In Iowa, marital property is to be equitably distributed upon the dissolution of a marriage. Inherited property, however, is normally awarded to the individual spouse who owns the property and distributed to the individual independent from the equitable distribution process. But, under Iowa law, the court does have the power to require distribution of inherited property if equity demands it in light of the particular circumstances of the spouse or children. Several factors are considered, including the following:
- Contributions by the parties toward the care and improvement of the property;
- Whether an independent and close relationship existed between the decedent and the spouse;
- Separate contributions by both parties for their economic welfare;
- Special needs of either party; and
- Anything else that would make it unfair to have the property set aside for the exclusive enjoyment of the inheriting spouse.
This case arises from an appeal of the economic provisions of a divorce decree in which inherited property was not individually distributed. In addition to other issues, the petitioner wife objected to the trial court’s finding that her inherited property had been commingled and was subject to division in dissolution of her twenty-year marriage.
The wife’s first husband died from an automobile accident in 1980. She received life insurance proceeds and benefits from social security until she remarried. The wife used the money she received from the death of her husband to purchase a home on contract. She made a down payment of $25,000 and paid $193.01 a month to the property’s owner. Four years later, she sold the property on contract to another individual. She used the down payment received from the buyer to put a down payment on another home she and her husband purchased. The remaining payments for the contract sale paid off her remaining obligation on the original house and netted her $15,710.04 in the sale. The wife did not recall how the money earned from the contract sale was spent. The wife also cashed out some life insurance policies she had purchased after the death of her husband to finance a new house on the property.
The husband also received some money before the marriage. He lost several fingers in a workplace accident and received a workers compensation settlement.
Over the course of the marriage, the petitioner and her husband bought and sold real estate, including several farms. She became a real estate agent and operated a franchise. They were both owners of several corporations involved in the real estate business. At one point the husband was assisting with the real estate business, but was not paid. The couple’s business and land holdings were heavily leveraged.
After a trial to the court, the court entered a decree distributing the property between the parties. The court held that the wife’s inheritance and the husband’s workers compensation settlement were commingled with marital assets, so these amounts were indistinguishable from marital assets and were not excluded from the property division. The wife petitioned for review of the distribution and argued she should have received an additional $59,000 from her inheritance.
The appellate court agreed that life insurance proceeds are inherited property. The court disagreed that the wife’s inherited property and the husband’s workers compensation settlement should be handled the same in distributing marital property. Workers compensation settlements, like other premarital assets are not divisible from the marital estate and are not automatically awarded to the spouse that owned the property prior to the marriage. Therefore, the trial court did not err by including the workers compensation settlement in the equitable distribution, but the wife’s inherited property should have been excluded.
The appellate court disagreed, however, that the wife had inherited property worth $59,000. Due to the numerous real estate transactions and various sources of income arising from the use of the life insurance proceeds, which included marital and inherited resources, the court concluded that the wife was entitled to the $25,000 used to finance the purchase of the original home after the first husband’s death. She was not entitled to any appreciation or interest on this amount because the evidence did not provide a basis to calculate what portion of that inherited amount remained as no accounting for how the money was spent was provided. The court declined to attribute a loan secured by a pre-marital vehicle or a life insurance annuity she cashed out to support that these amounts were inherited.
The court quickly addressed additional issues involving a dissipation of assets by the husband and redistributed the property between the parties taking into account the wife’s separate inherited property and dissipation of retirement assets by the husband.
In this case, there were numerous real estate transactions and loans that arose after the wife received the life insurance proceeds from her first husband’s death and a relatively long marriage in which multiple assets were accumulated. The court struggled with following the inherited money and the wife was unable to account for how the money was invested. She did co-mingle the original inheritance with marital assets, which left the court with little choice other than to give her only the amount she could prove was actually inherited property.
While no one wants to prepare for a divorce, if there is an inheritance, careful accounting of the inherited property during a marriage will be necessary to receive the full asset upon dissolution. In re Marriage of Nevins, No. 2-544/11-1541, 2012 Iowa App. LEXIS 724 (Iowa Ct. App. Aug. 22, 2012).