Commingling Marital and Non-Marital Property in Illinois: Reimbursement Rights of Mortgage payments and Other Debts

Illinois law divides property as either marital or non-marital property. 750 ILCS 5/503(a). Both marital and non-marital property are treated in different manners by the courts. The courts typically include "property acquired by gift, legacy, or descent" and "property acquired before the marriage" as non-marital property. 750 ILCS 5/503(a)(1) and (a)(6). The courts will then assign each spouse their non-marital property and distribute the marital property "in just proportions considering all relevant factors, including [delineated factors omitted]". 750 ILCS 5/503(d). So, what happens if marital funds are contributed to the mortgage of a non-marital home?

The courts consider this instance a commingling of non-marital and marital property. Section 5/503(c)(1) of the Illinois Marriage and Dissolution of Marriage Act provides 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 contribution, subject to the provisions of paragraph (2) of this subsection …" 750 ILCS 5/503(c)(1). The act goes on to state "… the contributing estate shall be reimbursed from the other estate receiving the contribution notwithstanding any transmutation; provided, [1] that no such reimbursement shall be made with respect to a contribution which is not retraceable by clear and convincing evidence, or [2] was a gift, or, [3] in the case of a contribution of personal effort of a spouse to non-marital property, unless the effort is significant and results in substantial appreciation of the non-marital property. Personal effort of a spouse shall be deemed a contribution by the marital estate. 750 ILCS 5/503(c)(2). In the instance where the parties use marital funds to pay the mortgage of a non-marital property, the case of In re the Marriage of Leisner, 219 Ill. App.3d 752, 763, (1st. Dist. 1991) provides that "non-marital property is not transmuted into marital property merely as the result of the use of marital funds to reduce the indebtedness on the property". 

We will first look at the instance in which marital funds are being used to pay the mortgage of a non-marital property that is used as the marital residence. The case of In re Marriage of Snow, 277 Ill. App. 3d 642, 646 (4th. Dist. 1996) describes this scenario. In this case, the parties lived in the home in which the husband purchased before the marriage. Here, the wife had established the right to reimbursement from husband’s nonmarital estate in the amount of nonmarital funds she contributed to that estate. Id. at 649. The court in this instance found that “[a]lthough the marital estate contributed $25,000 to petitioner’s nonmarital estate through the payment of the mortgage on petitioner’s nonmarital residence, there was no evidence how much of the contribution went to principal payments and how much went to interest payments. Generally, there is no right to reimbursement for interest payments. Furthermore, the marital estate would not be entitled to reimbursement for mortgage payments contributed to non-marital property if the marital estate has already been compensated by the use of that property. [citation] Here, the parties lived in petitioner’s nonmarital residence for at least 10 years during the marriage. Accordingly, because the parties benefited from living in the house for a substantial period of time, the court could reasonably have found that the marital estate had already been compensated for its contributions.” Id. at 650.

But what about situations where a residence is not used as the marital estate? The case of In re Marriage of Ford, 377 Ill. App. 3d 181, 184 (2nd. Dist. 2007) addresses this issue. In this case, the husband and his brother owned rental properties in Round Lake Beach and Carpenterville. Id. The appellate court noted that the record established the conclusion that marital funds were applied to the mortgages on the nonmarital rental properties, but the record did not support the trial court’s findings to the amount of marital funds used for that purpose. Id. at 187. Here the husband testified he used over $50,000 from his work checking account and applied it to the mortgages on the rental properties. Id. The court found these funds to be marital property. Id. However, the wife testified that the marital estate contributed $57,000 to the rental properties. Id. at 188. The court found that the marital estate was entitled to reimbursement in the amount of $57,000. Id. The appellate court then remand this case to the trial court for the amount to be divided in just proportions between the parties. Id. This court in their decision decline to follow the Snow court holding mentioned prior. Id.

How are student loan debts affected? The courts find that any student debt that is taken before the marriage took place is considered non-marital property. In this instance the debt will not be subject to asset distribution. However, in a case where the debt was refinanced during the marriage, it may belong to both spouses. This occurs if the other spouse cosigned on the loan. There are some exceptions, such as higher education. On such occasions, the judge will rule that one spouse’s pursuit of higher education was an investment in the marriage. The judge may find that both parties shall pay for the student loans. In the case of In re Marriage of Thornley, 361 Ill. App.3d 1067, 1069 (4th Dist 2005), the wife was working full time while the husband was in school. The husband had student loans totaling $140,000. Id. The wife testified that “during their marriage she and Jason paid two loans that Jason had obtained prior to their marriage, estimating a $2,000 payment to Illinois State University and a $1,000 payment to Monmouth College.” Id. at 1069-1070. In this instance the appellate court found that the trial court did not abuse its discretion in finding that the husband was responsible for the whole $140,000 of student debt. Id. at 1072. The trial court reasoned that the husband relied on the wife for support while he attended school, the court stated that “[t]here was very little, if any, money from the loan proceeds over and above the cost of tuition and other school expenses. * * * In addition, Ms. Thornley directly paid some of the chiropractic college expenses Mr. Thornley incurred.” The trial court also noted that once the husband is licensed, “he anticipates that his income will increase to $10,000 to $50,000 per month.” Thus, the evidence favored the wife, and the husband was required to pay his own student debts.