Assume Wife owns a rental house before she marries Husband, and the couple has no prenuptial agreement in place. Husband and Wife decide to make some improvements to the rental house to increase its value and command more rent, and they use proceeds from a second mortgage on the marital residence to pay for these improvements.
This situation and others like it are common in high-asset divorces, and these decisions have significant legal and financial ramifications in any divorce proceedings that may come afterward.
Classification of Property
The rental house itself is clearly nonmarital property because it was Wife’s before the marriage. It does not matter if she acquired it a year before the couple exchanged vows or the moment before she walked down the aisle. However, in Illinois divorces, property labels are not fixed. In fact, commingling property between spouses is the rule as opposed to the exception, particularly in longer marriages. In the Prairie State, the extent to which spouses commingle their money and assets will have a big impact on how their property is divided in a divorce.
If the couple mentioned above used the loan proceeds to replace some worn carpet, install a new bathroom faucet, and perform other minor work on the rental property, a judge would probably still classify it as Wife’s separate property, especially if it was producing income. But what if the opposite were true? What if the house was so dilapidated that the city had threatened to condemn it, and the couple used the loan proceeds to make the house both habitable and attractive? In that case, a judge might rule that the house was marital property and divide it between the spouses. In this case, if the couple used $100,000 in marital property funds to improve the rental house, Wife would have to pay Husband $50,000 to compensate him for his half of the loss.
Division
Illinois law presumes that all property acquired during the marriage is marital property that is to be split between divorcing spouses. A husband or wife who seeks to challenge that classification must present clear and convincing evidence to overturn it. Illinois law also commands judges to divide marital property “equitably,” and that is usually not the same thing as “equally.” To bring about such a division, judges look to a number of factors, including:
- Contributions to the Property: Who paid for the upkeep and renovations?
- Dissipation: Special rules apply if one party claims that the other party has wasted marital assets.
- Agreement: Under the Uniform Marital and Premarital Agreements Act, judges honor all pacts made between spouses that were completely voluntary and reasonably fair.
- Relative Economic Circumstances: Statistically, most divorced men accumulate wealth faster than most divorced women.
The judge may also consider the length of the marriage, the spouses’ ages, child custody provisions, and a few other factors.
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