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. 

Dissipation of Assets: Where Did my Stuff Go?

It comes as no surprise to anyone that people in divorces get angry. But sometimes that anger manifests in ways that destroy property, and also not surprisingly, it is usually the property desired by the other spouse. This is one particular kind of dissipation of marital assets, which involves reduction or destruction of any marital property. This blog post will discuss how this sort of behavior is treated by the legal system.

Now, because money makes the world go 'round, that is what most of the cases discuss, rather than the items a jilted ex-spouse burns or sells or just throws away. But the principles still apply, and if this sort of destruction meets the definitions and analysis behind dissipation of marital assets, there will be consequences to these actions. There are really two types of cases out there: those where one party took assets belonging to both, and those where one party increased the debts attributable to the couple. 

The increase of debt cases are actually more simple, as the test used by the Court is more straight-forward. It is a two-step process: the Court first considers whether the states purpose for the debt is supported by evidence, and then considers whether those reasons were "dissipation," or basically whether they were unjustified under the circumstances. This second step involves considering such things as the the timing of the debt, whether such debt was usual for this marriage, if the expense benefited both spouses, the need for the expenditure, and the timing of the expenditure. In re Marriage of Fennelly and Breckenfelder, 737 N.W.2d 97 (Iowa 2007). For instance, in that case, the husband accumulated lots of debt, allegedly for his business and living expenses, but failed to show any proof of those expenses. The Court therefore agreed this debt was a dissipation of assets because it was unreasonable, and the husband was charged with the full amount. 

Spending marital money by one spouse without the permission or input of the other spouse is the most typical way dissipation of assets occurs. This basically boils down to use of marital money for unauthorized use, whether that be pure waste, like gambling, or intentionally hiding money for later use. But use of marital funds for debts of the couple is allowed. For instance, use of the couple's savings for living expenses or to pay tax debts was not dissipation of the marital assets. In re Marriage of Snell, No. 0-346/99-1524 (Iowa App. 2000). Similarly, payment of prior spousal and child support obligations out of joint marital funds was allowed; the wife knew those debts existed when she married husband, and they had been paid out of joint assets during the marriage. This was not improper use of joint savings. In re Marriage of Burgess, 568 N.W.2d 827 (Iowa App. 1997).  To be dissipation, it had to be a waste of assets prior to the district court determining ownership of assets. Id. 

In order to get the benefit of using this money on marital expenses, however, the spouse must be able to account for it. Thus, where the husband had control over the assets of the marriage, including a lot of property and cash inherited by wife, and could not account for where it had gone, he would be charged with dissipating marital assets, and wife would get a larger property settlement. In re Marriage of Martens, No. 3-997/03-549 (Iowa App. 2004). Gambling can be considered a dissipation of marital assets when extreme and unexpected. In re Marriage of Bell, 576 N.W.2d 618 (Iowa App. 1998). 

Gambling is not always dissipation, however. In re Marriage of Schwegman, No. 1-125/10-1420 (Iowa App. 2011), involved husband's taking of over $30,000 from a joint savings account, without the ability to account for all of it. The Court gave the wife extra money due to this lack of explanation, but the husband argued that she had, during the marriage, spent lots of money on gambling. But there was little proof her gambling, and this was a hobby they had enjoyed together while married. Therefore, she was not held accountable for her gambling losses, but he was held accountable for his expenses of marital savings. 

However, the Court has been clear that the intention of this process is to equalize the finances of the parties, and not to punish bad behavior. So spending marital assets during the marriage on alcohol was not dissipation of marital assets in Marriage of Snell, supra. 

Please note, however, that money is all we have to make these injustices right. So even if you lost your favorite t-shirt, you are going to get credit for the value of the t-shirt. Nothing is bringing that particular shirt back. When it comes down to it, money is almost always what is on the line.

Dividing Property of Couples who Aren't Married

Lots of couples live together without getting married. Sometimes the couple plans to wed eventually, but breaks up before the big day. Sometimes one or both parties are adverse to marriage. Sometimes one or both parties were married before, and are not eager to have that sort of relationship again. But whatever the reasoning, these relationship often end. Then the parties are in a situation where their money, and sometimes property, are combined. Clearly, if the couple was married, the legal system would just use the Iowa Code chapter of divorces to divide the property. But that is not available to couples that did not marry.


The Iowa Supreme Court and Iowa Court of Appeals cases discussing this sort of situation usually, but not always, center upon real property, in the form of either a house or farm. Typically, the Court considers how to divide such property under theories of contract, unjust enrichment, constructive trust, and joint venture. In re Marriage of Martin, 681 N.W.2d 619 (Iowa 2004).


