane's non-marital property; (4) classified Nat's profit sharing plan as marital property; (5) divided the property equally between the parties; and (6) determined that Nat had not dissipated marital assets.

Diane and Nat were married on November 1, 1968. They had two children who were adolescents at the time of the dissolution which occurred on June 2, 1988. From 1969, the family resided at 150 Oxford Road in Kenilworth, Illinois. During their marriage, Diane managed the home and cared for their children and, during periods of visitation, for Nat's children from a prior marriage. A college graduate, Diane sometimes tutored French on a part-time basis. Before and during their marriage, Nat was employed as the president of the J.N. Davis Co., a family-owned insurance company. He received $40,000 per year, a car, and an expense account; however, most of his income was derived from bonuses and dividends.

In 1981, Nat inherited cash, stocks, and bonds totalling $143,629.56 from his mother. He used these inheritances to establish account number 626-10002, A Merrill Lynch cash management account (10002 account). In 1982, Nat inherited additional assets from his father, including cash, bonds, a money market fund, a half interest in a Florida condominium, 1,250 shares of J.N. Davis Co. stock, and stock in Washington National. $241,461.88 in stocks, bonds, and other securities and $153,000 in cash from his father's money market account were deposited into the 10002 account.

On February 28, 1986, the J.N. Davis Co. underwent a reorganization in which shares of its stock were exchanged for shares in Harcourt Brace & Janovich Co. (Harcourt Brace). On July 3, 1986, Nat sold all of his Harcourt Brace stock, receiving $1,870,561.30 in exchange for his inherited stock and $448,934.66 in exchange for the stock he had purchased during the marriage. On that very day, Nat deposited these proceeds in the 10002 account, but immediately electronically transferred $448,934.66 to a separate account.

The circuit court ordered dissolution of the marriage and entered final judgment on June 2, 1988. The court ordered the parties to carry out a joint parenting agreement which it had approved on September 30, 1986. Nat appeals from that portion of the judgment which classified the Merrill Lynch 10002 account as marital property; classified their residence as Diane's non-marital property; classified his IRA rollover account as 2/3 non-marital and 1/3 marital; and apportioned their marital property equally. Diane cross-appeals from the circuit court's finding that Nat did not dissipate marital assets.

I

Nat first maintains that the circuit court erred when it determined the 10002 account was marital property. He contends that, because the 10002 account was created with inherited assets, it should have been classified as non-marital property pursuant to section 503(a)(1) of the Illinois Marriage and Dissolution of Marriage Act (the Act). (Ill.Rev.Stat.1987, ch. 40, par. 503(a)(1).) He then argues that, to the extent that marital property may have been contributed to the 10002 account, the contributed property was transmuted to non-marital property subject to a right of reimbursement for the marital estate. Ill.Rev.Stat.1987, ch. 40, par. 503(c)(1), (2).

Prior to distributing property upon dissolution of marriage, the court must classify it as marital or non-marital under section 503 of the Act. (Ill.Rev.Stat.1987, ch. 40, par. 503.) Normally, property acquired by either spouse after the marriage but prior to judgment of dissolution is presumed to be marital property regardless of how title is held. (Ill.Rev.Stat.1987, ch. 40, par. 503(b).) Property obtained by gift, legacy, or descent, or in exchange for property acquired by gift, legacy, or descent, however, is excepted from marital property and is classified as non-marital property. (Ill.Rev.Stat.1987, ch. 40, pars. 503(a)(1), (2).) Therefore, as Nat contends, property received by him by virtue of inheritance from his parents fell within the exception and qualified as non-marital property.

Nat deposited portions of his inheritance, various securities, and some cash into the 10002 account. If Nat had deposited nothing into this account other than the securities and cash he had inherited from his parents or received in exchange for inherited assets, no commingling or transmutation would have taken place; the assets of the account would have remained non-marital.

Between 1981 and 1985, however, Nat deposited over $340,000 in marital funds into the 10002 account to earn higher interest until he needed to withdraw those funds to pay expenses. By virtue of the structure and operation of the 10002 account, no deposited funds were held in cash. By the end of the month, deposited funds had been used to purchase other stock, bonds, or shares in the Cash Management Account, a money market fund known as the CMA Money Fund. Thus, newly created assets came into being. Once marital and non-marital funds are commingled and lose their identity through acquisition of a newly created asset during the marriage, the asset is marital. Ill.Rev.Stat.1987, ch. 40, par. 503(c)(1); In re Marriage of Malters (1985), 133 Ill.App.3d 168, 88 Ill.Dec. 460, 478 N.E.2d 1068.

In the 10002 account, shares of the CMA Money Fund were sold to release funds to cover checks written against the account when the temporary cash holdings were insufficient. As each inherited holding was sold, the cash received was used to purchase more shares in the CMA Money Fund, and they in turn were sold to purchase new securities. Though such shares were initially non-marital property, when excess marital funds were placed in the 10002 account, additional shares of the CMA Money Fund were also purchased.

There therefore was no way to distinguish which CMA Money Fund shares were used to purchase additional stock or bonds. Nat admitted that he could not tell which particular CMA Money Fund shares were sold to buy an asset or to return cash to the joint checking account. Additionally, between July 1986 and March 1987, Nat withdrew money from the 10002 account to purchase the other half of the Florida condominium, the Northbrook townhouse, and other stock and securities. Therefore, all newly acquired property purchased with the proceeds of the sale of CMA Money Fund shares, purchased by indistinguishable marital and non-marital funds, were properly classified as marital.

With two exceptions, all the securities Nat inherited had been sold during the marriage. The two securities which had not been sold, MIT Insured Trusts and the remaining Washington National stock, were properly awarded to Nat as his non-marital property. Since no distinction could be made between the CMA Money Fund shares bought with the proceeds from the sale of inherited securities and the shares bought with marital funds, the circuit court did not err when it determined that all other securities held in the 10002 account were marital property. This is so because marital and non-marital property were "commingled into newly acquired property resulting in a loss of identity of the contributing estates." Ill.Rev.Stat.1987, ch. 40, par. 503(c)(1).

Nat nevertheless maintains that the 10002 account was a non-marital asset because the account initially consisted of inherited assets. He contends subsequent contributions of marital funds into the 10002 account were immediately transmuted into non-marital property. This argument ignores the operation of the account and the portion of section 503(c)(1) which provides that the commingling of marital and non-marital property into newly acquired property results in transmutation to marital property. Nat also asserts that the $340,000 contributed to the non-marital estate was an insignificant amount and should not have been considered a serious investment. The record reflects, however, that although the value of the 10002 account fluctuated, the value of the account prior to the 1986 deposit remained under $600,000. Therefore, $340,000 was a significant portion and contributed heavily to the account's earnings.

II

Nat alternatively contends that even if the circuit court properly characterized the 10002 account as marital, he provided clear and convincing evidence of tracing to support his claim of reimbursement for contributions made by him to the marital estate from his non-marital estate. Diane responds that, because Nat was unable to trace any contributions from his non-marital estate by clear and convincing evidence, the circuit court properly determined that he was not entitled to reimbursement.

Section 503(c)(2) of the Act provides...