In re Marriage of Steinberg

FIFTH DIVISION
September 30, 1998








No. 1-96-3420

In re MARRIAGE OF ) Appeal from the
) Circuit Court of
YVONNE B. STEINBERG, ) Cook County
)
Petitioner-Appellant, )
)
and )
)
RICHARD C. W. STEINBERG, ) Honorable,
) Richard B. Berland,
Respondent-Appellee. ) Judge Presiding.

JUSTICE GREIMAN delivered the opinion of the court:
Following a judgment of dissolution of marriage entered on
May 15, 1996, petitioner Yvonne B. Steinberg (Yvonne) seeks
reimbursement to the marital estate from three nonmarital assets
awarded to respondent Richard C. W. Steinberg (Richard): (1) the
accounts receivable in Richard's medical corporation, (2) the
money in Richard's corporate checking account, and (3) the
interest earned on a certain municipal bond (the Stein Roe
account).
This appeal primarily raises two issues: (1) whether the
accounts receivable from a nonmarital corporation are subject to
reimbursement; and (2) whether the marital estate in the present
case is entitled to reimbursement from the accounts receivable.
In addition, Yvonne maintains that the marital estate is entitled
to reimbursement from the checking account for Richard's
corporation and for cash allegedly given to Richard's mother in
amounts equivalent to the interest earned in the Stein Roe
account held in Richard's name only.
We find that accounts receivable are subject to
reimbursement, but in the present case the marital estate is not
entitled to reimbursement from the accounts receivable because
the annual income received by Richard during the course of the
marriage adequately compensated the marital estate. For the same
reason we find that the marital estate is not entitled to
reimbursement from the corporate checking account. We also find
that the record does not support reimbursement for the amount of
interest earned on Richard's municipal bond in the Stein Roe
account. Thus, we affirm the trial court's judgment.
On March 18, 1984, Yvonne and Richard married and later had
two children: a son named Ryan, who was born on October 7, 1985,
and a daughter named Britt, who was born on October 20, 1986.
Yvonne filed a petition for dissolution of marriage on May 19,
1994, and Richard filed a counterpetition for dissolution of
marriage on October 3, 1994. At the time of trial in April 1996,
Yvonne was 41 years old and Richard was 46 years old.
At trial, both Richard and Yvonne testified. In addition,
Richard presented three witnesses: Dr. Stanley Matthew Zydlo,
Jr., chief of emergency services at Northwest Community Hospital;
Kathleen Keyes, the sole office employee of Richard; and June
Steinberg, the mother of Richard. The record does not include
any exhibits presented at trial. The record reveals the
following evidence relevant to the three nonmarital assets at
issue on appeal.
Richard began his medical practice in October 1980, i.e.,
about 3 1/2 years before his marriage to Yvonne in March 1984.
In 1981, as a self-employed, sole practitioner, Richard
incorporated his medical practice as Richard C. W. Steinberg,
M.D.,S.C., of which he was and is the sole shareholder. The
corporation collects the fees, pays the expenses for his medical
practice and provides him with a salary.
Regarding the accounts receivable, the parties stipulated
that, at the time of dissolution, the value of the collectibles
for Richard's corporation was $215,000. Richard testified that,
prior to the marriage, his accounts receivable amounted to
$125,000, and that the collection rate at that time ranged
between 75% to 80%.
Regarding the corporate checking account, Richard testified
that, before marriage, the amount in his corporate checking
account was $20,477.09. At the time of dissolution, the
corporate checking account had an approximate balance of $24,000.
Richard drew a regular, gross salary of $10,000 per month
from the corporation during the course of marriage. Richard
would deposit the net amount of his monthly salary (about $6,445)
in a joint checking account, from which Yvonne paid the bills.
