Court Opinion

ID: 9349284
Source: CourtListenerOpinion
Date Created: 2022-12-21 16:03:27.288096+00
Date Added: 2024-06-11T16:46:35.745166
License: Public Domain

IN THE COURT OF APPEALS OF IOWA

                                    No. 21-1998
                             Filed December 21, 2022

IN RE THE MARRIAGE OF DEREK W. GEORGE
AND DEBRA A. GEORGE

Upon the Petition of
DEREK W. GEORGE,
      Petitioner-Appellee,

And Concerning
DEBRA A. GEORGE,
     Respondent-Appellant.
________________________________________________________________

      Appeal from the Iowa District Court for Wayne County, Thomas P. Murphy,

Judge.

      Respondent in a dissolution appeals from the distribution of assets.

AFFIRMED AS MODIFIED.

      Donna R. Miller of Miller, Zimmerman & Evans, PLC, Des Moines, for

appellant.

      Bryan J. Goldsmith and Carly M. Schomaker of Gaumer, Emanuel,

Carpenter & Goldsmith, P.C., Ottumwa, for appellee.

      Considered by Vaitheswaran, P.J., and Greer and Schumacher, JJ.
                                          2

GREER, Judge.

       After resolving most of the issues involved in dissolving her marriage to

Derek George, Debra George draws our attention to the dispute over her inherited

property. Debra maintains the district court improperly resolved the issue and,

thus, the equalization payment to be paid to her was too low. She appeals from

the property distribution.   Debra also requests appellate attorney fees.        She

maintains the property distribution should not have included money she was gifted

or inherited as a child, but the district court found that the funds were comingled in

such a way it would be unfair to separate them from the marital property. Because

we agree with Debra that certain expenditures from these funds maintained their

identity as gifted and inherited funds and should not have been included in the

property distribution, we modify that portion of the property distribution.

I. Background Facts and Procedural History.

       Derek and Debra married in 1998 and together have four children. Debra’s

father passed away when she was still an infant; because he was employed by the

Internal Revenue Service at the time, Debra received payments from a federal civil

service survivor annuity. After her husband’s death, Debra’s mother also received

social security survivor benefits while Debra was still a minor; she used what was

necessary to care for Debra but invested the excess in Debra’s name.1 Because

Debra’s mother had no obligation to save these benefits, Debra considered the

transfer of those monies to her a gift. Before the marriage, Debra also inherited

1A 1998 statement maintained by Debra’s mother showed the investments totaled
$315,241.03, but the district court only listed one asset, the Uniform Transfer to
Minors 1998 account fund, with a balance of $177,259.52 in its ruling.
                                        3

$7996.92 from a family member’s estate, which her mother managed and invested

pursuant to a guardianship. Two of the investments in these accounts were a

Fidelity IRA and 110 shares of American Electric Power. The ownership and

character of these investments have not changed since before the marriage, but

the value has. At the time of the marriage, these were worth $5163.82 and $5390

respectively; they were worth $4906 and $8430 respectively at the time of the

dissolution trial. The stock also paid dividends throughout the marriage. Debra’s

mother continued to manage the funds until the end of 2008. 2 All in all, Debra

argued she brought over $315,000 of gifted or inherited funds into the marriage

while Derek only had a truck.

      Over the course of their marriage, Debra used portions of these funds. She

put a $22,000 down payment on the couple’s home and paid $7000 to buy an

adjoining lot. The couple eventually sold both, and the proceeds went into a joint

bank account before being used to build a home, where Debra still lived at the time

of dissolution. The couple owned four pieces of farmland—Dotts 70, Dotts 60,

Brown, and Core. Debra also used some of her inherited or gifted funds for a

$7500 down payment on Dotts 60 in 2002 and, in 2007, paid off the parcel’s

remaining $44,000 debt. With these same funds, she also invested $20,000 in

gold and silver3 and put $5000 towards her law firm. Both Derek and Debra

maintained separate accounts over the years of the marriage.

