Opinion ID: 1278472
Heading Depth: 1
Heading Rank: 3

Heading: Workers' Compensation Benefits as Divisible Property

Text: Like most other states, Iowa is known as an equitable distribution jurisdiction for purposes of dividing property in a dissolution of marriage. In re Marriage of McNerney, 417 N.W.2d 205, 207 (Iowa 1987) (citing Iowa Code § 598.21(1) (1985)). See generally Joseph A. McKnight, Defining Property Subject to Division at Divorce, 23 Fam. L.Q. 193 (1989). Equitable distribution essentially means that courts divide the property of the parties at the time of divorce, except any property excluded from the divisible estate as separate property, in an equitable manner in light of the particular circumstances of the parties. McNerney, 417 N.W.2d at 207. In Iowa, two types of property, inherited property and gifts received by one party, are specifically excluded by statute from the divisible estate. Iowa Code § 598.21(1) (2003). This property is normally awarded to the individual spouse who owns the property, independent from the equitable distribution process. Yet, this exclusion is not absolute. Iowa has a unique hybrid system that permits the court to divide inherited and gifted property if equity demands in light of the circumstances of a spouse or the children. Id. § 598.21(2). Property not excluded is included in the divisible estate. Under our statutory distribution scheme, the first task in dividing property is to determine the property subject to division. The second task is to divide this property in an equitable manner according to the factors enumerated in the statute, see id. § 598.21(1), as well as other relevant factors determined by the court in a particular case. Our statute is written to define divisible property as all property of the parties, other than the two classes of excluded property. Id. The statute provides: Upon every judgment of annulment, dissolution or separate maintenance, the court shall divide the property of the parties and transfer the title of the property accordingly.... The court shall divide all property ... equitably between the parties.... Id. This broad declaration means the property included in the divisible estate includes not only property acquired during the marriage by one or both of the parties, but property owned prior to the marriage by a party. In re Marriage of Brainard, 523 N.W.2d 611, 616 (Iowa Ct.App.1994). Property brought into the marriage by a party is merely a factor to consider by the court, together with all other factors, in exercising its role as an architect of an equitable distribution of property at the end of the marriage. Iowa Code § 598.21(1)( b ). More importantly, the statute makes no effort to include or exclude property from the divisible estate by such factors as the nature of the property of the parties, the method of acquisition, or the owner. All property, except inherited or gifted property, is included, and the circumstances and underlying nature of the included property are generally considered as factors that impact the second task of determining an equitable division, along with all other relevant factors. See id. § 598.21(1)(a)-(m). The question presented by this appeal, one of first impression in Iowa, is how an award of workers' compensation made to one spouse during the marriage fits within the equitable distribution framework. John argues that the workers' compensation award received in this case was predicated on an unscheduled injury resulting in a permanent partial disability and was primarily intended to compensate him for the loss of his earning capacity over his lifetime. See Trade Prof'ls, Inc. v. Shriver, 661 N.W.2d 119, 123 (Iowa 2003) (To evaluate an unscheduled disability, courts use the industrial method, which measures an employee's loss of earning capacity.) (citing Simbro v. Delong's Sportswear, 332 N.W.2d 886, 887 (Iowa 1983)). Consequently, John claims the workers' compensation award, like inherited and gifted property, should fairly and logically be set aside to him and excluded from the property division. The approach advocated by John has been adopted in many other jurisdictions and has become known as the analytic approach to distribution of workers' compensation. See generally Annotation, Divorce and Separation: Workers' Compensation as Marital Property Subject to Distribution, 30 A.L.R.5th 139, 150 (1995) [hereinafter Divorce and Separation ]. States that follow this approach primarily look to the underlying nature of the loss that makes up the award. See id. (stating that analytical approach look[s] to the nature of the underlying loss). Under this method of distributing workers' compensation, [a]ny portion awarded to compensate for lost wages during the marriage or for medical expenses paid with marital funds is marital property. Any portion paid to compensate an individual for lost premarital or postmarital wages or for medical expenses paid with separate funds is the injured spouse's separate property. Id. Other states follow what is known as the mechanistic approach. Id. Under this approach, a workers' compensation award is property subject to division if the award was received, or the right to receive the award accrued, during the marriage. Id. This approach is commonly used in equitable distribution states because it is derived from the underlying statutory directive that all property is equitably distributed except property expressly excluded by statute. This method primarily focuses on the timing of the award. Id. ; Drake v. Drake, 555 Pa. 481, 725 A.2d 717, 725 (1999). A few other states treat workers' compensation benefits as the sole and separate property of the injured spouse. Divorce and Separation, 30 A.L.R.5th at 150. This is known as the unitary approach. Id. Still, other courts follow approaches that have no designated classification. Id. In McNerney, we specifically recognized the various distribution approaches in holding that proceeds received during the marriage from a personal injury lawsuit constituted property subject to an equitable division at the time of the divorce. 417 N.W.2d at 208. In doing so, we concluded it was more just to allow a trial court the flexibility to divide property equitably on a case-by-case basis and therefore we adopt what is called the mechanistic approach. Settlement proceeds thus do not automatically belong to either party. Id. While some differences exist between a personal injury award and a workers' compensation award, the overall approach adopted in McNerney  that is, limiting property excluded from the divisible estate to the specific exclusions established by the statute and relying upon the equitable powers of the court to reach an overall equitable distribution scheme of all of the property  is generally compatible with treating workers' compensation benefits as a divisible asset. If our legislature had wanted to exclude workers' compensation benefits from divisible property, we think it would have included the benefits in the list of exceptions along with inherited and gifted property. See State v. Truesdell, 679 N.W.2d 611, 617 (Iowa 2004) (We apply statutes as written by our legislature, and resort to our rules of construction in the event of an ambiguity.) (citing State v. Albrecht, 