Summary
considering whether to set aside the net inheritance—after the application of the Iowa inheritance tax
Summary of this case from Sterner v. Sterner (In re Marriage of Sterner)Opinion
No. 1-579 / 01-0145.
Filed February 6, 2002.
Appeal from the Iowa District Court for Franklin County, STEPHEN P. CARROLL, Judge.
The respondent appeals the property distribution and alimony provisions of the parties' dissolution decree. AFFIRMED AS MODIFIED.
Thomas W. Langlas of Gallagher, Langlas Gallagher, P.C., Waterloo, for appellant.
Michael A. Smith of Craig Smith, L.L.P., Eldora, for appellee.
Considered by VOGEL, P.J., and MILLER and EISENHAUER, JJ.
Respondent Rhonda L. Peterson appeals various economic provisions of the decree dissolving her marriage to petitioner Robert E. Peterson. Rhonda contends the trial court erred in: (1) placing an incorrect "reduced" value on the parties' interest in farm equipment awarded to Robert; (2) failing to award Rhonda credit or offset for inherited funds; (3) refusing to set aside to Rhonda as her separate property an IDS account; (4) refusing to consider the tax liability of liquidating a corporation; and (5) failing to award her spousal support. Rhonda and Robert each request an award of appellate attorney fees. We affirm with one modification.
I. BACKGROUND FACTS
The parties were married on November 21, 1971, separated in about November of 1998, and had their marriage dissolved by a decree filed August 24, 2000. Their marriage produced five children. The youngest, Jared, was almost nineteen years of age at the time of dissolution and was planning to attend college in the fall of 2000. The decree made provision for each party to pay a post-secondary education subsidy to assist Jared.
Robert was forty-eight years of age at the time of the decree. He is a high school graduate who attended one semester of community college and thereafter farmed since 1971. There is no evidence that he is in other than good health.
Rhonda was forty-eight years of age at the time of the decree. She graduated from high school and then attended one year of college before the parties were married, receiving a secretarial certificate or degree. Following the parties' marriage she worked two years in secretarial jobs until the parties' oldest child was born in 1973. She thereafter worked at home as a housekeeper and homemaker who had primary responsibility for the care of the parties' five children. She also worked as a bookkeeper for the parties' farm operation and assisted with farm work at times. At the time of trial she was working on a two-year associate of arts degree, with a projected completion date of May 2000. She is in good health. From the record it appears that evidence was presented at a trial and the parties were later deposed and their depositions presented as part of the evidence. At the time the parties' depositions were taken Rhonda was working full-time for North Central Human Services, earning $ 8.24 per hour. That job was projected to end in May of 2000 when an employee returned from maternity leave. Rhonda had not sought permanent employment at North Central Human Services and had not actively sought employment elsewhere. In the fall of 1999 she had been offered, but turned down, a job at Pella that paid "eleven something."
The trial court set aside to Rhonda as her separate property a 154.9 acre farm, the "West Place" which her father had given to her in about 1990 and the parties had transferred to a corporation wholly owned by Rhonda, West Place, Inc. Robert had farmed the West Place until the parties separated. For the 1999 crop year Rhonda cash rented the West Place to her brother for $20,000, but later found out that for income tax purposes a crop share arrangement was either necessary or more advantageous. The trial court awarded Rhonda additional assets with a value of $133,134. The $133,134 includes about $110,000 in liquid and semi-liquid assets, consisting of cash value of life insurance, bank accounts, Edward D. Jones accounts, and an IDS account of $68,488.
The parties were purchasing a 135.1-acre "Flag Farm" from Robert's parents on a contract with an original principal obligation of $160,000. Robert's parents had forgiven $80,000 of the contract price by each making a $10,000 gift to Robert for each of four years. The parties had paid an additional $28,000 of the contract price. Accordingly, in dividing the parties' property the court set aside to Robert as his separate property the parties' Flag Farm equity other than the $28,000 which had been paid by the parties.