Contract: The most straight-forward, if it can be proven, recovery method is in contract. A contract is simply an agreement between two parties. For instance, when one partner in a non-marital relationship tells the other to sell her home and move in with him, and she will have a place to live into retirement, the Court found a contract. It was breached when the couple split, and the partner retaining the residence owed the other partner damages. Kerkove v. Thompson, 487 N.W.2d 643 (Iowa App. 1992).


Unjust Enrichment: Unjust enrichment arises where someone keeps some sort of benefit provided by another without paying, where compensation is reasonably expected. This maybe utilized where one person improved the house owned by the other member of the couple, but the owner did not in any manner compensate for the improvements, and kept the house. However, the enrichment must be unjust in order to obtain recovery. In a case where the woman agreed to cook and clean for the man, expended no capital, took no risks, and expended only minor labor on improvements, no unjust enrichment on the man's part was established. Slocum v. Hammond, 346 N.W.2d 485 (Iowa 1984).


Resulting Trust: A resulting trust is a trust imposed by courts, where the circumstances suggest the prior owner did not intend to convey an interest in the property. Intent is key here. So, if the person who accidentally gives his or her interest refused to be on the mortgage or deed to a house, it was clearly not an unintentional surrender of rights. Slocum v. Hammond, 346 N.W.2d 485 (Iowa 1984).


Constructive Trust: This trust is also imposed by the court, where one wrongfully obtained property through wrongdoing. Again, intent can be key, but focuses on the wrongdoing. For instance, if a man tells a woman to move in with him, and she performs cooking and cleaning activities, but provided little toward the actual expenses of the house, there is insufficient proof of him acting inequitably or unconscionably to provide for a constructive trust. She rendered her services gratuitously. Slocum v. Hammond, 346 N.W.2d 485 (Iowa 1984).


Joint Venture: This seems to be the most used recovery vehicle in such cases recently. A joint venture is a business undertaking by two or more people toward a single project. This method divides the property based upon the interest each party held, which when buying a house is usually one-half to each. Therefore, the Court will typically reimburse for contributions toward the house (such as carrying costs and improvements, including labor) and divide the remaining amount equally. Scheppele v. Schulz, 728 N.W.2d 60 (Iowa App. 2006). Under this approach, the Court limits its analysis to the project, like the purchase of the house. Therefore, net worth does not matter, nor does other property, such as joint bank accounts. Riley v. Schrage, no. 01-0681 (Iowa App. July 19, 2002).


Loans: Just because a couple lives together does not mean that money flowing between them does not have to be repaid. In Shold v. Goro, 449 N.W.2d 372 (Iowa 1989), money provided by one party to the other in check form, delineated as a loan in the memo line, had to be repaid after the couple separated. To allow otherwise would to unjustly enrich the borrower by allowing him to keep the money he agreed to repay. 

Paternity Fraud

On June 1, 2012, the Iowa Supreme Court handed down a decision in the case of Dier v. Peters, no. 11-1581. Briefly, the Court found that a mother who defrauded a man into thinking he was the father of a child in order to gain money from him can be sued. But the case is certainly more complicated than that.

Facts

The lawsuit alleged that Peters, the mother, told Dier that he was the father of the child, even though she knew this was not true. Based on this assertion, Dier voluntarily provided money to Peters for her use and for the child's use. Dier later asked the court to determine custody of the child and, faced with the possibility of losing custody, Peters only then asserted Dier was not the biological father of the child. Two DNA tests confirmed he was not the father. Dier sought recovery of the money voluntarily provided to Peters, as well as the costs and attorney fees associated with the custody case. 

What is now allowed:

• A cause of action for fraud against a mother for misrepresenting the paternity of the child, when:
• The mother made a misrepresentation that the man was the father
• The man was not the father
• This assertion is likely to make the father act differently
• The mother knew this statement was false or had reckless disregard for the truth 
• The mother made the statement with the intent to deceive 
• The man justifiably relied upon the statement 
• The assertion was the proximate cause of the injury to the man
• The assertion caused damages to the man
• Even though the man can only reasonably rely upon the mother's statement that he is the father, the Court did not find that he must demand paternity testing. An action for fraud can still stand if he relied upon the mother's statement that he is the father.
• Any child support payments previously ordered but not yet paid are no longer due and owing after paternity has been disestablished. This is not new law, but stems from the Iowa Code predating this case. Still, it helps clarify the parameters of paternity fraud.
• Any child support payments ordered but due in future months are stopped. Again, this is not new law, but helps understand the big picture. 

What is still not allowed:

• Repayment of court-ordered child support payments already made. The father had the chance to argue about paternity when the child support was originally established.
• Attorney fees in the fraud action for having to defend himself in the paternity action; however, it may be possible to collect attorney fees in the underlying paternity action.

