Summary
affirming alimony award based in part on wife's poor health, including rheumatoid arthritis and ulcerative colitis
Summary of this case from Huegli v. HuegliOpinion
No. 3-650 / 03-0175
Filed February 11, 2004
Appeal from the Iowa District Court for Grundy County, George L. Stigler, Judge.
The respondent appeals, and the petitioner cross-appeals, from the economic provisions of the decree dissolving their marriage. AFFIRMED AS MODIFIED ON APPEAL; AFFIRMED ON CROSS-APPEAL.
Kevin Engels of Correll, Sheerer, Benson, Engels, Galles Demro, P.L.C., Cedar Falls, for appellant.
Thomas Langlas of Gallagher, Langlas Gallagher, Waterloo, for appellee.
Considered by Sackett, C.J., and Miller and Hecht, JJ.
Linda Kay Swalley appeals from the dissolution decree entered by the district court dissolving her marriage to Kevin Jon Swalley. She contends the court erred in failing to require Kevin to pay an additional amount of support for her anticipated costs of health insurance and her monthly medical expenses, and in failing to require him to designate her as a beneficiary on one of his life insurance policies or his executive supplemental income benefit. Kevin cross-appeals, contending the court erred in not taking into consideration the tax consequences to each party in its division of marital assets. We affirm as modified on the appeal and affirm on the cross-appeal.
Background Facts and Proceedings.
Kevin and Linda were married August 17, 1977. They are the parents of one child, Zachary, born March 7, 1988. The parties separated in January 2001 and Kevin filed a petition for dissolution of the marriage on August 13, 2001. The case proceeded to trial and the court entered a dissolution decree on August 20, 2002. Both parties filed motions to enlarge or amend the court's findings and conclusions pursuant to Iowa Rule of Civil Procedure 1.904(2). The court entered a ruling on the motions on January 7, 2003.
Kevin was forty-five at the time of the dissolution trial and Linda was forty-four. Kevin has a B.A. in accounting and is a CPA. He is currently the chairman and CEO of the Grundy National Bank, the Ackley State Bank, and their related holding company. In 2001 Kevin had a base salary of $93,000, plus an additional $10,488 in director's fees. Kevin has been diabetic since age thirteen, but controls it with daily insulin shots and the trial court found him to be in good health.
Linda has one year of post-secondary education but quit college to get married. At the time of the trial Linda was working two days per week as an office assistant in an optometrist's office earning $550 per month, or approximately $6,600 per year. The court found Linda's health to be poor. She has suffered from rheumatoid arthritis since 1977. It severely limits her ability to do many activities. She was diagnosed with ulcerative colitis in 1976 and had her colon removed in 1983. She also suffers from osteoporosis and allergies. The court found that Linda's medical conditions limit her ability to work and that due to these conditions she will likely never be able to work In any job that pays a substantial wage and may not be able to work for any substantial amount of time.
Linda has no health insurance available through her present, part-time employment. She has health insurance costs of $240 per month for a "COBRA" plan through Kevin's employer. In addition she has prescription medicine costs of $80 per month which are not paid by insurance.
The trial court awarded Kevin and Linda equal amounts of property, with each receiving $509,770. In dividing property the court equally divided 3,850 shares of Grundy National Bank stock, with each party receiving stock with a value of $148,706, and the court awarded Kevin $251,609 and Linda $150,052 of Kevin's KSOP with GNB Bancorporation. Kevin was ordered to pay as child support $750 per month plus 10% of the gross amount of any bonus he receives or stock options he exercises.
The KSOP is a deferred compensation plan Kevin receives through his employment. It is undisputed that there will be both federal and state income tax imposed on the party withdrawing from this fund, whether the funds are withdrawn at the time of retirement or before retirement.
The only issues on appeal deal with spousal support and the income tax consequences of the trial court's division of assets. Kevin proposed that he pay alimony of $1,250 per month for eight years (but to cease if either party died or Linda remarried), plus 25% of his net (after tax) additional income from bonuses and stock options. Linda proposed that Kevin pay alimony of $2,500 per month until either party died or Linda remarried. The trial court ordered that Kevin pay alimony of $1,000 per month, increased to $1,500 per month when his child support obligation ends, until either party dies or Linda remarries or cohabitates with another. It ordered that Kevin also pay as alimony 25% of the net amount of any bonuses he receives and 25% of the net gain (gain less state and federal income taxes) from stock options he exercises. The decree does not require Kevin to pay any amount specifically designated for Linda's health insurance costs.
Linda also proposed in the trial court that Kevin be required to designate her as the beneficiary of $100,000 of the death benefits of one of his life insurance policies, and also designate her as a beneficiary under any deferred compensation plan in effect at the time, such as his Executive Supplemental Income Plan Agreement. The trial court did not require Kevin to do so. Linda renewed the request in a post-trial motion. The trial court again did not require Kevin to do so.
