Opinion ID: 2221928
Heading Depth: 1
Heading Rank: 2

Heading: Should the Life Insurance Proceeds From the Policy on Paul's Life be Set Aside to Sue?

Text: An equitable distribution of the parties' property must be made according to the criteria set forth in Iowa Code section 598.21(1) (1997). See In re Marriage of Gonzalez, 561 N.W.2d 94, 98 (Iowa App.1997). This statute excludes from the court's property division inherited property or gifts received by one party. Iowa Code § 598.21(1). This exception is qualified later in the statute: Property inherited by either party or gifts received by either party prior to or during the course of the marriage is the property of that party and is not subject to a property division under this section except upon a finding that refusal to divide the property is inequitable to the other party or to the children of the marriage. Id. § 598.21(2) (emphasis added). For purposes of the present case, our analysis is twofold: (1) do the proceeds from Paul's life insurance policy qualify as inherited or gifted property; and (2) would it be inequitable to David to refuse to divide this property. (Although the latter issue would normally include an analysis of the inequities to the parties' children, such an inquiry is unnecessary here because Jami is an adult and is not dependent on her parents for her support.) A. Life insurance proceeds as inherited or gifted property. David contends that the life insurance proceeds received by Sue upon the death of their son was not a gift to her. He argues that the funds were made payable to her simply because she had traditionally been the money manager for the family. We think this fact, if true, is more appropriately considered in connection with the equities of excluding the property from division by the dissolution court. The evidence clearly establishes that Paul designated his mother as the only beneficiary of his life insurance policy. Therefore, we conclude that the proceeds constitute a gift to or inheritance by Sue. See generally In re Marriage of Wertz, 492 N.W.2d 711, 713 (Iowa 1992) (treating insurance proceeds received by one spouse as an inheritance). Accordingly, any remaining proceeds should be excluded from the property distribution unless it would be inequitable to do so. B. Equities of excluding the life insurance proceeds from the division of the parties' property. In determining whether it would be inequitable to David to refuse to divide Paul's gift to his mother, we consider the following factors: (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 either 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 Muelhaupt, 439 N.W.2d 656, 659 (Iowa 1989) (quoting In re Marriage of Thomas, 319 N.W.2d 209, 211 (Iowa 1982)). We have also said that the length of the marriage may be an important factor in determining whether gifted property should be included in the court's property distribution. See id. As we noted in Muelhaupt, where the parties have enjoyed, over a lengthy period of time, a substantial rise in their standard of living as the result of gifts or inheritances, then any division of property should enable the parties to continue that lifestyle, even if that goal requires the division of gifted property. Id. We have had several occasions to apply these rules, which provide guidance in the present case. In Muelhaupt, we concluded that it would be inequitable not to consider gifted shares of stock made to the husband representing a closely held family corporation. Id. at 660. The marriage lasted twenty years, during which time the parties shared a comfortable lifestyle in large part based on the husband's business income. Id. In contrast, the wife had never worked outside the home. Id. We held that the stock should be included in the court's division of assets, but that an equal distribution of the stock was not required. Id. In the Thomas case, we applied the same factors to decide whether a farm, gifted to the husband, should be considered a marital asset subject to division in the dissolution action. 319 N.W.2d at 211-12. Certain factors supported such a division: (1) the wife had contributed toward improvement of the farm home; and (2) the wife had made extensive contributions to family income. Id. at 212. On the other hand, the wife was able to support and care for herself and had no special needs. Id. Under these circumstances, we concluded that, on balance, the farm should be set aside to the husband. Id. More recently, in In re Marriage of Geil, 509 N.W.2d 738 (Iowa 1993), we held that farm property inherited by the wife and its related debt should be divided equally between the parties. 509 N.W.2d at 741. We noted that the farm had served as the family homestead and had provided the family's livelihood for many years. Id. In addition, the farm and its substantial debt were inextricably intertwined and it would be unfair to permit either party to leave the marriage without ongoing responsibility for this debt. Id. With respect to other inherited property, including jewelry, securities, and land in Texas, we observed that they had not provided a source of support during the marriage and, therefore, the husband could not complain if some portion of these assets were not awarded to him. Id. Turning to the facts of the present case, we first address David's argument that Paul named his mother as beneficiary because she was the family's money manager. The record does support the conclusion that Sue was responsible for family finances. However, there is no other support for the conclusion that Paul's intent was that both parents share in the insurance proceeds other than David's assertion of that fact. Furthermore, the record does not reveal any reason that Paul could not have named his father as an additional beneficiary on the policy if he had wanted the policy benefits to be distributed to both of his parents. Finally, other than the fact that David was Paul's father, there is no evidence in the record of a close relationship between them. Examining the Muelhaupt factors, we find nothing in the record to show that David contributed to the care, preservation, or improvement of the assets acquired with the insurance proceeds. We have already addressed the nature of the relationship between the donor, Paul, and David, and find nothing there to support a conclusion that it would be inequitable to give effect to Paul's express intent by allocating the insurance proceeds to Sue. Although both parties helped to preserve assets purchased with the policy benefits through their contributions to their joint economic welfare, David certainly contributed more funds to the maintenance of the parties by virtue of his higher income. On the other hand, as the trial court observed, Sue was a shrewd money manager and was able to maximize the parties' wealth through her efforts in supervising their finances. We also note that, with the exception of the purchase of a washer and dryer, Sue's inheritance was not used to raise the parties' standard of living. Finally, with respect to the special needs of the parties, Sue has emotional, physical, and dental problems; David is in good health. Considering all factors, we think that on balance there is no inequity in setting aside the identifiable assets purchased with the insurance proceeds to Sue. C. Assets to be set aside. The insurance proceeds totaled $43,000. Some of these proceeds were spent on items other than the acquisition of assets: (1) the $1,000 contribution to the local rescue unit; and (2) $2,900 for Paul's funeral expenses. Sue used $1,000 of the insurance benefits to purchase a washer and dryer. The record does not establish whether the washer and dryer awarded to Sue in the court's property distribution is the one she purchased with her inheritance. In any event, the value of the washer and dryer listed in the parties' assets is only $200 to $250, a de minimis amount in the context of this issue. Therefore, we will not be concerned with these items. The Farm Bureau annuity that was funded with a portion of the proceeds still exists and should be excluded from the property division. The mutual fund no longer exists, but the evidence shows that Sue gave Jami $6,000 from this account as a gift. Sue also testified that $16,000 from the mutual fund was transferred over time to Sue's IRA. She requests that this amount, plus an additional sum representing the growth of these monies, be set aside from her IRA. We set aside $14,800 from Sue's IRA, a figure that represents the balance of her original contribution to the mutual fund made from her inheritance ($20,800 less $6,000). We decline to set aside any additional amount attributable to earnings because the record does not provide a basis to calculate any such earnings. Finally, we deduct $7,200 from the value of the parties' marital home, which was awarded to Sue, representing her pay off of the mortgage with the funds she inherited. See Wertz, 492 N.W.2d at 714 (excluding from division of assets $22,000 mortgage payment made on marital home from wife's inheritance). In summary, with respect to Sue's inheritance, we exclude from the property distribution the Farm Bureau annuity, $14,800 of Sue's IRA, and $7,200 of the value of the marital home. This action results in a total reduction of $37,371 in the property awarded to her. We now consider whether other disputed items should be included in the property distribution.