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1999 National Legal Research Group, Inc.

ILLINOIS: In re Marriage of Raad, ___ Ill. App. 3d ___, 704 N.E.2d 964 (1998).

The increase in value during marriage of the premarital portion of the wife's individual retirement account must be classified as her nonmarital property.

When the parties married in 1989, the wife had a retirement account valued at $24,446 with her employer. After the marriage, she contributed $6,257 more to the account before her employment ended a year later. At the end of her participation in the plan, her account was worth $35,090, and she deposited that money into the parties' joint checking account while she determined where to put it. She subsequently rolled the money over into an IRA in her own name.

By the time of the parties' dissolution proceedings, the wife's IRA had increased in value to $79,415 even though the wife had not made any further contributions to the account. The trial court found that $24,169 of the account its value at the time when the parties got married was the wife's nonmarital property and that the remainder of the account, or $55,245, was marital property.

Increase in Premarital Value. The Illinois Appellate court held that the trial court's classification of the account was erroneous. The court agreed with the trial court that the value of the account as of the date of marriage was the wife's nonmarital property. Furthermore, the court continued, the amount that the wife contributed to the account during the parties' marriage was marital property, because pension benefits are marital to the extent they are earned during marriage.

But the analysis did not end there, the court said. The wife's account increased in value, and the increase in value attributed to the $24,169 was her nonmarital property. Similarly, the increase in value attributed to the $6,257 of marital property was marital property.

But the trial court did not apportion the increase in value of the account in this way, the court observed. Instead, the trial court effectively found that the increase in value of the nonmarital property subsequent to the marriage was marital property. That finding was contrary to Illinois law, the court declared. Consequently, it remanded for the trial court to determine the increase in value attributed to the marital property and the increase in value attributed to the nonmarital property.

No Transmutation. Although the husband did not raise the issue of transmutation, the wife argued that when she deposited the funds from her retirement plan into the parties' joint checking account prior to the rollover of those funds into an IRA, there was no transmutation of nonmarital property to marital property.

The appellate court agreed. The Illinois equitable distribution statute provides in part, the court noted, that when marital property and nonmarital property are commingled, resulting in a loss of identity of the nonmarital property, the commingled property is transmuted into marital property.

Here, the court observed, the wife explained that she deposited the funds from the plan into the parties' joint checking account only because the family was moving from California to Chicago at that time and that she did not have the time to find a suitable investment. Moreover, the court pointed out, the wife completed the rollover into her IRA within the required time period.

Consequently, the court concluded, there was no transmutation of nonmarital funds into marital funds.

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