Buyer Beware: Are You Making It Marital?

Now more than ever, couples live together and share finances before marriage as a means of testing the waters of their relationship prior to making a permanent commitment. Some couples even purchase homes prior to their marriage. In some instances, one party purchases the home, titling it in his or her own name and paying for the home with his or her separate funds. In doing so, the party may believe that the property will remain separate non-marital property in the event of divorce. However, in some jurisdictions, including Illinois, unbeknownst to the purchaser, he or she may be invoking a major exception to the general rule that property one acquires before marriage is “non-marital” property.

Classification of Property By Statute

Section 503 of the Illinois Marriage and Dissolution of Marriage Act (IMDMA) creates two classifications of property ' marital and non-marital. Divorce courts in Illinois are charged with responsibility for equitably dividing marital property, but only after first classifying the property as marital or non-marital. While marital property is equitably divided between the parties by the court based upon a series of factors, each party solely retains his or her own non-marital property.

The general rule in Illinois is that property acquired before marriage is non-marital property. Under ' 503(a) of the IMDMA, “marital property” includes “all property acquired by either spouse subsequent to the marriage.” This rule is similar to most jurisdictions with a dual-property classification system. Non-marital property is defined by Section 503(a) to include that “acquired before the marriage.” See also 750 ILCS 5/503(b)(1), which provides “All property acquired by either spouse after the marriage and before a Judgment for Dissolution of Marriage or Declaration of Invalidity of Marriage, including non-marital property transferred into some form of co-ownership between the spouses, is presumed to be marital property.”

An exception to the general rule occurs when property is purchased before the marriage, but is done so “in contemplation” of the marriage; such property is deemed marital property. That exception is generally limited to the acquisition of homes bought in anticipation of marriage.

The exception that homes purchased in contemplation of the marriage are marital property was first introduced in In re Marriage of Stallings, 75 Ill. App. 3d 96 (5th Dist.1979). In Stallings, the court found the parties' residence to be marital property when the parties purchased the home jointly as tenants in common two months prior to their marriage. The Stallings court held that the IMDMA did not arbitrarily categorize all property acquired prior to marriage as non-marital. Rather, the court believed that ' 503 was intended to protect property purchased by one spouse prior to marriage entirely with his or her own funds. That was not the case in Stallings because the home was purchased both with funds from the wife and borrowed funds which were later paid with marital property. Id.

Jurisdictions other than Illinois have accepted the purchase in contemplation of marriage doctrine. For example, The Stallings court referenced a Colorado Appellate Court decision finding that a family residence was marital property when it was purchased prior to, but in contemplation of, the marriage. The court noted that when Illinois enacts a statute that has been adopted in other states and which has been construed by the courts of those states, Illinois courts may find guidance in those constructions. Id. at 99.

Missouri and New Jersey appellate courts have also held that residences acquired in contemplation of marriage can be treated as marital property. Similarly, jurisdictions such as New York and Florida have found residences to be marital property where one party purchased the residence and made a “gift” to the other party by titling the residence in both parties' names before the marriage.

Not surprisingly, litigants have challenged the validity of the “purchase in contemplation of marriage” exception. For example, in In re Marriage of Jacks, 200 Ill. App. 3d 112 (2nd Dist. 1990), the court rejected the husband's argument that the purchase in contemplation of marriage doctrine created a “third class” of property in Illinois (the other two being “marital” and “non-marital”). The court stated that the doctrine simply takes into account the parties' intent in purchasing the asset when classifying it as marital or non-marital property. Id. at 117. The Jacks court further noted that when the legislature amended ' 503 in 1983, it presumably was aware of the court's decisions in cases such as Stallings , yet it did not amend ' 503 to eliminate the purchase in contemplation of marriage doctrine. Id.' at 117-18.

Standard: Totality of the Circumstances

Subsequent Illinois cases expanded the exception identified in Stallings and defined the factors courts are to consider. When deciding whether property was acquired in contemplation of the marriage, the court examines the totality of the circumstances to discover the parties' intent. In re Marriage of Olbrecht, 232 Ill.App.3d 358, 363-64 (1st Dist. 1992). The court may consider the following factors:

• The amount of time between acquisition of the property and the marriage;
• Whether equity in the property was acquired with marital funds;
• Evidence that the parties intended the property to serve as the marital home;
• Whether the parties' names appear on the offer sheet;
• The identity of the person that signed the contract; and
• The manner in which title is held (although title is not determinative and may be of no consequence in a given case). Id .

Further, courts have also considered whether or not parties were engaged or living together when the home was purchased; if they went to see the residence together; who located the residence; and whether marital funds were used to make mortgage payments.