The trial court awarded Robert assets that it valued at $401,492 (including the Flag Farm at a value of $28,000) and made him responsible for debts of $197,268, a net award of $204,224. To equalize the property division the trial court ordered Robert to pay Rhonda $36,000, at $6000 per year, with interest, and made the obligation a lien on a residence that it included in the property awarded to Robert. In its property division the trial court placed a value of $75,299 on farm machinery included in the property it awarded to Robert.
II. SCOPE AND STANDARDS OF REVIEW
In this equity case our review is de novo. Iowa R. App. P. 4. We examine the entire record and adjudicate rights anew on the issues properly presented. In re Marriage of Smith, 573 N.W.2d 924, 926 (Iowa 1998). We give weight to the fact-findings of the trial court, especially when considering the credibility of witnesses, but are not bound by them. Iowa R. App. P. 14(f)(7). This is because the trial court has a firsthand opportunity to hear the evidence and view the witnesses. In re Marriage of Will, 489 N.W.2d 394, 397 (Iowa 1992).
III. MERITS A. Property Issues
The parties in a marriage are entitled to a just and equitable share of the property accumulated through their joint efforts. In re Marriage of Gonzalez, 561 N.W.2d 94, 98 (Iowa Ct. App. 1997). Our courts do not require an equal division or percentage distribution. Id. The determining factor is what is fair and equitable in each circumstance. Id. An equitable distribution of the parties' property must be made according to the criteria in Iowa Code section 598.21(1) (1999), as qualified by Iowa Code section 598.21(2) concerning property received by inheritance or gift. In re Marriage of Goodwin, 606 N.W.2d 315, 319 (Iowa 2000).
1. Farm equipment
Rhonda claims the trial court erred "in awarding [Robert] the farm equipment at a reduced value because of the alleged gifts by his father."
Robert's parents are Charles and Bonnie Peterson. Robert started farming in 1971 and he and Charles farmed together until Charles partly retired in about 1992, after which Charles nevertheless continued to provide some labor. Charles has always allowed Robert to use Charles's farm equipment without paying for its use. Robert used Charles's equipment to farm both land Robert and Rhonda owned and rented, as well as land Bonnie owned and from which she and Charles received the crops. From the time Robert started farming in 1971 until Charles's retirement in 1992 or 1993 Robert used Charles's farm equipment at no cost. Charles paid for maintenance and repair of equipment he owned and Robert paid for maintenance and repair of the equipment he and Rhonda owned. Since Charles's retirement Robert and Rhonda have paid for maintenance and repair of both the equipment they own and the equipment Charles owns and they use. Charles has on several occasions allowed Robert to use pieces of Charles's equipment as trade-in on equipment Robert was purchasing. On other occasions Charles has given titled vehicles to Robert.
An appraiser whom Robert hired placed a value of $202,050 on the farm equipment used in the farming operation. The parties accept that value. Robert presented evidence concerning Charles's contributions to the acquisition of the equipment items used in Charles's and Robert's farming operations and the parties' contributions to the acquisition of them. That evidence showed Charles's contribution to be $126,751 and Robert and Rhonda's to be $75,299. Robert argued that Charles's contributions should be set aside, because some items were owned by Charles who had made the contributions to their acquisition and other items were gifts to Robert alone and not to Rhonda. He argued that only the part of the value of each item represented by Robert's and Rhonda's contributions should be subject to division of property between the parties. The trial court characterized Robert's and Charles's position to be that the $126,751 should be seen as the aggregate value of a series of gifts to Robert alone, through transfers of machinery to him, accepted that argument, and included only the $75,299 in dividing property.
Rhonda claims the trial court should have included the entire $202,050 in its property division. She argues the parties owned or should be considered as owning all the equipment because they had spent some $160,000 to $182,000 in maintenance and repair of the equipment since Charles's retirement, Robert used all of the equipment, and no gift tax returns were ever filed reflecting alleged gifts of equipment. She also argues that even if equipment was given to Robert alone, it should be considered merged with the parties' farming operation and divided between the parties to avoid injustice because, among other things, the court gave her no credit or offset for some $53,000 she inherited and contributed to the farming operation and family.