2 The district court considered these gifted and inherited funds, which no party
appealed.
3 The trial value of the gold and silver was $17,883.
                                          4

       Core was a part of Derek’s family farm. When Derek’s parents divorced,

Derek and his father formed a limited liability company (LLC) that held Core; Debra

contributed $248,042.38 of her gifted or inherited funds to Core’s mortgage in

2009. Derek and Debra later sued Derek’s father for a breach of fiduciary duties

and the LLC was dissolved. In the proceeding dissolving the LLC, the court treated

the payment as a capital contribution by Debra and transferred an additional 119.6

acres of farmland to Debra and Derek over and above the land received to satisfy

their interest in the LLC.

       Derek filed for dissolution in 2019. As noted, Derek and Debra agreed to

most things, including the care and custody of their children, the distribution of the

four farm parcels, farm equipment, Derek’s retirement accounts, and the marital

home. But the couple asked the court to determine (1) the value and building debt

of Debra’s law firm and abstracting business, (2) how to handle Debra’s Fidelity

IRA, American Electric Power stock, and the gold and silver; (3) what, if any,

amount should be set aside as Debra’s for contributions from her gifted and

inherited funds; and (4) how to value a lawn mower that had recently caught fire.

All of these disputes impacted any equalization payment necessary between the

couple.

       On a worksheet exhibit, Derek laid out the asset distribution the parties

agreed on and also included funds Debra claimed were inherited and gifted. Under

his distribution plan, a fair equalization payment—before the consideration of any

inherited or gifted property or tax implications—would be $432,451, or half of the

difference between Derek and Debra’s retained equity.           Taking into account

adjustments for capital gains implications on both the land and the equipment, this
                                         5

number dropped to $298,717. But, Derek agreed at trial that the proper number

was probably closer to the $432,451 figure because he did not plan on selling the

land.   He also testified he planned on selling the equipment, but not for the

purposes of paying Debra any required payment. Both of these numbers were

subject to change based on how the district court came out on the disputed issues.

Debra, however, maintained that her contributions from any gifted or inherited

funds should be separated from any determination of an equitable property

division. She provided her own calculations showing the gifted or inherited funds

that should be set aside to her and requesting various versions for an equitable

split of marital property. Noting that Debra’s funds advanced the joint interests of

the parties, the district court determined that Debra’s inherited and gifted funds

“became so invested in marital assets” that the court could not “fully compensate”

her for those contributions. So instead the court did not address the payments but

did increase the equalization payment to Debra to $450,000. Debra filed a motion

to enlarge, pursuant to Iowa Rule of Civil Procedure 1.904, asking the court to

determine what assets were inherited and gifted and exclude them from the

property division; the district court summarily denied the motion. Debra now

appeals.4

4  We review equity actions involving the dissolution of a marriage de novo,
examining the whole record anew and giving weight to the district court’s credibility
findings, but we “disturb the district court’s ‘ruling only when there has been a
failure to do equity.’” In re Marriage of McDermott, 827 N.W.2d 671, 676 (Iowa
2013) (citation omitted).
                                          6

II. Discussion.

       As a basic failure, Debra takes issue with the district court’s initial

categorization of the assets. To her point, the district court often referred to the

funds that were gifted or inherited by Debra before the marriage as her “premarital

funds.”5 But, while “premarital funds” are properly part of the property divided in a

dissolution proceeding, Iowa Code section 598.21(5) and (6) (2019) require us to

exempt inherited and gifted property from the typical property division in a

dissolution unless doing so would be inequitable. See In re Marriage of Wallace,

315 N.W.2d 827, 831 (Iowa Ct. App. 1981) (“Our obligation to respect and give

effect to the wishes of those who convey gifts and bequeath inheritances demands

of us that those wishes not be rendered nugatory by the mere fact that the intended

recipient happens to be married.”).