657 N.W.2d 474, 479 (Iowa 2003)). Our statute is very clear. It states: The court shall divide all property, except inherited property or gifts received by one party equitably.... Iowa Code § 598.21(1) (emphasis added). Because the legislature expressly excluded two items of property from equitable distribution, we can infer that it intended all other property to be equitably distributed. Locate.Plus.Com, Inc. v. Iowa Dep't of Transp., 650 N.W.2d 609, 618 (Iowa 2002) (Generally, the express mention of one thing in a statute implies the exclusion of others. Thus, when a legislative body delineates exceptions, it is presumed that no others were created or intended. (Citations omitted.)). John seeks to avoid this outcome by claiming that workers' compensation benefits are not actually property, but income. Thus, he essentially argues that our legislature did not specifically exclude workers' compensation benefits as divisible property because workers' compensation benefits are not considered to be property. Moreover, he asserts his specific compensation award largely represented future income. We recognize that workers' compensation benefits awarded after a dissolution are considered to be income for purposes of determining child support, whether received in a lump sum or paid weekly. In re Marriage of Swan, 526 N.W.2d 320, 325 (Iowa 1995). Workers' compensation benefits represent income in a dissolution because the benefits essentially replace income that would otherwise have been earned had the worker not been injured. Id. Yet, this view of workers' compensation does not mean that benefits received and retained during the marriage cannot be considered property at the time of the divorce. Child support is mainly predicated upon earnings, but retained earnings ultimately become property. We acknowledge that future earnings of a spouse from employment are not considered to be property at the time of the divorce. See In re Marriage of Horstmann, 263 N.W.2d 885, 891 (Iowa 1978) (advance degree is not itself an asset for property division, but an increased earning capacity is a factor to consider in making an equitable distribution of property). However, even if workers' compensation proceeds represent future earnings, once received and retained during the marriage, the proceeds become property of the marriage. As property of the marriage, we do not attempt to apportion the proceeds received between lost earnings before the divorce and earnings after the divorce under the approach we adopted in McNerney. Thus, our treatment of workers' compensation proceeds as income means that the benefits become part of the divisible estate when received and retained during the marriage, just as other income becomes property when received and retained during the marriage. This leaves us with the question whether workers' compensation proceeds received after the divorce can become divisible property. We have previously held that courts may properly divide some assets in a dissolution of marriage that may have no present value, such as future royalties, as they are received in the future. In re Marriage of White, 537 N.W.2d 744, 747 (Iowa 1995). However, these assets can be considered part of the divisible estate because they are essentially derived from activities that occurred during the course of the marriage. As with pensions, a future interest is properly considered as a marital asset subject to distribution at the time of the divorce to the extent the future interest accrues during the marriage. See In re Marriage of Howell, 434 N.W.2d 629, 632 (Iowa 1989) (stating that Iowa law normally views pensions as property because they are a form of deferred compensation accrued during the marriage). On the other hand, future earnings from future employment do not accrue during the marriage and are not property. Consequently, it follows that workers' compensation proceeds received after the divorce are separate property of the injured spouse. See id. at 632-33 (military disability benefits for injuries in the line of duty are not compensation for past services rendered). Overall, the approach we adopt towards workers' compensation benefits allows the trial court the greatest opportunity to accomplish justice in each case. It permits the court to consider the same arguments John urges in support of treating the benefits as separate property in deciding how the benefits should be equitably divided, along with all the other relevant factors and circumstances of each case. See Drake, 725 A.2d at 726-27. For example, the statutory factors considered in reaching an equitable distribution of all property include the age and physical health of the parties, earning capacity of the parties, economic circumstances of each party, including future interests, and any other relevant factors. Iowa Code § 598.21(1). These factors authorize the court to consider the disability of an injured spouse and could support an award of a larger portion of property to a disabled spouse, including a larger portion, or all, of the workers' compensation benefits. Conversely, the same statutory factors could permit a court to use workers' compensation benefits expected to be received by an injured spouse after the divorce as a circumstance to justify an award to the other spouse of a larger portion of the property subject to division. In the end, the award, one way or the other, is a product of both the items of property included in the divisible estate and all other relevant factors that impact the equitable distribution of that property. An equitable distribution does not mean an equal division. See In re Marriage of Webb, 426 N.W.2d 402, 405 (Iowa 1988). Consistent with McNerney, and our statutory distribution scheme, we hold that workers' compensation benefits received up to the time of the dissolution are property subject to an equitable division to the extent they have been retained and not spent. Benefits received after the divorce constitute separate property of the injured spouse. We continue to adhere to the mechanistic approach adopted in McNerney and rely upon the relevant statutory factors to reach an overall equitable distribution of the property. In dividing the Schriners' assets, the district court improperly included the $32,256.44 of workers' compensation benefits John was yet to receive for his 2001 injury. The remaining benefits should have been treated as future income, not property subject to equitable distribution. The district court included the $32,256.44 in the Schriners' total assets subject to equitable distribution to arrive at a total of $528,927.21. The court then divided this number in half and awarded each party $264,488.60. Instead, we subtract the $32,256.44 from the Schriners' total assets. This yields $496,670.77. We divide that amount equally, as the district court did, and find DeAnn should have been awarded $248,335.38, and John should have been awarded $248,335.39. We find no circumstances to justify a division other than an equal award, even excluding the future workers' compensation payments as divisible property. DeAnn was awarded $16,153.22 more then she should have been awarded. Thus, we find the equalizing payment to DeAnn should be reduced from $22,109.99 to $5956.77.