We do not agree with the trial court's characterization of Robert's and Charles's position as being that the $126,751 in value was all a series of gifts to Robert. Their position was and is that Charles made gifts to Robert of only some equipment items and interests in items, and other equipment continued to be owned by Charles. We nevertheless agree with the trial court's resolution of the farm equipment issue.
The expense of maintenance and repair was a cost of doing business and using the equipment in question, and was not a purchase of the equipment or an interest in it. Although Robert used all of the equipment in question, he used equipment owned by Charles not only on the farms owned by Charles and Bonnie but also on the farms the parties owned and rented, a substantial majority of the combined acreage. The maintenance and repair expense was for the parties' equipment as well as that owned by Charles.
The fact gift tax returns were not filed is not of great significance because the trial court did not find, and Rhonda does not claim the evidence shows, that in any one year Charles and Bonnie made gifts to Robert that required gift tax returns to be filed. The evidence that Rhonda was estranged from Charles and Bonnie for some fifteen to twenty years and they believed she had denied them access to their grandchildren shows they intended their gifts of interests in items of farm equipment to be to Robert alone and fully supports the trial court's finding to that effect. We affirm the trial court on this issue.
Rhonda makes another argument concerning the farm equipment. However, we prefer to address the substance of that argument in the context of the second issue she raises, the issue of her inheritance, which we discuss next.
2. Rhonda's inheritance
Rhonda argues that even if the gifts of farm equipment were given to Robert alone, the court should order the equipment divided because, among other things, the trial court gave her no credit or offset for some $53,000 she inherited and contributed to the farming operation and family.
In 1991 Rhonda received a bequest from her father's estate of $54,794.50 less $1,166.78 Iowa inheritance tax, a net bequest of $53,627.72. The evidence also shows, without any substantial contradiction or dispute, that she used $2000 to $3000 of the bequest for a clarinet for the parties' daughter, used about $10,000 for a new roof for the parties' home, applied about $33,500 to farm bills, and spent the remaining $7000 for furniture and floor coverings for the parties' home.
Property inherited by a party is the property of the recipient and not subject to property division upon dissolution of a marriage except upon a finding that refusal to divide the property is inequitable to the other party or children of the marriage. Iowa Code § 598.21(2) (1999). The parties' children other than Jared are grown and apparently self-sufficient. Jared is of college age and the decree provides for his education. Division or refusal to divide Rhonda's inheritance is thus not inequitable to the children. The $2000 to $3000 spent for a daughter's clarinet is no longer involved. We therefore focus on the remaining $50,000 to $51,000 and whether a refusal to include it in the property division would be inequitable to Robert.
We note that placing an inheritance received by one spouse into joint ownership or commingling it with other assets is not controlling in deciding whether the property should be divided. In re Marriage of Liebich, 547 N.W.2d 844, 851 (Iowa Ct. App. 1996).
Factors to be considered in determining whether inherited property should be divided include:
(1) contributions of the parties toward the property, its care, preservation or improvement;
(2) the existence of any independent close relationship between the donor or testator and the spouse of the one to whom the property was given or devised;
(3) separate contributions by the parties to their economic welfare to whatever extent those contributions preserve the property for either of them;
(4) any special needs of the other party;
(5) any other matter which would render it plainly unfair to a spouse or child to have the property set aside for the exclusive enjoyment of the donee or devisee.In re Marriage of Thomas, 319 N.W.2d 209, 211 (Iowa 1982). The length of the marriage or the length of time the property was held after it was devised, although not independent factors, may indirectly bear on the question for their effect on these factors, and still other matters "might tend to negative or mitigate against the appropriateness of dividing the property under a claim that it falls within the exception [to the general rule against division]." Id.
