Tax Character of Assets Matter When Dividing Marital Assets.

The parties were married in mid-2007.  At the time of the marriage the wife had a net worth of $68,000 and the husband estimated his net worth to be $364,534.  During the marriage, the husband received a CD as a gift from his grandmother of $27,308.76 and a $16,000 settlement on account of an auto accident.  The husband farmed with his father, sharing labor and equipment, grain storage and cattle herd.  Due to debt levels, the husband sought a sale of assets to pay debt, with the balance split between the parties.  The trial court set-off the husband's injury settlement and CD gift and did not consider tax consequences that might result from the decree.  The trial court valued the marital assets at $1,022,598 and ordered the husband to pay the wife $431,495 over time until paid in full.  The husband claimed the property division was not fair because it failed to account for the father's gift of farm machinery or the premarital property brought into the marriage, and the tax consequences of any sale of the property.  On appeal, the court determined that that value of the premarital property should be considered.  The court also determined that the tax character of the assets should be considered, noting that the assets were substantially depreciated which would result in recapture of depreciation on sale, or the inability to depreciate further if retained.  Ultimately, the court determined that the marital assets available for division were worth $767,178 and that if the assets were sold $250,000 of tax would be triggered which would reduce the marital assets to $517,178.  The court determined that an equalization payment of $260,000 was owed to the wife.  In re Marriage of Johnston, No. 13-1751, 2014 Iowa App. LEXIS 1178 (Iowa Ct. App. Dec. 10, 2014).