A recent case, In re Marriage of Weisman, 2011 IL App (1st) 101856, illustrates the wide range of factors courts consider when determining whether a home was purchased in contemplation of the marriage. In Weisman, the land upon which the residence was built was purchased four months prior to the marriage, and the home was purchased three months before the marriage. The home was purchased with $1.272 million of the husband's non-marital funds and $530,000 from a loan taken out during the marriage and paid with marital funds. The appellate court determined that the home was purchased in contemplation of the marriage and reversed the circuit court's finding that the residence was non-marital property. In making its ruling, the court considered several factors:

• Both parties testified that they bought the home to be a marital residence where they could live with their children, and the husband testified that his engagement to his wife accelerated the need to obtain a new residence.
• Prior to purchasing the house, both parties had been looking for houses and visited the subject property.
• The wife made changes to the design of the home to accommodate the parties' respective children from prior relationships.
• The parties were already engaged when they began looking for a house.
• The home was purchased only three months prior to their marriage.
• The husband was paying the wife's rent at her prior residence at the time of the purchase.
• The wife moved to the husband's home upon the expiration of her lease while the subject property was being constructed. Id., '27.

The Character of the Funds Used to Acquire the Residence

Generally, the source of the funds used to acquire an asset in Illinois will control in determining the character of the property. However, courts that have considered the contemplation of marriage doctrine have given mixed weight to the nature of the funds used to purchase the residence. For example, in In re Marriage of Phillips, 200 Ill. App. 3d 395 (1st Dist. 1990), the court deemed the residence non-marital when the property was purchased two weeks prior to the marriage and the husband purchased the property entirely with his non-marital cash, without the assistance of a loan. The court found the property to be non-marital even though during the marriage the husband assigned the beneficial interest to himself and his wife as joint tenants (although the husband retained power of direction and the parties located the property together). Id. at 401.

The Phillips court characterized the purchase in contemplation of marriage doctrine as applying to instances where the parties use “common finances” to purchase a home or to pay down the debt on the home. Id.

It is important to note, however, that the down payment need not be from marital funds in order for the court to find that a home was purchased in contemplation of the marriage. For example, in Weisman , the entire down payment, which represented the majority of the equity in the home, was made with the husband's non-marital funds. However, since a portion of the home was paid for with a mortgage acquired during the marriage ' the interest payments for which were paid with marital funds ' the court determined that the home was “not purchased solely with marital funds.” In re Marriage of Weisman, 2011 IL App (1st) 101856, '24.

Reimbursement and Contribution to the Non-Marital Estate

A finding that a home was not purchased in contemplation of the marriage does not preclude the marital estate from being reimbursed from the non-marital estate. For example, in In re Marriage of Leisner, 219 Ill. App. 3d 752 (1st Dist. 1991), the appellate court directed the circuit court on remand to determine whether the marital estate should be reimbursed because marital assets were used to pay the mortgage and for improvements to the residence, which the court found to be the husband's non-marital property. Id. at 763.

Similarly, in Weisman, where the marital residence had been purchased with $1.272 million of the husband's non-marital property, the court found that to the extent the husband's contribution to the acquisition of the home was disproportionate to that made by the wife, that is a factor the court may consider in dividing the marital property under ' 503(d)(1) of the IMDMA or determining whether the husband may be entitled to reimbursement under ' 503(c)(2). Weisman, 2011 IL. App (1st) 101856, '30.

Burden of Proof and Appeal

The burden of proof rests with the party seeking to have the property classified as marital because it was purchased in contemplation of marriage. In re Marriage of Reeser, 97 Ill.App.3d 838, 840 (4th Dist. 1981). On appeal, the court's determination of whether the home was purchased in contemplation of the marriage will only be disturbed if the classification is against the manifest weight of the evidence. A decision is considered against the manifest weight of the evidence only where the opposite conclusion is clearly evident or if the finding itself is unreasonable, arbitrary or not based on the evidence presented. Weisman, 2011 IL. App (1st) 101856, '20.

Conclusion

A finding that a home was purchased in contemplation of the marriage can drastically affect parties' property rights and the bottom line in divorce cases. One seeking to ensure that a residence is characterized as non-marital property must enter into a Premarital Agreement to effectively protect the parties' intent concerning the property. If there is no Premarital Agreement, it is still important to memorialize in writing the parties' intent and retain those documents. Even text messages, e-mails, and other communications, including those between the parties and real estate brokers, should be retained because they may evidence the parties' intent. Failure to document the transaction adequately may invoke the purchase in contemplation of marriage exception, and lead to potentially costly unintended consequences.

Eric Schulman, a member of this newsletter's Board of Editors, is a partner in Chicago's Schiller DuCanto & Fleck LLP. He can be reached at [email protected]. Joshua Jackson is an associate at the firm and can be reached at [email protected].

