TRANSMUTATION OF MARITAL AND NON-MARITAL PROPERTY
One of the main issues besides child custody, child support, and maintenance/spousal support that divorcing couples often face during the divorce proceeding is the division of property. There are two types of property: marital and non-marital. In the state of Illinois there is a presumption that the property acquired during the marriage is marital (see our article on division of property for more details). Typically, non-marital property is not divided in a divorce. However, if non-marital property is “comingled” with marital property, it may be considered martial property and therefore will be considered for division among the parties as part of the divorce.
The process of commingling marital property with non-marital property is called transmutation. Section 503(c)(1) of the Illinois Marriage and Dissolution of Act states that “when marital and non-marital property are commingled by contributing one estate of property into another resulting in a loss of identity of the contributed property, the classification of the contributed property is transmuted to the estate receiving the contribution.” Therefore, non-marital property becomes marital. Under the Illinois statute, transmutation occurs if two elements are satisfied: (1) marital and non-marital assets have been commingled; and (2) the commingling resulted in a loss of identity between the marital and non-marital property. The second element, loss of identity between the marital and non-marital property, is the most challenging one for parties to prove because once the property is mixed there is a presumption that the owner of the non-marital property intended to make a gift of the property to the marital estate. However, this presumption can be rebutted/overcome. Simply tracing funds from non-marital into marital account is not enough to prove transmutation. Illinois courts have been applying the Conduit Rule when determining where transmutation occurred. Under this rule, non-marital funds transferred into the marital account which is merely used as conduit through which the non-marital funds flows, does not lose its identity and, therefore, no transmutation occurs. One of the factors the courts consider when applying the Conduit rule is the length of time non-marital and marital funds have been comingled. The longer the period of time during which marital and non-marital funds were mixed, the more likely the court to find that the non-marital funds were not merely flowing through but rather were gifted to the marital account and therefore, transmutation occurred.
Another factor that the court will consider when making a determination whether transmutation has occurred is the amount of money that was mixed. If a large sum of marital funds is mixed with a smaller sum of non-marital funds, the court will more likely find that transmutation occurred and non-marital property became marital property. Finally, the court will also look at whether a party intended to gift non-marital property to the marital estate. Shall the court determine that such donative intent existed, it will find that transmutation occurred. Although transmutation cases are not as black and white as they may seem to be, these are the basic factors that Illinois courts consider in determining whether transmutation occurred.
The information on this site is not legal advice. Retain an attorney licensed in the state which has jurisdiction over your matter before taking any action which affects your legal issues, legal marital status or custody arrangements, and follow the advice of your retained lawyer.