       In Debra’s view, the specific assets in question are her contributions to the

farmland, investments in the family’s first home and adjacent land, investments in

her businesses, the American Electric Power stocks, her Fidelity Rollover IRA, and

the gold and silver. Contrary to the district court’s use of the terms “premarital

funds,” Debra characterizes the funds used as gifted and inherited assets and

maintains that there is no difficulty in separating the assets from others because

she simply asked for reimbursement.           To achieve equity, we explore which

characterization is correct and if we can separate those amounts to afford her the

benefit of the donor’s intent.

5Unlike gifted or inherited property, premarital property is included in the divisible
estate. In re Marriage of Schriner, 695 N.W.2d 493, 496 (Iowa 2005).
                                          7

       The comingling of inherited or gifted funds with marital assets is not enough,

alone, to require the property to be divided as a marital asset. In re Marriage of

Liebich, 547 N.W.2d 844, 851 (Iowa Ct. App. 1996). Instead, we look to a variety

of factors to determine if equity demands such division, including:

               (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.

McDermott, 827 N.W.2d at 679 (alterations in original) (citation omitted).

       Considering this case’s specific circumstances, we recognize that the

money in Debra’s separate accounts largely accumulated because of her mother’s

smart stewardship, which lasted into the couple’s marriage. In fact, most of the

purchases made from these funds occurred before Debra’s mother relinquished

control of the accounts in 2008.6 There is also no dispute that there was no special

relationship between Derek and Debra’s father or aunt, and Derek posits no

special need. Both parties worked and contributed economically to the marriage,

and it was mostly these incomes that maintained the couple’s lifestyle rather than

Debra’s separate funds. Debra has stated that she has special need for the funds

6 Derek stated at the dissolution hearing that he had gotten some investment
advice in 2008 or 2009 when he saw the looming housing crisis—specifically to
take the money out of the stock market, allowing them to spend the money to
purchase the Core farm. But this did not contribute to the growth of that money or
the initial investment.
                                          8

to be returned because she is self-employed and has a different ability to save for

retirement than Derek. Derek failed to show any factor that would make setting

aside the gifted and inherited funds to Debra inequitable.

       Overall, we find these factors point to exempting the funds from the property

division as part of the dissolution. But it would not be equitable to make a blanket

statement considering the differing circumstances of each withdrawal Debra

raises; instead, we evaluate each separately.

       Accounts and Assets Easily Traced.

       As a part of funds her mother invested for Debra, the American Electric

Power stocks and the Debra’s Fidelity IRA have been maintained as they existed

pre-marriage. The values of these assets at the time of trial should be set aside

to Debra and not considered in the calculation of her share of the marital property

division. The same can be said of the gold and silver, which was an investment

the couple agreed to but one where gifted funds paid for the investment. Thus the

stock value ($8430), the Fidelity IRA value ($4906), and the value of the gold and

silver ($17,883) should be set aside and not considered in the division of the marital

property.

       Monies Spent on the Farms.

       Debra requests that she be given credit for payments made from her

premarital gifts and inheritance towards two farm properties. Specifically, we

examine here the $248,042.38 down payment on Core and the $7500 down

payment and subsequent payoff of the $44,000 debt against Dotts 60. Contrary

to the district court, we find these payments are easily traceable.        See In re

Marriage of Sterner, No. 18-0409, 2019 WL 1057304, at *4 (Iowa Ct. App. Mar. 6,
                                          9

2019) (finding although the husband used inheritance funds to pay off the farm

mortgage on jointly held property, “the use of the inherited funds [was] traceable

and the property was still in the possession of parties at the time of dissolution;”

and affirming the court’s determination the inherited funds should be set aside prior

to the property division). Here, not only was the money easily traced to the

enhancement of the equity in the farmland, in the case of the Core property, in the

earlier proceeding regarding the LLC, the court specifically set farmland aside to

Debra and Derek to reimburse Debra for her $248,042.38 contribution. We believe

the payments made by Debra for the farmland should be set aside as assets to

return to Debra and should not factor in to the division of marital assets.7

       Contributions by Debra to the Family Homes and Her Business.