Now more than ever, couples live together and share finances before marriage as a means of testing the waters of their relationship prior to making a permanent commitment. Some couples even purchase homes prior to their marriage. In some instances, one party purchases the home, titling it in his or her own name and paying for the home with his or her separate funds. In doing so, the party may believe that the property will remain separate non-marital property in the event of divorce. However, in some jurisdictions, including Illinois, unbeknownst to the purchaser, he or she may be invoking a major exception to the general rule that property one acquires before marriage is “non-marital” property.

Classification of Property By Statute

Section 503 of the Illinois Marriage and Dissolution of Marriage Act (IMDMA) creates two classifications of property ' marital and non-marital. Divorce courts in Illinois are charged with responsibility for equitably dividing marital property, but only after first classifying the property as marital or non-marital. While marital property is equitably divided between the parties by the court based upon a series of factors, each party solely retains his or her own non-marital property.

The general rule in Illinois is that property acquired before marriage is non-marital property. Under ' 503(a) of the IMDMA, “marital property” includes “all property acquired by either spouse subsequent to the marriage.” This rule is similar to most jurisdictions with a dual-property classification system. Non-marital property is defined by Section 503(a) to include that “acquired before the marriage.” See also 750 ILCS 5/503(b)(1), which provides “All property acquired by either spouse after the marriage and before a Judgment for Dissolution of Marriage or Declaration of Invalidity of Marriage, including non-marital property transferred into some form of co-ownership between the spouses, is presumed to be marital property.”

An exception to the general rule occurs when property is purchased before the marriage, but is done so “in contemplation” of the marriage; such property is deemed marital property. That exception is generally limited to the acquisition of homes bought in anticipation of marriage.

The exception that homes purchased in contemplation of the marriage are marital property was first introduced in In re Marriage of Stallings, 75 Ill. App. 3d 96 (5th Dist.1979). In Stallings, the court found the parties' residence to be marital property when the parties purchased the home jointly as tenants in common two months prior to their marriage. The Stallings court held that the IMDMA did not arbitrarily categorize all property acquired prior to marriage as non-marital. Rather, the court believed that ' 503 was intended to protect property purchased by one spouse prior to marriage entirely with his or her own funds. That was not the case in Stallings because the home was purchased both with funds from the wife and borrowed funds which were later paid with marital property. Id.

Jurisdictions other than Illinois have accepted the purchase in contemplation of marriage doctrine. For example, The Stallings court referenced a Colorado Appellate Court decision finding that a family residence was marital property when it was purchased prior to, but in contemplation of, the marriage. The court noted that when Illinois enacts a statute that has been adopted in other states and which has been construed by the courts of those states, Illinois courts may find guidance in those constructions. Id. at 99.

Missouri and New Jersey appellate courts have also held that residences acquired in contemplation of marriage can be treated as marital property. Similarly, jurisdictions such as New York and Florida have found residences to be marital property where one party purchased the residence and made a “gift” to the other party by titling the residence in both parties' names before the marriage.

Not surprisingly, litigants have challenged the validity of the “purchase in contemplation of marriage” exception. For example, in In re Marriage of Jacks, 200 Ill. App. 3d 112 (2nd Dist. 1990), the court rejected the husband's argument that the purchase in contemplation of marriage doctrine created a “third class” of property in Illinois (the other two being “marital” and “non-marital”). The court stated that the doctrine simply takes into account the parties' intent in purchasing the asset when classifying it as marital or non-marital property. Id. at 117. The Jacks court further noted that when the legislature amended ' 503 in 1983, it presumably was aware of the court's decisions in cases such as Stallings , yet it did not amend ' 503 to eliminate the purchase in contemplation of marriage doctrine. Id.' at 117-18.

Standard: Totality of the Circumstances

Subsequent Illinois cases expanded the exception identified in Stallings and defined the factors courts are to consider. When deciding whether property was acquired in contemplation of the marriage, the court examines the totality of the circumstances to discover the parties' intent. In re Marriage of Olbrecht, 232 Ill.App.3d 358, 363-64 (1st Dist. 1992). The court may consider the following factors:

• The amount of time between acquisition of the property and the marriage;
• Whether equity in the property was acquired with marital funds;
• Evidence that the parties intended the property to serve as the marital home;
• Whether the parties' names appear on the offer sheet;
• The identity of the person that signed the contract; and
• The manner in which title is held (although title is not determinative and may be of no consequence in a given case). Id .

Further, courts have also considered whether or not parties were engaged or living together when the home was purchased; if they went to see the residence together; who located the residence; and whether marital funds were used to make mortgage payments.