Richard also received annual bonuses during the course of the
marriage. Richard's annual income, including salary and bonus,
during the course of the marriage was as follows:
1984 - $157,500
1985 - unknown (tax returns apparently were unavailable)
1986 - $230,000
1987 - $326,800
1988 - $274,000
1989 - $249,000
1990 - $301,000
1991 - $288,250
1992 - $286,000
1993 - $242,000
1994 - $157,500.
Richard always worked in family practice and built his
practice by making himself available for emergency room calls.
From at least 1984 until 1990, Richard worked emergency room call
from 18 to 21 nights a month because, by being available so
often, Richard received a tremendous number of referrals,
including patients admitted to the hospital for care and patients
coming to his office for follow-up treatment or visits. After
1990, new hospital rules reduced the amount of time a doctor
could work emergency room call. In 1991 and 1992, Richard's
number of call nights decreased to about 12 nights a month. In
early 1993, the hospital rules again changed and Richard's nights
on call decreased to seven per month. After 1994, the call
schedule reduced Richard's nights per month to three. As of May
1, 1996, the then current call schedule allowed Richard only two
nights per month. Richard testified that his income decreased
because the changes in the rules for the hospital emergency room
reduced his number of patients. In addition, Richard's income
decreased because medical conditions that had been treated on an
inpatient basis were now treated on an outpatient basis and
because managed care groups reduced the number of his patients.
Dr. Stanley Matthew Zydlo, Jr., chairman of the department
of emergency medicine at Northwest Community Hospital, and
Kathleen Keyes essentially corroborated Richard's testimony. Dr.
Zydlo testified that the emergency room is a source of added
patients for doctors and that the hospital rules were changed to
reduce the amount of time that a doctor could work in the
emergency room. The rules were changed because some individuals
might be overworked or getting too many patients.
Kathleen Keyes has worked in Richard's office for 14 years.
Keyes performs all of the office work, takes care of patients'
charts, performs some nursing functions, and prepares the
billing. At the time of her testimony, Keyes was the only
employee in Richard's office. Keyes testified that the number of
Richard's patients decreased over the years and the billing
procedure has remained virtually the same. Since 1993, Keyes has
collected the payments from Richard's patients and deposited them
all into the corporate checking account. Keyes testified that
the current balance in the checking account was approximately
$24,000.
Yvonne was not employed outside the home during the tenure
of her marriage to Richard and was unemployed for six months
before the marriage. Prior to marriage, Yvonne earned a
bachelor's degree in merchandising and marketing from Northern
Illinois University in 1977 and worked for various employers,
including a brokerage firm and several different advertising
agencies. The highest annual salary received by Yvonne was
$19,000.
Regarding the Stein Roe account, Richard and Yvonne agreed
that in 1989 June Steinberg, Richard's mother, gave Richard a
gift of $10,000 and with this money Richard acquired a Stein Roe
high yield municipal bond in his own name. At the time of trial
the balance of the Stein Roe account was $17,523.92.
Yvonne testified that the cash equivalent of the interest
earned on the Stein Roe account was given to Richard's mother.
Yvonne stated that the interest is paid on the Stein Roe account
twice a year. When the account statement arrived, Yvonne would
prepare a check made out to cash from their joint checking
account in the amount equal to the interest earned in the Stein
Roe account. Yvonne produced the cancelled checks to verify that
checks were made out to cash in amounts equivalent to the
interest earned. According to Yvonne, the cash would then be
placed in an envelope. In turn, either Richard would give the
cash to his mother when they visited her in Florida or Yvonne
would give the cash to her.
Richard testified that he was not aware of any such payment
to his mother and did not instruct Yvonne to make such payments.
Richard testified that "[i]f she [Yvonne] cashed checks in those
amounts *** I'd like to know where the cash went."
June Steinberg testified that she set up the Stein Roe
account in Richard's name in the amount of $10,000. June
Steinberg presented no testimony as to the interest earned in
this account.