       Debra requests that the gifted and inherited funds used as a down payment

on her and Derek’s first home ($22,000) and the purchase of the adjoining lot

($7000), along with a payment to buy into the law firm ($5000) also be set aside

and removed from the marital property pool. But as to the money Debra spent on

the family’s home, the house has since sold and, after placing the monies in a joint

account, funds were then used to build a new home. Debra was awarded that

home and there is little record tracing the funds through time. As for the law-firm

investment, that payment is minimal and, because Debra was awarded the

7 Debra also asks that we set aside the growth on her investment in the farmland.
Our supreme court has stated that because “[d]ecisions on how to use property
during the marriage, including inherited property, bear most of the characteristics
of a family decision,” “the resulting appreciation or loss may be characterized as
marital property.” In re Marriage of White, 537 N.W.2d 744, 746 (Iowa 1995). As
that growth is all part of the value of the farmland, which was distributed pursuant
to Derek and Debra’s agreement, we address only the initial investments.
                                         10

business property, we will not set that sum aside. For these reasons, Debra’s

investments in the family homes and her business will not be set aside for her.

         Final Calculation.

         Taking these figures into account, as well as the values the district court

placed on various assets that the parties do not dispute, Debra’s portion of net

divisible marital property is $973,588.62 compared with Derek’s $2,225,981.

Although Derek asked the district court to consider the capital gains impact on sale

of the equipment, losses involving the equipment as calculated by his expert

appraiser. And, as in many cases involving potential sales of assets being divided,

each party would have capital gain concerns if sales of the property were required.

See Iowa Code § 598.21(5)(j) (directing courts to consider tax consequences when

dividing property). And, Derek admitted he had not looked into his loan options,

whereas Debra testified she spoke to their current farm lender, which was willing

to lend more than three million dollars as long as the farm had cash flow. In

interpreting section 598.21(5)(j) in the past, our supreme court has determined that

where the court does not force the sale of property or order a lump-sum payment

that would require the sale of property, a property distribution should not account

for such tax implications. See McDermott, 827 N.W.2d at 684 (forgoing accounting

for tax implications when the court did not require farmland to be sold, the party

did not have the intention of selling the farmland, and “had the financial ability to

take a mortgage out on the property to pay the equalization payment”). Because

it did not appear that Derek would have to sell the equipment or land to make the

lump-sum payment ordered by the court, we do not credit him for those capital

gains.
                                           11

       With these adjustments, and following the plan Derek and Debra asserted

at trial of paying Debra half of the difference between her and Derek’s retained

equity, we find Derek shall pay Debra an equalization payment of $626,196.19.8

       Appellate Attorney Fees.

       Finally, Debra asks for appellate attorney fees. “Appellate attorney fees are

not a matter of right, but rather rest in this court’s discretion,” and we consider “the

needs of the party seeking the award, the ability of the other party to pay, and the

relative merits of the appeal.” Id. at 687 (citations omitted). In light of these factors,

we decline to award Debra appellate attorney fees.

III. Conclusion.

       We affirm the district court’s dissolution decree apart from the exemption of

inherited and gifted property, which changes the equalization payment of the

property division to Debra to the sum of $626,196.19. We decline to award

appellate attorney fees.

       AFFIRMED AS MODIFIED.

8  After totaling the assets properly awarded to each party, Derek was awarded
$2,381,600; Debra, for her part, was awarded $1,635,175. Subtracting their
liabilities, $155,619 for Derek and $362,044 for Debra, and the $299,542.38
traceable from Debra’s gifted or inherited funds we find Derek was awarded
$2,225,981.00 in marital property while Debra will walk away with $973,588.62.
So, a fair equalization payment from Derek to Debra is $626,196.19.