What remains unanswered:

• Can the mother be ordered to pay emotional distress damages for telling the man that he is the father while knowing it is not true?
• Does the case change if the child is old enough to be aware of, and affected by, the fraud case?

Contempt: The Cases

The previous blog post discussed the statutes that allowed for contempt, or punishment for violation of a court order. Now for a few highlights from the cases interpreting and applying those statutes.

First, as noted in the statutes, a violation of a court order must be willful to be contempt. Thus, the court has found that the refusal of a 16 and 18 year old to engage in visitation with their father did not amount to a willful violation by the mother. In re Marriage of Ruden, 509 N.W.2d 494 (Iowa 1993). And a good faith effort to comply with a court order will also prevent a finding of contempt. Wilson v. Fenton, 312 N.W.2d 524 (Iowa 1981). However, if an order is clear and unambiguous, there is no defense available that the violator did not understand and did not mean to violate the order. Yocum v. Gaffney, 131 N.W.2d 826 (Iowa 1964).  One can also be found in contempt for aiding and abetting violation of a no contact order; this is usually the protected party agreeing to meet with the violator. Hutchison v. Lee County, 480 N.W.2d 260 (Iowa 1992). 

Because jail is a possible consequence of a contempt action, the violator is entitled to a court-appointed attorney as a criminal defendant would. McNabb v. Osmudson, 315 N.W.2d 9 (Iowa 1982). Also because of the criminal nature of the consequences of a contempt finding, the violation must be established beyond a reasonable doubt. Phillips v. Johnson County, 380 N.W.2d 706 (Iowa 1986). However, if the violator asserts any defenses to prevent a finding of contempt, the violator bears the burden of proving those defenses to the court. Skinner v. Ruigh, 351 N.W.2d 182 (Iowa 1984). 

Multiple violations can be tried in the same contempt proceeding, such as multiple months of nonpayment of child support. Johnson v. Mahaska County, 385 N.W.2d 562 (Iowa 1986). Because the goal of contempt actions is to gain compliance with a court order, the court does allow for purging of contempt, or correcting one's actions to avoid punishment. This includes prompt payment of delinquent child support, for instance. Nystrom v. Woodbury County, 58 N.W.2d 40 (Iowa 1953). 

These case spell out the most basic, widely applicable rules on contempt actions. Of course, other situations will arise, and judges will have to apply these cases and statutes to the particular scenario in front of it. 

Contempt: The Statutes

Contempt actions are the vehicles to enforcement of a court order. That is, when someone refuses to provide the children for a court-ordered visitation, or does't pay child support, or violates a no contact order, the other party can attempt to have them held in contempt. The underlying idea is that the person violating the order has disrespected the court's authority by violating its order, and should be punished accordingly.


As you might expect, this subject is long and involves not only fairly detailed statutes, but also many cases interpreting those statutes. Therefore, this post, like ones before it, will be broken into to segments: the statutes, and the cases. Today, the rules as set out by the legislature.


Iowa Code 598.23 states that willful violations of a temporary order or decree in a divorce case may cause the violating party to be held in contempt, which can include a jail sentence up to thirty days for each offense. In the alternative, the court can order other punishments or solutions, such as requiring child support to be taken directly out of the violator's paycheck (if being punished for nonpayment of support), modify visitation to compensate for lost time, transfer custody or order joint custody, order exchanges to occur through a neutral party, or other sanctions, requirements, or even mediation to enforce the custody arrangement. 


A finding of contempt for nonpayment of child support has its own set of rules. Under Iowa Code 598.23A, one can be found in contempt for nonpayment of support or cash medical. If found in contempt, there are a variety of punishments available. The violator can be required to post bond in the amount of the arrears plus 12 months of current support, which can be forfeited to the other party after nonpayment within three months. The court can require the violator to do community service, which can be released by the violator becomes employed and starts paying child support, pays at least six months of support, or a change in circumstances prevents the violator from performing community service.


Under this code section, the court can prevent a person not paying support from participating in any activities that require a license. However, if this causes "extreme hardship," the court may allow such participation under certain conditions. The license is released when the support is paid. 


A finding of contempt can expose the violator to payment of the court costs associated with the contempt proceeding. Iowa Code 598.24. One can be found in contempt for violation of an injunction, which includes restraining or no contact orders. Iowa Rule 1.511. One can also be required to pay a find of up to $1000. Iowa Code 665.4.


Logistically, contempt actions are a little complex to file. The process is unlike most other in the law, and certainly in family law. For instance, there must be an affidavit showing the nature of the transaction. Iowa Code 665.6. There must also be personal service upon the violator, including notice of when the hearing is scheduled. Iowa Code 665.7. While there are some actions under family law that can be handled easily by one's self, this is probably not one of them.


Tomorrow: the cases that flush out other contempt issues.