On December 21, 2022, the Court of Appeals of Iowa issued an opinion in the case of In Re: The Marriage of Derek W. George and Debra A. George, and Upon the Petition of Derek W. George, Petitioner-Appellee, and concerning Debra A. George, Respondent-Appellant (No. 21-1998).
Derek and Debra were married in 1998 and had four children. The District Court made a finding of the pre-marital assets of Debra which consisted of gifted and inherited assets. The District Court concluded that Debra’s inherited and gifted funds “became so invested in marital assets that the Court could not fully compensate her for those contributions.”
The Court of Appeals noted that “the co-mingling of inherited or gifted funds with marital assets is not enough, alone, to require the property to be divided as a marital asset.” The Court went on to set forth five factors to determine if equity requires division:
- Contributions of the parties toward the property, its care, preservation or improvement;
- 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;
- Separate contributions by the parties to their economic welfare to whatever extent those contributions preserve the property for either of them;
- Any special needs of either party;
- 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.
The Court went on to examine each of the gifted and inherited assets separately.
The Court found that the American Electric Power stocks and the Fidelity IRA have been maintained as they existed before the marriage. The Court concluded the values of said assets as of the time of trial to be set aside to Debra and shall not be considered in the determination of her share of the marital property. The Court reached the same conclusion for gold and silver which was purchased by the couple out of funds that were gifted and inherited by Debra. The Court concluded that said assets should be set aside and not be considered in the division of the marital property.
In regard to payments made by Debra from her pre-marital gifts and inheritance, as a down payment on a farm in the amount of $248,042.38, and the $7,500 down payment, and subsequent pay off of the $44,000 debt on another farm property, the Court of Appeals found that such payments are easily traceable and concluded that the such inherited funds should be set aside prior to the division of the marital property.
In regard to the use of gifted and inherited funds by Debra for a $22,000 down payment on the couple’s first home and the purchase of the adjoining lot for $7,000, along with the payment to buy into a law firm by Debra in the amount of $5,000, the Court concluded in regard to the house and lot, such properties were subsequently sold and the funds were deposited in a joint account and were later utilized to build a new home. The Court concluded that the record is not sufficient to trace the use of the funds. In regard to the amount to buy into the law firm the Court concluded the payment was nominal and since Debra was awarded the property, such amount would not be set aside.
The Court went on to note that Derek had requested the District Court to consider capital gains impact on the sale of items of equipment awarded to him. The Court noted that the Iowa Supreme Court in the past has determined that where a Court “does not force the sale of property or order a lump-sum payment that would require the sale of the property, a property distribution should not account for such tax implications.” The Court went on to conclude that Derek was not required to sell the equipment or land or to make a lump sum payment, and was not entitled to a credit for the capital gains.