As Rhonda's inheritance went to pay farming bills and to buy items for the family, neither the first nor third of the numbered factors from Thomas suggest that equity requires division. There is no evidence of any independent close relationship between Rhonda's father and Robert, and the third factor thus does not suggest a division. There is no evidence Robert has any special needs, and therefore the fourth factor does not suggest division. Rhonda's inheritance was received within the last eight years of the parties' marriage, and the twenty-nine year length of the marriage therefore does not strongly suggest division is required.
No matter appears which would render it plainly unfair to Robert to have Rhonda's inheritance set aside to her and several matters suggest that it should be set aside. First, Rhonda's inheritance paid $10,000 for a new roof on the parties' home, which no doubt increased or maintained its value, and additional money from her inheritance went into floor coverings in the home and furniture. Robert is receiving the home and no doubt receiving some of the furniture. Second, and more importantly, Rhonda's use of $33,500 of her inheritance to pay farm debts contributed directly to the property now available for division. See In re Marriage of Johnson, 299 N.W.2d 466, 467 (Iowa 1980) (stating that adjudication of property rights involves both assets and liabilities). Third, and most importantly, there has been set aside to Robert as his separate property, not subject to division between the parties, some undetermined but substantial portion of $126,751 in farm machinery.
We conclude that equity requires an amount approximating that part of Rhonda's inheritance which was not spent for the clarinet be set aside to Rhonda before dividing remaining property. We do so by modifying the trial court's decree to increase from $36,000 to $60,000 the amount Robert is required to pay Rhonda. As provided by the trial court regarding the $36,000 it ordered, the $60,000 shall be paid at the rate of $6000 per year on November 1 of each year, with the right of prepayment, shall carry interest at the rate of seven percent per year, and unpaid principal and interest shall constitute a lien on the marital residence awarded to Robert.
3. IDS account
Rhonda claims the trial court erred in failing to set aside to her as her separate property an IDS account of $83,488.61. She claims the entire account represents gifts and growth from gifts she received from her father and grandfather before her marriage to Robert. However, as the trial court found, during the 1980s farm crisis part of Rhonda's original IDS account was spent and part was sheltered by investing in a life insurance policy, the evidence does not show how much was put into the policy or how much was later taken out of the policy and put back into an IDS account, and of the money taken out of the policy some $30,000 or more went into an addition to the parties' home. The present IDS account began with a July 12, 1988 investment of $4,831.31.
The trial court found, and we agree, that a fair inference is that the present IDS account is for the most part attributable to "family funds" rather than Rhonda's original IDS account. Robert nevertheless agreed to concede that $15,000 of the present account be treated as representing gifted funds and the trial court accepted his concession, set that amount of the account aside to Rhonda as her separate property, and included only the remaining $68,488.61 in its property division. We fully agree with the trial court's finding and resolution regarding the IDS account and affirm on this issue.
4. Tax liability upon corporate liquidation
Rhonda asserts the trial court erred in not considering in its property division the fact that West Place, Inc. will have a $36,000 tax liability upon liquidation.
West Place, Inc. is a corporation solely owned by Rhonda. It was formed to own the farm given to Rhonda by her father. The evidence shows that the parties transferred to the corporation $117,000 of grain on which they had paid no income tax, they received no stock in return for the grain, and therefore upon liquidation of the corporation there may be a $30,000 to $36,000 tax liability.
In dividing property the court is to consider the tax consequences to each party. Iowa Code § 598.21(1)(j); In re Marriage of Hoak, 364 N.W.2d 185, 193 (Iowa 1985). In In re Marriage of Friedman, 466 N.W.2d 689 (Iowa 1991), the trial court reduced the value of certain corporate stock awarded to a party in order to take into consideration capital gains taxes and costs of selling the stock. However, our supreme court rejected the reduction under the facts of the case, noting there was no evidence that a sale was pending or contemplated and the trial court had not ordered a sale. Id. at 691. It stated the reduction was the result of the inappropriate infusion of tax consequences on an illusory future sale of stock. Id.
