Marriage of Frederick, In re

• Decision Date: 04 September 1991
• Docket Number: No. 2-90-0659,2-90-0659
• Citation: 218 Ill.App.3d 533,578 N.E.2d 612,161 Ill.Dec. 254
• Parties: , 161 Ill.Dec. 254 In re MARRIAGE OF Joseph F. FREDERICK, Jr., Petitioner-Appellee, and Joanne A. Frederick, Respondent-Appellant.
• Court: United States Appellate Court of Illinois

Page 612

578 N.E.2d 612

218 Ill.App.3d 533, 161 Ill.Dec. 254

In re MARRIAGE OF Joseph F. FREDERICK, Jr., Petitioner-Appellee and Joanne A. Frederick, Respondent-Appellant.

No. 2-90-0659.

Appellate Court of Illinois Second District.

Sept. 4, 1991.

Feiwell, Galper & Lasky, Ltd., Lawrence S. Starkopf, George S. Feiwell (argued), Lawrence S. Starkopf, William H. Hrabak, Murphy & Boyle, Ltd., Chicago, for Joanne A. Frederick.

Grund, Marcus & McNish, David I. Grund (argued), Amy L. Gertler, Chicago, for Joseph F. Frederick.

Justice NICKELS delivered the opinion of the court:

Following a hearing in the circuit court of Lake County, a judgment for dissolution of marriage was entered on October 2, 1989, whereby the marriage between petitioner, Joseph F. Frederick, and respondent, Joanne A. Frederick, was dissolved. Pursuant to respondent's motion to reconsider, the judgment was subsequently amended. Petitioner was awarded custody of the parties' minor son. The marital home with net equity of $219,000, initially awarded to petitioner, was to be sold upon the son's graduation from high school, and the net proceeds divided equally between the parties. The marital portion of petitioner's pension plan valued at $372,000 was divided equally; 5,716 shares of Hilton stock valued at $600,180 was divided 60% to respondent, 40% to petitioner. By stipulation petitioner was awarded a $17,000 thrift savings plan, and respondent received a 1988 Toyota Celica. The trial court retained jurisdiction to allocate the profits realized from the exercise at petitioner's discretion of 6,772 vested Hilton stock options and 11,000 nonvested stock options to be divided equally between the parties. Petitioner was to pay the college expenses of the parties' daughter and to pay respondent $2,500 per month in maintenance. Each party was to retain the personal property in his or her possession with the exception of certain personal property awarded to respondent. Respondent had sought to set aside a certain trust called the "Maine Trust" (Maine Trust) based upon fraud, duress or coercion and have the trust res, a house and 82 acres in Maine valued at $160,000, apportioned as marital property. The court refused to strike down the trust. Respondent raises four issues on appeal.

Petitioner, presently 56 years old, and respondent, presently 55 years old, were married in 1955. Their daughter, Joelle, was born in 1968, and their son, Joseph, III, was born in 1972. Petitioner was a senior vice-president for the Hilton Hotels in the Midwest region and had worked for the Hilton Hotels Corporation for 33 years. For nearly 17 years of the parties' marriage, the family lived in the Hilton hotels at which petitioner was assigned to work as general manager. They had available to them maid service, housekeeping, restaurants, health clubs and other hotel amenities afforded to them by Hilton. Respondent worked at part-time jobs at various times during the marriage.

In August 1987, petitioner executed certain trusts, none of which are in dispute on appeal. The property in Maine was placed in a revocable trust with petitioner as settlor and trustee on October 30, 1987. Respondent signed a letter on October 30, 1987, whereby she acknowledged that the Maine property was being conveyed to a revocable trust for the primary benefit of their two children. The letter stated that the trust would provide that upon the sale of the property during respondent's lifetime she would receive 25% of the net proceeds. Respondent further acknowledged that she had an opportunity to review the Maine Trust before signing the letter and that she acknowledged and agreed that the Maine property would not be treated as marital property under the Illinois Marriage and Dissolution of Marriage Act (Act) ( Ill.Rev.Stat.1989, ch. 40, par. 101 et seq.).

In the first issue, respondent contends that the manifest weight of the evidence proved that the waiver of her marital rights in the Maine property was the result of fraud, duress and coercion. She argues that the confidential relationship between a husband and wife required that the trial court strictly scrutinize the transaction, which it did not do. Respondent further claims that the Maine Trust was a fraud on her marital rights. (Hofmann v. Hofmann (1983), 94 Ill.2d 205, 68 Ill.Dec. 593, 446 N.E.2d 499.) We find that the manifest weight of the evidence proved that the Maine Trust was a fraud on respondent's marital rights. The facts pertinent to our decision are set forth therein.