Following trial, the court entered a judgment of dissolution
of marriage on May 15, 1996. The judgment awarded to Richard
certain property as nonmarital: the Stein Roe high yield
municipal bond with an approximate balance of $17,523.92; a 1968
car (Jaguar); furniture valued about $2,000; Chicago Bears'
tickets; and Richard's medical practice, including the accounts
receivable having a stipulated value of $215,000, and the
corporate checking account with an approximate balance of
$24,000. Yvonne did not receive any nonmarital property.
In dividing the marital property, the court awarded Richard
certain items from the marital home in Barrington, his car
(Acura), and the furniture and furnishings at his then current
residence in Palatine. Yvonne was awarded certain items from the
marital home in Barrington and her car (Lexus). The court also
ordered that the marital estate was entitled to reimbursement
from funds designated from Richard's medical corporation's
pension plan and from a separate corporate profit-sharing plan.
The marital items and their value that were awarded to
Richard are:
1) the marital home in Barrington with a $222,144.00
stipulated value of $300,000 less the
mortgage of $77,856
2) life insurance policy 18,471.64
3) share in a Smith Barney joint account 205,691.34
4) share in the corporate pension plan 148,705.40
5) share in the corporate profit-sharing plan 123,820.97
Total: $718,833.35.
The marital items and their value that were awarded to
Yvonne are:
1) a Smith Barney account in her name $111,742.85
2) an individual retirement account (IRA)
in her name 14,764.20
3) an IRA in Richard's name 23,301.64
4) cash at home 2,000.00
5) money in her checking account 3,000.00
6) share in a Smith Barney joint account 278,288.27
7) share in the corporate pension plan 181,751.03
8) share in the corporate profit-sharing plan 151,336.73
Total: $766,184.72.
From these values, the marital assets totaled $1,485,018.07.
From the court's division of the marital estate, Yvonne received
a 51.6% share and Richard received a 48.4% share.
On June 11, 1996, Yvonne filed a motion to vacate, modify or
reconsider the judgment of dissolution of marriage. In her
postrial motion, Yvonne contended that the trial court erred in
several findings, including its rulings regarding the collectible
receivables, the money in the corporate checking account, and the
interest paid on the Stein Roe account.
Following a hearing on August 20, 1996, the trial court
denied Yvonne's postrial motion. Thereafter, the issue of
attorney fees was decided and Yvonne filed the instant appeal.
As a threshold matter, we reject Richard's assertion that
Yvonne waived any claim to reimbursement from the subject assets
by failing to raise the issue at trial. Richard maintains that
waiver applies because Yvonne described the subject assets as
nonmarital in her closing argument and did not raise the issue of
reimbursement until she filed her postrial motion. First, the
description of the subject assets as nonmarital in Yvonne's
closing argument only addresses the classification of the assets
and has nothing to do with reimbursement, which is not triggered
until the asset is classified. It is axiomatic that one type of
estate, such as the marital estate, cannot be reimbursed from
another type of estate, such as the nonmarital estate, until the
asset is classified in a particular estate. Second, the issue of
reimbursement was presented through the evidence and testimony
presented at trial. The most obvious proof that reimbursement
was an issue at trial is the fact that the trial court's judgment
specifically ordered reimbursement from two of Richard's
nonmarital assets, i.e., the pension plan and the profit-sharing
plan. We cannot say from the record before us that Yvonne waived
the issue of reimbursement for purposes of appeal.
On appeal, Yvonne first asserts that accounts receivable
from a nonmarital corporation are an asset and, thus, subject to
reimbursement. Yvonne further asserts that the instant marital
estate was entitled to be reimbursed from this nonmarital asset.
As to the accounts receivable, Yvonne seeks reimbursement to the
marital estate of $121,250, which represents the increase in
accounts receivable from the time of the marriage ($93,750)[FN1]
to the stipulated value at the end of the marriage ($215,000).