Linda appeals from the dissolution decree contending the court erred in failing to require Kevin to pay an additional amount of support for her anticipated costs of health insurance and other monthly medical expenses. On appeal she requests that Kevin's monthly alimony obligation be raised to $1,500 per month, plus the 25% of his net bonuses as already ordered. She contends she is requesting this additional amount rather than requesting an order for a separate amount from Kevin specifically designed for health insurance, an order which would be supported by precedent, or an order directing Kevin to continue paying for her health insurance. Linda asserts this increase will enable her to pay for her health care expenses, including health insurance, and still meet her other monthly expenses. She also contends the court erred in failing to require Kevin to designate her as a beneficiary on one of his life insurance policies or his executive supplemental income plan.
Kevin cross-appeals contending the court erred in failing to take into consideration the tax consequences to each party in its division of marital assets. Kevin provided the court with evidence, in a document attached to his pretrial statement, regarding the tax consequences to each party based on his proposed division of assets and argues on appeal the court erred in failing to take this into consideration in the decree. It appears undisputed that adverse tax consequences will be unavoidable when each party withdraws their respective share of the retirement funds from Kevin's KSOP. Kevin contends that because his tax bracket is much higher than Linda's the tax consequences to him will be more severe and the court should have addressed this issue in the decree. On appeal he requests we award $70,910 more of the KSOP to him in order to make up for the difference in tax consequences the parties will incur as a result of the division of the KSOP and the trial court's allocation of other assets, thus equalizing the property distribution.
Scope and Standard of Review.
Dissolution actions, as equitable proceedings, are reviewed de novo. Iowa R. App. P. 6.4; In re Marriage of Benson, 545 N.W.2d 252, 253 (Iowa 1996). We give weight to the fact findings of the district court, especially when considering the credibility of witnesses, but we are not bound by these findings. Iowa R. App. P. 6.14(6)( g); In re Marriage of Knickerbocker, 601 N.W.2d 48, 51 (Iowa 1999).
Alimony.
"Alimony 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 spousal support is made after considering the factors listed in Iowa Code section 598.21(3) (2001). Id. Property division and alimony should be considered together in evaluating their individual sufficiency. In re Marriage of Trickey, 589 N.W.2d 753, 756 (Iowa Ct. App. 1998).
When determining 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). In marriages of long duration where the earning disparity between the parties is great, both spousal support and nearly equal property division may be appropriate. In re Marriage of Weinberger, 507 N.W.2d 733, 735 (Iowa Ct. App. 1993).
The trial court awarded Linda $1,000 per month in alimony plus 25% of any net bonuses received and 25% of the net gain, minus taxes, of stock options exercised by Kevin in the future. In making its determination the court specifically noted that Kevin's earning capacity far exceeds Linda's and that because of Linda's medical problems, "She will never be able to work any job that pays a substantial wage or indeed may not be able to work any job for any substantial period of time." All of the evidence of Linda's medical problems and the costs that accompany these problems, including the cost of her health insurance and prescription medicines, was presented to the court. The court found Linda's health to be poor, noted her numerous medical problems, and found she will in fact need support for the rest of her life. However, the court found that the $2,500 per month Linda was requesting in alimony was excessive because it would not permit Kevin sufficient income to live on after payment of alimony and child support.
Based on our de novo review of the record we agree with the trial court's implicit determination that under the facts and circumstances of this case an award of traditional, permanent alimony is appropriate. We believe, however, that it would not be equitable to set the monthly amount at less than the amount proposed by Kevin ($1,250 plus a percent of bonuses and gains from stock options as ordered by the trial court). We therefore modify the trial court's decree to set his monthly alimony obligation at that amount. If, as Linda strongly argues will occur, Kevin receives bonuses and stock options in the future that are similar to those he received in the several years prior to 2001 Linda may well receive monthly alimony approaching, or perhaps even exceeding, the $2,500 she requested in the trial court. We therefore conclude that equity does not require further modification of the trial court's decree to increase the alimony award to $1,500 per month plus the percent of bonuses and stock options proposed by Kevin and ordered by the trial court.
We do not modify the part of the decree that increases the amount to $1,500 per month when Kevin's obligation to pay child support ends, which will presumably occur after about four years of $1,250 per month payments.
Kevin estimates his combined federal and state income tax rates to be about 36% or 40%. Using the lower figure, 25% of his net bonuses for either 1996 through 2000 or for 1998 through 2000 would be about $625 per month. Further, although the record does not appear to be at all clear concerning stock options, evidence indicates Kevin received stock options in several recent years, including options worth $64,260 in 1999.
Life Insurance.
Linda next contends the trial court erred in failing to require Kevin to designate her as a beneficiary on one of his life insurance policies or his executive supplemental income benefit. As set forth above, although Linda's pretrial statement requested Kevin be ordered to designate her as a beneficiary the trial court did not order that he do so.