In Johnson v. La Grange State Bank (1978), 73 Ill.2d 342, 22 Ill.Dec. 709, 383 N.E.2d 185, the supreme court stated that the owner of property had an absolute right to dispose of the property during the owner's lifetime in any manner and may do so even if the transfer was for the precise purpose of minimizing or defeating marital interests of the surviving spouse in the property. The transfer was not vulnerable to attack by the surviving spouse unless it was a sham and was "colorable" or "illusory" and tantamount to a fraud. The court noted that a fraud on the marital rights of the surviving spouse was not fraud in the traditional sense. "Intent to defraud" must be construed in connection with the words "illusory" and "colorable."

The Johnson court examined the trust created and found that, while the settlor retained a significant degree of control over the trust assets as trustee of a revocable trust, the form of control which the donor retained did not make the trust invalid. (Johnson, 73 Ill.2d at 363, 22 Ill.Dec. 709, 383 N.E.2d 185.) The trust was not inoperable because the settlor had the power to revoke and retained a life interest in the trust property. However, Johnson went on to provide that the facts of a particular case may show the trust in question, while ostensibly valid, is in actuality a sham transaction. Johnson, 73 Ill.2d at 364, 22 Ill.Dec. 709, 383 N.E.2d 185.

Relying on Johnson and other cases, the supreme court found that fraud against marital property was not to be condoned even though it occurred before dissolution. (Hofmann v. Hofmann (1983), 94 Ill.2d 205, 68 Ill.Dec. 593, 446 N.E.2d 499; In re Marriage of Glessner (1983), 119 Ill.App.3d 306, 74 Ill.Dec. 809, 456 N.E.2d 311.) When the characterization of a transfer of marital assets is questioned by a spouse, fraud is properly assessed by referring to the donative intent of the settlor. (In re Marriage of Pahlke (1987), 154 Ill.App.3d 256, 107 Ill.Dec. 407, 507 N.E.2d 71.) An illusory transfer is one which takes back all that it gives, and a colorable transfer is one which appears absolute on its face, but due to some secret or tacit understanding between the transferee and the transferor, it is not a transfer because the parties intended ownership be retained by the transferor. (Glessner, 119 Ill.App.3d at 315, 74 Ill.Dec. 809, 456 N.E.2d 311.) Whether the conveyance at issue was fraudulent depends upon all the circumstances surrounding the transfer. (In re Marriage of Shehade (1985), 137 Ill.App.3d 692, 92 Ill.Dec. 398, 484 N.E.2d 1253.) A fraud must be proven by clear and convincing evidence. (Hofmann, 94 Ill.2d at 222, 68 Ill.Dec. 593, 446 N.E.2d 499.) A trial court's determination in this regard will be set aside only if it is against the manifest weight of the evidence. Shehade, 137 Ill.App.3d at 701, 92 Ill.Dec. 398, 484 N.E.2d 1253.

Respondent relies upon the fact that petitioner had the power to revoke, terminate, amend or modify the trust at anytime and had use of the property as long as he wanted to show the illusory nature of the transfer. However, under Johnson v. La Grange State Bank (1978), 73 Ill.2d 342, 22 Ill.Dec. 709, 383 N.E.2d 185, these features do not necessarily render the trust inoperative. The facts surrounding the transfer show that the trust, while ostensibly valid, is in actuality a sham transaction to defraud respondent's marital rights. See Hofmann, 94 Ill.2d 205, 68 Ill.Dec. 593, 446 N.E.2d 499; Johnson, 73 Ill.2d 342, 22 Ill.Dec. 709, 383 N.E.2d 185.

Petitioner testified that he and respondent discussed their estate planning and the Maine property from early in 1987. Respondent denied this fact. The trial court as the trier of fact is in the superior position to determine the credibility of the witnesses, to weigh the evidence and to determine the preponderance thereof especially where the testimony is contradictory. (In re Marriage of Dwan (1982), 108 Ill.App.3d 808, 64 Ill.Dec. 340, 439 N.E.2d 1005.) However, other evidence also showed that only petitioner went to see John Buttita, of the law firm Altheimer and Gray, who drafted the various trust documents. Petitioner made all the arrangements for the distribution of the parties' assets, insurance, etc., and respondent had no direct input into the arrangements.

Under the initial trusts and petitioner's will executed on August 27, 1987, the Maine property, as an asset of petitioner's estate, would have poured into trusts set up for respondent and the children. Respondent would have had an interest in the Maine property. The Maine Trust set up in October 1987 removed that property from the will so that respondent would no longer have received any part of it. Respondent testified that he changed the manner in which the Maine property was handled because he wanted to be certain his children would receive it. He was concerned about his children's interest in this regard because of conduct by respondent toward the children in the early-to-mid 1980s and her alcohol abuse. The evidence indicated, however, that petitioner was aware of these facts in August 1987, when he first provided for the Maine property.

Buttita testified that there were other ways to provide the children with the Maine property upon petitioner's death without respondent losing her marital rights in the property. He said that he did not recall discussing these with petitioner although he also stated that he and peti...