Richard contends that Yvonne failed to prove the elements
necessary to establish entitlement to reimbursement from the
accounts receivable. Richard first argues that Yvonne's proof
failed because she did not present evidence to establish the
overall value of his medical corporation and, therefore, the
court could not determine whether Richard's personal efforts
resulted in substantial appreciation in the value of the
nonmarital medical corporation. Richard also argues that "as
accounts receivable are collected they become part of Richard's
income in which support is based" and, therefore, Yvonne would
receive a double benefit from the accounts receivable if they
were used for both reimbursement and support purposes. In
addition, Richard maintains that his salary during the course of
the marriage already adequately compensated the marital estate.
We initially emphasize that, contrary to the many arguments
advanced by Richard in his appellate brief, Yvonne does not
contest the classification of the subject three assets as
nonmarital. Regarding nonmarital assets, the Illinois Marriage
and Dissolution of Marriage Act (Act) specifically provides that
the increase in the value of nonmarital property is also
nonmarital property. 750 ILCS 5/503(a)(7) (West 1996). Although
such appreciation of nonmarital property is classified as
nonmarital, the increase is subject to reimbursement. 750 ILCS
5/503(a)(7) (West 1996). The issue on appeal does not involve
the classification of the subject assets as nonmarital but rather
whether the marital estate is entitled to reimbursement from the
three nonmarital assets. A trial court's failure to reimburse
the marital estate will not be disturbed on appeal unless such
failure constitutes an abuse of discretion. In re Marriage of
Snow, 277 Ill. App. 3d 642, 650 (1996).
Section 503(c)(2) of the Act governs reimbursement:
"When one estate of property makes a contribution to
another estate of property, or when a spouse
contributes personal effort to non-marital property,
the contributing estate shall be reimbursed from the
estate receiving the contribution notwithstanding any
transmutation; provided, that no such reimbursement
shall be made with respect to a contribution which is
not retraceable by clear and convincing evidence, or
was a gift, or, 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. The court may
provide for reimbursement out of the marital property
to be divided or by imposing a lien against the non-
marital property which received the contribution."
(Emphasis added.) 750 ILCS 5/503(c)(2) (West 1996).
Under this statutory scheme, reimbursement, if any, goes to an
estate, not a spouse. E.g., In re Marriage of Morse, 143 Ill.
App. 3d 849, 855 (1986). In the present case, the "contributing
estate" is the marital estate of Richard and Yvonne because the
personal effort of either spouse, Richard or Yvonne, constitutes
a contribution by the marital estate. Accordingly, the personal
effort of Richard toward the accounts receivable constitutes a
contribution by the marital estate. In turn, "the estate
receiving the contribution" is the nonmarital estate of Richard.
Richard suggests that the accounts receivable should not be
subject to reimbursement because "accounts receivable are a
factor in reaching the value of a marital corporation, but in
themselves are not a separate asset of any estate." Richard
argues that absent the valuation of the entire corporation,
including liabilities and overhead expenses, the accounts
receivable cannot be deemed a separate asset. We disagree.
Courts consistently and repeatedly have held that accounts
receivable are distinct assets with an ascertainable value. See,
e.g., In re Marriage of Lee, 246 Ill. App. 3d 628 (1993); In re
Marriage of Tietz, 238 Ill. App. 3d 965 (1992); In re Marriage of
Feldman, 199 Ill. App. 3d 1002 (1990). Illinois law holds that
"[a]ccounts receivable *** are assets already earned with a known
value but have not yet been collected." Tietz, 238 Ill. App. 3d
at 977.
Richard attempts to distinguish the cases of Lee, Teitz, and
Feldman on the basis that they involved the property division of
a marital corporation and, therefore, required that the value of
the accounts receivable be considered as only a part of the
valuation of the entire corporation. We find such distinction
unpersuasive.
