All In The Family: Memorialize Your Intentions… Property transfers between spouses
Published in Chicago Lawyer Magazine, December 2023
By Daniel Stefani
I started writing this family law column 15 years ago. My first was on a similar topic as this one. Namely, I wrote about the ultimate implications of transfers of property between spouses during the marriage years, prior to when the parties divorce.
Years later, disputes remain as it relates to transfers of property between spouses during marriage. In a recent Supreme Court Rule 23(b) Opinion, the 2nd District Illinois Appellate Court decided the case of In re Marriage of Horlbeck, 2023 Ill.App.2d 210 351-U. In Horlbeck, the parties were married in 1994 and acquired a Wisconsin vacation home in 2002. The home was bought with marital funds and jointly between the parties.
In 2009, the property was transferred to the wife’s name only via quitclaim deed. The husband claimed the transfer was for estate and tax planning purposes. He argued the home was marital property and was not intended to be a gift. The wife argued that in 2015, the husband filed for Chapter 7 bankruptcy, and on the schedule of assets did not disclose the Wisconsin home. As such, the wife claimed the home was her non-marital property as it was acquired by her via a gift from her husband.
The husband claimed it was his understanding and his attorney’s instruction that he was not to list any property titled solely in his wife’s name on the bankruptcy disclosure. He further argued he never intended a gift and always considered the property “owned” by both parties.
The trial court entered an amended judgment for dissolution of marriage finding in part that the Wisconsin home was marital property. The wife appealed.
The 2nd District panel affirmed the trial court’s judgment and set forth the applicable presumptions to property acquired during the marriage. Specifically, following the transfer to the wife’s name only, there was a rebuttable presumption that the home was marital property because it was acquired by the wife during the marriage. The panel pointed out the wife then had the burden to overcome this presumption by proving by clear and convincing evidence that the husband intended it to be a gift.
There is a long history of appellate cases involving interspousal gifts. It is possible for one spouse to make a gift of marital property to the other that the recipient could then claim as non-marital property. However, such a gift requires proof of donative intent and delivery. The evidence most relevant to determining donative intent is the donor’s own testimony or other proof as to the gift’s intent.
The panel found the wife failed to sustain her burden. She presented no evidence to establish the husband had donative intent when provided with the quitclaim deed. Conversely, the husband testified the home transfer was done solely for estate and tax planning purposes. He testified he always considered the properties to be owned by each of them and that both clearly exercised full use and enjoyment of the property during their marriage.
The 1981 case of In re Marriage of Severns was relied upon by the court. In Severns, the parties jointly purchased real estate during the marriage and held it in joint tenancy. During the marriage, the wife executed a quitclaim deed to the husband and she testified that she executed the deed to please her husband and to save her marriage. Severns found the real estate was marital property and the husband failed to sustain his burden of proving the wife intended a gift by clear and convincing evidence.
There are other cases where mere proof the property title was placed in one spouse’s name individually as an estate planning device did not establish the requisite donative intent to remove the property from the marital estate. Conversely, there are cases where spouses make transfers for asset protection from something such as malpractice claims.
However, with evidence to the contrary from the recipient spouse, the 4th District Appellate Court held that a transfer was a gift and wife’s non-marital property. Conversely, the 2nd District held real estate placed in the name of a non-dominant spouse, allegedly to protect it from a malpractice claim against the other spouse, was held to be marital property and not as a gift to the wife. There have been appellate cases that held that funding of IRAs for the spouse during the marriage are gifts and therefore non-marital property.
These are all cautionary tales where in hindsight there could have been some sort of document or other way of memorializing the party’s intent when the transfer was made. While not necessarily legally binding, it is helpful to have a written document signed by both parties that memorializes their intent to help any court decide these types of issues upon a dissolution of marriage.
Dan Stefani is a principal at Katz & Stefani. The firm’s practice is limited to family law matters. His work on behalf of mainly high net-worth clients, as well as spouses of high net-worth individuals, involves valuations of closely held corporations, partnerships and other entities, detailed analysis of complex financial transactions, child custody and support issues as well as paternity and domestic violence.