A provision in a dissolution decree which requires a party to maintain life insurance is enforceable. Stackhouse v. Russell, 447 N.W.2d 124, 125 (Iowa 1989). An alimony payor may be required to designate the alimony payee as the beneficiary of the payor's life insurance policy for as long as his spousal support obligation continues. In re Marriage of Debler, 459 N.W.2d 267, 270 (Iowa 1990). The obligation to provide life insurance may be limited to the amount necessary to secure the alimony obligation. In re Marriage of Mouw, 561 N.W.2d 100, 102 (Iowa Ct. App. 1997).
The record shows that Kevin is the holder of two life insurance policies. One is a policy through Reassure American Life with a death benefit of $100,000 and a cash value of $7,923. A second policy is issued through Allied, and is a group term plan provided to Kevin though his employer. The benefit amount of the Allied plan is equal to his annual salary, i.e. $93,000 in 2001, and is provided without any cost to Kevin. Kevin pays an additional amount of $1,140 per year to increase the death benefit on this policy to $300,000. In addition, his executive supplemental income plan through the bank provides, in part, a pre-retirement death benefit with a fifteen-year payment stream to a designated beneficiary. This is also provided to Kevin at no cost to him, but is subject to certain conditions of employment.
We determine that under the specific facts and circumstances of the case at hand a requirement that Kevin maintain life insurance and designate Linda as the beneficiary of a certain amount of proceeds is appropriate and necessary. Linda's limited education, limited employment experience, and her fairly extensive medical problems suggest that she will not be able to work full time or work at any job that pays a substantial wage or provides comprehensive benefits, and in all likelihood will remain dependent for the balance of her life. Thus, there are significant reasons for providing such security to her. Furthermore, the cost to Kevin of providing such insurance is known and clearly is not burdensome because a substantial part of his life insurance benefits are provided at no cost to him. Based on the length of the parties' marriage, the number and nature of Linda's medical problems, and Linda's resulting inability to be full-time employed, we believe it would be unfair and inequitable to leave her without the protection and security she clearly needs and could receive, in part, from Kevin's life insurance at very little cost to him.
Accordingly, we modify the decree to require that Kevin maintain life insurance with death benefits of at least $200,000 and designate Linda as the beneficiary of $200,000 of the proceeds. The amount of life insurance he is required to maintain, and the amount of death benefits as to which he is required to designate Linda the beneficiary, are reduced to $150,000 when Linda reaches age fifty, to $100,000 when Linda reaches age fifty-five, and to $50,000 when Linda reaches age sixty. The requirement shall end when Linda reaches age sixty-five. These obligations to maintain life insurance with Linda as a beneficiary shall of course end in the event of Linda's death.
Cross-Appeal.
Kevin claims in his cross-appeal that the court erred in not taking into account the tax consequences the parties will incur when they withdraw their share of the retirement funds from Kevin's KSOP. Kevin presented undisputed evidence that both parties will incur tax consequences when they withdraw money from his KSOP and because he is in a higher tax bracket than Linda the tax consequences to him will be more severe when that time comes. Kevin asked that tax consequences resulting from the division of the KSOP and other assets be taken into account by the court in dividing property. However, the trial court's otherwise equal division of the parties' property does not take income tax consequences into account.
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. Friedman, 466 N.W.2d 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 awards. See In re Marriage of Hogeland, 448 N.W.2d 678, 680-81 (Iowa Ct. App. 1989).
The 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 the sale of an asset is not at issue, but realization and recognition of gain upon withdrawal of monies from assets is at issue. We believe the two situations bear at least some significant similarities that can aid our analysis of the present issue.
Here no withdrawal has been ordered, no such withdrawal is necessary to effectuate property division, and most importantly no such withdrawal is relatively certain to occur within the reasonably foreseeable future. The parties here are only in their mid-forties and thus retirement is most likely as much as twenty years away for one or both of them. What income tax rates in general, and what these parties' individual income tax rates in particular, will be some twenty years in the future is highly speculative. Further, even assuming that Kevin will pay substantially more income taxes than Linda as a result of their respective withdrawals from the KSOP and from possible disposal of other assets, the present value of the difference, which may not occur for some twenty years, would not appear to be of great significance where, as here, each party received property with a value of over one-half million dollars. We conclude the trial court did not act inequitably by not awarding Kevin an additional amount of the KSOP to take into account income tax consequences, and deny his request that we modify the decree to do so.
Conclusion.
Based on the particular facts and circumstances of this case, and for the reasons set forth above, we modify the decree to increase the amount of alimony awarded to Linda and to require Kevin to maintain life insurance and designate Linda as the beneficiary of the proceeds of such life insurance. In all other respects we affirm the trial court.
AFFIRMED AS MODIFIED ON APPEAL; AFFIRMED ON CROSS-APPEAL.
(Sackett, C.J. concurs in part and dissents in part.)
I concur in part and dissent in part. I would affirm the district court.