Accounts receivable are distinct assets of a business and
have a value, independent and separate from the corporation. The
accounts receivable, not the entire corporation, are the assets
at issue. See In re Marriage of Pancner, 111 Ill. App. 3d 546,
550 (1982) ("the trial court did not err in failing to assign a
value to the business since it had determined that the business
was nonmarital property"). As accounts receivable are assets
subject to valuation for purposes of a corporation to be divided,
so also accounts receivable should be assets subject to
reimbursement when they are a part of a nonmarital estate.
Richard also submits that "as accounts receivable are
collected they become part of Richard's income in which support
is based." To allow the accounts receivable to be subject to
reimbursement, according to Richard, would constitute a double
benefit to Yvonne because Richard now pays part of his income to
support her. This argument has already been rejected by the
court in Tietz, which held that "[a]ccounts receivable are only
'future income' in the sense they will be collected in the
future." Tietz, 238 Ill. App. 3d at 977.
For all of the foregoing reasons, we hold that accounts
receivable are subject to reimbursement under section 503(c)(2)
of the Act. Accordingly, we next consider whether the marital
estate in the present case is entitled to reimbursement under the
facts of the present case.
To establish a right to reimbursement, section 503(c)(2)
requires, in relevant part, "significant" personal effort by
either spouse resulting in "substantial appreciation of the non-
marital property." Snow, 277 Ill. App. 3d at 650. We find that
both of these elements have been satisfied. First, the accounts
receivable in Richard's corporation, regardless of the amount,
indisputably exist due to the personal effort of Richard, a sole
practitioner. Second, we reject Richard's insistence that the
entire corporation would have to be valued to determine whether
the nonmarital property substantially appreciated. The
nonmarital property at issue is the accounts receivable. The
evidence established that the accounts receivable increased over
$120,000 from the time of marriage (about $94,000) to the end of
the marriage ($215,000). Thus, the accounts receivable more than
doubled in value during the course of the 10-year marriage. If
needed, we would find it difficult to deny reimbursement on the
grounds that such an increase was not "substantial."
In addition to these statutory elements, to determine
"whether the marital estate is entitled to reimbursement from a
nonmarital business for the contribution of personal efforts of a
spouse, the court may inquire as to whether the spouse was
reasonably compensated by the business for those efforts. If the
spouse has already been reasonably compensated for the personal
effort, no reimbursement is necessary." In re Marriage of
Werries, 247 Ill. App. 3d 639, 648 (1993), citing In re Marriage
of Perlmutter, 225 Ill. App. 3d 362, 372 (1992); Morse, 143 Ill.
App. 3d at 855; In re Marriage of Landfield, 209 Ill. App. 3d 678
(1991). The rationale of this principle is that a spouse's
salary obtained from the nonmarital business during the course of
marriage is marital property and, thus, the marital estate has
already been compensated. Perlmutter, 225 Ill. App. 3d at 372
(and authority cited therein). Yvonne correctly acknowledges in
her brief that "[i]f the compensation is reasonable, the
nonmarital estate is not forced to reimburse the marital estate
because the salary during the marriage is, in fact, the
compensation that was due."
We find that Richard's compensation during the marriage
adequately compensated the marital estate to defeat reimbursement
from the accounts receivable. Richard received an annual income
ranging from $157,500 to $320,800 during the course of the
marriage. Yvonne's contention that Richard's salary could have
been higher in the later years of their marriage does not
establish that his income was inadequate compensation to the
marital estate for the purpose of entitlement to reimbursement.
See Perlmutter, 225 Ill. App. 3d at 372 ("the fact that [the
husband] could have received a higher salary, as implied by [the
wife], does not mean that he was not adequately compensated").
At trial, Richard presented testimony explaining the reasons for
the decline in his income. In its judgment, the trial court
accepted Richard's explanation and specifically found as follows:
"The Court generally believes that the
Respondent's income has declined the last few years for
the reasons which he articulated during the trial,
including, but not limited to his loss of patients due
to the changing nature of health care delivery in our
country (managed care), the reduction in the amount of
time he is allowed to be 'on call' in the emergency
room, (which has resulted in a loss of patient
referrals as well as the number of patients he cares
for at the hospital at any given time), the reduction
in the length of time a patient is allowed to remain in
the hospital, if at all, as well as the reduction in
the amount which he is able to charge for certain tests
and procedures, et cetera, et cetera."
