Inherited or Gifted Property

When a couple divorces, what will the court do with property that was inherited or given to one of the spouses? The easy answer is that the Iowa Code discusses this scenario. But  the hard answers come in applying the rule.

Iowa Code 598.21(6) provides that property inherited or gifted to either spouse before or during the marriage is not subject to division in the divorce. However, if refusing to divide the property will be inequitable to either the spouse or children of the marriage, it can be divided. This is where most of the friction occurs.

In re Marriage of Thomas, 319 N.W.2d 209 (Iowa 1982) lists factors to consider in determining whether an injustice would occur if the property was not divided. These factors included:

1. Contributions of the parties during the marriage toward the property, such as upkeep and improvements
2. Whether the other, non-receiving spouse had an independent, close relationship with the person making the gift or inheritance
3. Separate contributions of the parties to their economic welfare to preserve the property
4. The special needs of either party, and 
5. Any other facts that would make it unfair to have the property given to only one party.

Of course, applying these factors is not easy, either, and therefore predictions about how the Court will rule are difficult. Still, decisions the Court has made in cases involving these issues will help clear the waters somewhat.

First, the named owners of the property is not the deciding factor for whether the property should be divided. For instance, placing the property in joint tenancy with right of survivorship with the other spouse did not make it marital property. In re Marriage of Mayfield, 477 N.W.2d 859 (Iowa App. 1991). This was also true when the gifted money was placed in a trust for the benefit of both parties; this did not automatically convert the money from an inheritance to joint property. In re Marriage of Fall, 593 N.W.2d 164 (Iowa App. 1999). 

Second, mixing assets that are inherited or gifted with those that are purchased by the couple (and clearly marital property) does not convert all of the assets into marital property. It only makes the calculation of division more difficult. In re Marriage of Wertz, 492 N.W.2d 711 (Iowa App. 1996) involved using the wife's inherited money to pay down marital debt, and otherwise mixed the inherited money with marital funds. The Court looked at (1) the intent of the donor to make these funds a gift to wife alone, and (2) the circumstances surrounding the inheritance to determine that the funds were not to be treated as joint funds. Further, when the couple purchased stock in a closely held company in which husband also inherited some stocks, the wife was entitled to a division, albeit not an equal division, of those stocks. In that case, she received about one-third of the full value. In re Marriage of Muelhaupt, 439 N.W.2d 656 (Iowa 1989).

The most common way people seem to seek division of these assets is by arguing that they were increased in value through the efforts of the couple through the marriage. For instance, when husband's mother gave the husband funds to put a down payment on the marital home, and the parties did not do anything to increase the equity in the house after the gift, the house was a result of the gifted money and not an asset to be divided. In re Marriage of Cupples, 531 N.W.2d 656 (Iowa App. 1995). 

A similar result was reached where the gifted stock, although owned through most of the marriage, did not generate any income and was not valued highly. In re Marriage of Oler, 451 N.W.2d 9 (Iowa App. 1989). This was the result as well when the couple spent down a trust given to the husband by his mother, depleting the funds without contributing thereto. In re Marriage of Liebich, 547 N.W.2d 844 (Iowa App. 1994).  Finally, In re Marriage of Goodwin, 606 N.W.2d 315 (Iowa 2000) involved a life insurance policy payable to wife from a son of the marriage. The Court took into consideration that the son had left the policy in his mother's name. Further, neither husband nor wife had taken any action to change the funds to a joint asset rather than a gift. 

However, where the value is increased by the actions of the parties during the marriage, a different result is reached. A wife who helped retain and maintain a family farm inherited by the husband during the marriage may have a claim thereto upon divorce. In re Marriage of Hardy, 539 N.W.2d 729 (Iowa App. 1995). And a husband who improved a house given to the wife by her father could realize a return on those efforts. In re Marriage of Clark, 577 N.W.2d 662 (Iowa App. 1998). Finally, when large sums of money were inherited by husband, who acknowledged his wife had access to the property, and it was spent on increasing the parties' quality of life, it would be inequitable not to divide these funds between the parties. 

So, if you have read other blog posts of mine in the past, the conclusion we reach should come as no surprise to you: there is a general rule of non-division of gifted or inherited property. But that rule has exceptions, and those exceptions are very fact-specific and therefore difficult to define. 

How Much does a Divorce Cost?

It is a question that gets asked all of the time: how much is this divorce going to cost me? I will tell you right up front: it is a question without a satisfying answer. But an explanation of what the cost entails will help you, and your attorney, estimate a ballpark figure.

First, a general overview of how most (but definitely not all) attorneys charge their clients. Most attorneys are hired for divorces on an hourly basis. This means that the more work the attorney does, and the more time he or she spends on the case, the more it will cost. The exact hourly rate will vary based on several factors, including what geographic market the attorney works in, the experience of the attorney, etc. 

This hourly rate is broken down into increments; some attorneys use tenths of hours (.1, or 6 minutes), but some use quarters of hours (.25, or 15 minutes). Therefore, if the attorney uses tenths, a phone call lasting five minutes will be billed as .1, or one-tenth of the attorney's hourly rate.

At the initial meeting, I, and I suspect most attorneys, try to estimate how much time the case is going to take, multiply it by the hourly rate, and try to give a very rough estimate of cost. This is typically also the basis of the requested retainer, or money the attorney holds in trust to apply toward future bills. So, I will request a lump sum representing the amount I think it will take to complete the divorce. If I overestimate, the excess goes back to the client. If I underestimate, the client will be expected to pay more.

But the attorney's expenses are only one part of the cost of a divorce. There are also out-of-pocket expenses that must be covered. For instance, in Iowa, the filing fee for a divorce is $185. This is the amount paid to the court to handle the paperwork of filing the divorce and other logistics. There is also a decree fee of $50, due when the divorce is finalized. Finally, if serving the other spouse with the paperwork involves hiring a process server, this is considered a court cost as well. While the court costs can be divided during the divorce process, the one filing the divorce will at least have to pay these amounts up front, and then request reimbursement from the other spouse later.

In sum, the more issues that need to be resolved, the more expensive the process, especially considering this will probably involve a few court hearings that may last a long time. But beyond these rough guidelines, it is almost impossible to guess how much any given divorce is going to cost.