Perhaps no issue is the source of greater confusion among divorce lawyers than the issue of commingled property and contribution claims. That confusion is compounded by the fact that in practice, judges have differing opinions on when a contribution claim is appropriate and when it isn’t. Thus, outcomes vary greatly from one judge to another.
It may be helpful to start by defining what a contribution claim is not. It is not an assertion that an asset is the non-marital property of one spouse or the other. Rather, a contribution claim begins with the undisputed common understanding that marital property and non-marital property have been commingled together, and we need to figure out who is entitled to what.
Marital and non-marital property are defined by statute under 750 ILCS 5/503(a). A contribution claim is essentially a claim for reimbursement. The statute sets forth the rules as follows:
“Commingled marital and non-marital property shall be treated in the following manner, unless otherwise agreed by the spouses:
(1)(A) If marital and non-marital property are commingled by one estate being contributed into the other, the following shall apply:
(i) If the contributed property loses its identity, the contributed property transmutes to the estate receiving the property, subject to the provisions of paragraph (2) of this subsection (c).
(ii) If the contributed property retains its identity, it does not transmute and remains property of the contributing estate.
(B) If marital and non-marital property are commingled into newly acquired property resulting in a loss of identity of the contributing estates, the commingled property shall be deemed transmuted to marital property, subject to the provisions of paragraph (2) of this subsection (c).
(2)(A) When one estate of property makes a contribution to another estate of property, the contributing estate shall be reimbursed from the estate receiving the contribution notwithstanding any transmutation. No such reimbursement shall be made with respect to a contribution that is not traceable by clear and convincing evidence or that was a gift. The court may provide for reimbursement out of the marital property to be divided or by imposing a lien against the non-marital property that received the contribution.”
For ease of understanding what all of that means, let’s use bank accounts as an example. Let’s assume that a husband and wife have a joint bank account that they’ve been depositing their paychecks in during the marriage. It’s also the account that they use to pay their monthly living expenses from. That account would clearly be considered marital property.
Let’s further assume that during the marriage, the wife inherits some money when her aunt passes away. Under Illinois law, inherited money is considered non-marital money. However, rather than keeping it in a separate bank account in which it could be easily identified as non-marital inheritance, let’s assume that the wife deposits the inheritance into the joint bank account. Thereafter, the husband and wife continue to deposit their paychecks into that account, and pay their bills from the account.
Since money is fungible, once some of it is spent, there would be no way of knowing at that point which dollars were spent from the inheritance, and which dollars were spent from the paychecks. This is the scenario the law speaks of when it speaks of marital and non-marital property being commingled, resulting in a loss of identity of the contributing estates. Illinois law clearly states that the money in that account, including the non-marital inheritance, becomes transmuted into marital property.
In this hypothetical, however, the wife is not totally out of luck. She can make a claim for reimbursement, commonly called a contribution claim. Under the law, in order to be successful, she would have to trace the funds remaining in the account to the inheritance, and she would have to do so by clear and convincing evidence – a higher burden of proof than is normally required.
How might that be done? Well, one way to do it would be if the inheritance increased the balance of the joint account by far more than the parties ever maintained in it. For example, if on a monthly basis the parties maintained between say $5,000 and $15,000 in the joint account, and the inheritance was $200,000, and afterwards the account balance fluctuated between $205,000 and $215,000, the wife could argue that the $200,000 had never been touched. She could argue that the funds were traceable and still on deposit in the account, and may have a legitimate claim for reimbursement. Would she be successful? That would be up to the judge.
That, however, would not be the end of the analysis. The wife would also have to prove that she did not intend the funds to be a gift to the marriage. So, for example, if she deposited the $200,000 inheritance in the joint account and sent her husband an email saying that she wanted to use the money put an addition on the marital home, then that would be evidence the husband could cite to show that she intended the funds to be a gift. Whether the funds were traceable to her inheritance or not, if the money was a gift to the marriage, she would have no right to be reimbursed for the money in a divorce case. Would a single email be enough to decide the case one way or the other? That, too, would be up to the judge.
There are numerous situations where commingling and transmutation may or may not give rise to a contribution claim. The legal analysis is extremely fact-intensive, and it’s important to hire an experienced attorney who is well-versed in the law. For more information, contact us.