In sum, we find that accounts receivable are subject to
reimbursement under section 503(c)(2) of the Act. In the present
case, however, the marital estate is not entitled to
reimbursement from the nonmarital accounts receivable because
Richard's income has already adequately compensated the marital
estate.
Next, Yvonne asserts that the marital estate was entitled to
be reimbursed from the corporate checking account. From this
account, Yvonne seeks reimbursement of $3,523, which represents
the increase over the course of the marriage from $20,477 to
$24,000. Like the accounts receivable, the money in the
corporate checking account derived from the personal efforts of a
spouse, i.e., Richard. Even assuming that the approximate 17%
increase in the value of the checking account was "substantial
appreciation" for the purpose of section 503(c)(2), we find that
the income of Richard constituted adequate compensation to the
marital estate and, therefore, reimbursement would not apply
here.
Lastly, Yvonne asserts that the marital estate was entitled
to be reimbursed in the amount of $7,523, which represents the
amount of interest earned from the Stein Roe account and the cash
allegedly given to Richard's mother. We disagree.
Regarding the interest on the Stein Roe account, Yvonne
testified:
"The amount of money that has been earned in that
[Stein Roe] account, the equivalent, has been given to
his mother. Let me reiterate. The account is paid
twice -- interest is paid on the account twice a year,
and what we would do is look at the statement, and
whatever that monies were; for example, if it would be
equivalent to $1,000 a year, I would take cash out of
our joint checking account and give the equivalent in
cash to his mother so that the monies that the account
was earning would remain in the account, but the
equivalent would be given to his mother -- Rick's
mother."
On the same topic, Yvonne also testified:
"Well I would cash a check -- we'd make a check
out to cash, and I would cash it, and then I would put
the monies in an envelope, and he would bring it to his
mother when we'd go to Florida -- down to Florida.
***
Once a year. I would collect the monies twice a
year, and if we'd see her twice a year, she'd get it
twice a year. If not, I would give it to her in a lump
sum once a year."
Richard's testimony regarding this issue was as follows:
"Q. And since 1989, you have written checks off
your joint account to your mother for funds earned in
this account, is that not correct, Doctor?
A. Incorrect.
Q. Well, Doctor, in the year 1989, did you not
write her two checks, one for $379.01 and one for
$603.04?
A. Did I write them? No, I don't recall writing
checks.
Q. But your wife wrote them, cashed the checks,
and gave your mother cash, didn't she?
A. Not that I know of.
Q. And, Doctor -- you don't know that?
A. No.
Q. That wasn't at your instruction?
A. Pardon?
Q. That wasn't at your instruction?
A. No. If she cashed checks in those amounts, I
don't -- I'd like to know where the cash went.
***
Q. And you never talked to your wife and talked
to her to do this, Doctor?
A. No."
In her 2 1/2 pages of testimony, June Steinberg provided no
insight into the cash equivalent of the interest earned in the
Stein Roe account. June Steinberg was not asked about the issue
by either counsel.
In light of the conflicting testimony of Yvonne and Richard,
and the nonexistent testimony of June Steinberg on this issue, we
find that the record does not support reimbursement from the
alleged cash given to Richard's mother in amounts equivalent to
the interest earned from the Stein Roe account.
For all of the foregoing reasons, we find no abuse of
discretion by the trial court and affirm the judgment.
Affirmed.
CAMPBELL, P.J., and QUINN, J., concur.
[FN1] Yvonne's calculation of the amount in the accounts
receivable at the time of the marriage apparently derives from
Richard's testimony that his accounts receivable amounted to
$125,000 and the collection rate ranged from 75% to 80%. Taking
75% of $125,000 is $93,750.