A recent case, In re Marriage of Weisman, 2011 IL App (1st) 101856, illustrates the wide range of factors courts consider when determining whether a home was purchased in contemplation of the marriage. In Weisman, the land upon which the residence was built was purchased four months prior to the marriage, and the home was purchased three months before the marriage. The home was purchased with $1.272 million of the husband's non-marital funds and $530,000 from a loan taken out during the marriage and paid with marital funds. The appellate court determined that the home was purchased in contemplation of the marriage and reversed the circuit court's finding that the residence was non-marital property. In making its ruling, the court considered several factors:

• Both parties testified that they bought the home to be a marital residence where they could live with their children, and the husband testified that his engagement to his wife accelerated the need to obtain a new residence.
• Prior to purchasing the house, both parties had been looking for houses and visited the subject property.
• The wife made changes to the design of the home to accommodate the parties' respective children from prior relationships.
• The parties were already engaged when they began looking for a house.
• The home was purchased only three months prior to their marriage.
• The husband was paying the wife's rent at her prior residence at the time of the purchase.
• The wife moved to the husband's home upon the expiration of her lease while the subject property was being constructed. Id., '27.

The Character of the Funds Used to Acquire the Residence

Generally, the source of the funds used to acquire an asset in Illinois will control in determining the character of the property. However, courts that have considered the contemplation of marriage doctrine have given mixed weight to the nature of the funds used to purchase the residence. For example, in In re Marriage of Phillips, 200 Ill. App. 3d 395 (1st Dist. 1990), the court deemed the residence non-marital when the property was purchased two weeks prior to the marriage and the husband purchased the property entirely with his non-marital cash, without the assistance of a loan. The court found the property to be non-marital even though during the marriage the husband assigned the beneficial interest to himself and his wife as joint tenants (although the husband retained power of direction and the parties located the property together). Id. at 401.

The Phillips court characterized the purchase in contemplation of marriage doctrine as applying to instances where the parties use “common finances” to purchase a home or to pay down the debt on the home. Id.

It is important to note, however, that the down payment need not be from marital funds in order for the court to find that a home was purchased in contemplation of the marriage. For example, in Weisman , the entire down payment, which represented the majority of the equity in the home, was made with the husband's non-marital funds. However, since a portion of the home was paid for with a mortgage acquired during the marriage ' the interest payments for which were paid with marital funds ' the court determined that the home was “not purchased solely with marital funds.” In re Marriage of Weisman, 2011 IL App (1st) 101856, '24.

Reimbursement and Contribution to the Non-Marital Estate

A finding that a home was not purchased in contemplation of the marriage does not preclude the marital estate from being reimbursed from the non-marital estate. For example, in In re Marriage of Leisner, 219 Ill. App. 3d 752 (1st Dist. 1991), the appellate court directed the circuit court on remand to determine whether the marital estate should be reimbursed because marital assets were used to pay the mortgage and for improvements to the residence, which the court found to be the husband's non-marital property. Id. at 763.

Similarly, in Weisman, where the marital residence had been purchased with $1.272 million of the husband's non-marital property, the court found that to the extent the husband's contribution to the acquisition of the home was disproportionate to that made by the wife, that is a factor the court may consider in dividing the marital property under ' 503(d)(1) of the IMDMA or determining whether the husband may be entitled to reimbursement under ' 503(c)(2). Weisman, 2011 IL. App (1st) 101856, '30.

Burden of Proof and Appeal

The burden of proof rests with the party seeking to have the property classified as marital because it was purchased in contemplation of marriage. In re Marriage of Reeser, 97 Ill.App.3d 838, 840 (4th Dist. 1981). On appeal, the court's determination of whether the home was purchased in contemplation of the marriage will only be disturbed if the classification is against the manifest weight of the evidence. A decision is considered against the manifest weight of the evidence only where the opposite conclusion is clearly evident or if the finding itself is unreasonable, arbitrary or not based on the evidence presented. Weisman, 2011 IL. App (1st) 101856, '20.

Conclusion

A finding that a home was purchased in contemplation of the marriage can drastically affect parties' property rights and the bottom line in divorce cases. One seeking to ensure that a residence is characterized as non-marital property must enter into a Premarital Agreement to effectively protect the parties' intent concerning the property. If there is no Premarital Agreement, it is still important to memorialize in writing the parties' intent and retain those documents. Even text messages, e-mails, and other communications, including those between the parties and real estate brokers, should be retained because they may evidence the parties' intent. Failure to document the transaction adequately may invoke the purchase in contemplation of marriage exception, and lead to potentially costly unintended consequences.

Eric Schulman, a member of this newsletter's Board of Editors, is a partner in Chicago's Schiller DuCanto & Fleck LLP. He can be reached at [email protected]. Joshua Jackson is an associate at the firm and can be reached at [email protected].