In making a property division we have taken into consideration the tax consequences a party is expected to face in satisfying a property distribution. See e.g., In re Marriage of Miller, 552 N.W.2d 460, 465 (Iowa Ct. App. 1996). We have also held that where a payment of a lump sum of cash to a spouse will in all probability require the liquidation of capital assets, the income tax consequences of such sale should be considered by the trial court in assessing the equities of the property and spousal support award. See In re Marriage of Hogeland, 448 N.W.2d 678, 680-81 (Iowa Ct. App. 1989).
A key to these and other cases is that where a sale of an asset is ordered, necessary, or otherwise relatively certain, consideration of tax consequences is appropriate, and where sale will not occur or is rather doubtful, consideration of tax consequences is inappropriate. In this case no sale or liquidation of the closely held corporation has been ordered, no such sale or liquidation is necessary to effectuate property division, and no such sale or liquidation is relatively certain to occur within the reasonably foreseeable future. We conclude the trial court was correct in not taking into consideration the tax liability in question and affirm on this issue.
B. Spousal support
Rhonda claims the trial court erred in failing to award her spousal support. She argues the length of the parties' marriage, her absence from the job market until recently, and the fact she was securing a two-year degree only as of the time the parties' marriage was being dissolved support an award of spousal support.
Spousal support is an allowance to the spouse in lieu of the legal obligation for support. In re Marriage of Sjulin, 431 N.W.2d 773, 775 (Iowa 1988). Any form of spousal support is discretionary with the court. In re Marriage of Ask, 551 N.W.2d 643, 645 (Iowa 1996). Spousal support is not an absolute right; an award depends on the circumstances of each particular case. In re Marriage of Dieger, 584 N.W.2d 567, 570 (Iowa Ct. App. 1998). The discretionary award of support is made after considering the factors listed in Iowa Code section 598.21(3). Id. We consider the division of property in determining spousal support. In re Marriage of Bell, 576 N.W.2d 618, 622 (Iowa Ct. App. 1998).
When considering the appropriateness of spousal support, a court must consider, among other things, the parties' present standards of living and ability to pay balanced against their relative needs. In re Marriage of Williams, 449 N.W.2d 878, 883 (Iowa Ct. App. 1989).
The length of the parties' marriage and Rhonda's absence from the job market are factors that would favor some award of spousal support, depending on other circumstances that have a bearing on the issue. However, other factors strongly support a decision to not award spousal support. Rhonda is receiving a 154.9 acre farm that is fully paid for and can generate gross rental income of about $20,000 per year. She is receiving $133,134 in other present assets and will also receive $6000 per year for the next ten years as part of property division. She is debt free. As shown by her recent employment and salary and a recent job offer she received, she has the ability to earn wages of some $16,000 to $22,000 per year.
Based on the property distribution and Rhonda's age, education, income and earning capacity, we conclude she is capable of becoming self-supporting at a standard of living reasonably comparable to that enjoyed during the marriage. Upon our de novo review we conclude no spousal support should be awarded.
IV. APPELLATE ATTORNEY FEES
Both parties request an award of appellate attorney fees. We have discretion to award appellate attorney fees under Iowa Code section 598.36. In re Marriage of Maher, 596 N.W.2d 561, 568 (Iowa 1999). We consider the needs of the party making the request, the ability of the other party to pay, and whether the party making the request was obligated to defend the trial court's decision on appeal. Id. After considering the relevant factors, we conclude each party should be responsible for their own appellate attorney fees.
V. SUMMARY
We modify the trial court's decree to increase from $36,000 to $60,000 the amount Robert is required to pay Rhonda as part of property division. In all other respects we affirm the trial court. We deny each party's request for appellate attorney fees. Costs on appeal are taxed one-half to each party.
AFFIRMED AS MODIFIED.