Court Affirms that Land Distributed from Gifted Partnership Interest is Not Marital Property

On March 2, 2022, the Iowa Court of Appeals upheld a district court’s award of three parcels of farmland to a former husband through a divorce decree. The farmland was distributed from partnership interests the husband’s parents had gifted him during the marriage. The former wife argued on appeal that the real estate was marital property because the partnership interests were compensation for the work the husband did for the family farm business. The court of appeals disagreed. The court did agree, however, that the wife was entitled to a larger alimony award.

Facts

Julie and Rob were married for 56 years before divorcing. During the marriage, Julie was primarily responsible for childrearing, housework, and a “nine-to-five job.”  At the time of the divorce, both parties had been retired for over a decade, and the farm parcels at issue totaled around $6 million dollars.

Rob farmed with his father and brother in a formal partnership beginning in 1980. He was gifted partnership interests at various times over the years.[i] At the same time Rob and his brother were gifted shares, their two sisters would receive an equivalent amount of cash.

Three of the four parcels were distributed to Rob from the farming partnership. Initially, the partnership had acquired these parcels at various times on contract. After the death of Rob’s father, the partnership distributed the real estate to Rob. Rob’s father had arranged this distribution as part of his estate plan.

Julie argued that the partnership interests were actually compensation for Rob’s work, and not separate gifts to Rob. The district court ruled that the partnership interests received from Rob’s father were gifts and not marital property. The other parcel, referred to as the “Home 80,” was where Julie and Rob had lived since 1978. They moved in after Rob’s parents moved out, and did not pay for the property.  Rob still lived on the property.  The district court found that Home 80 was also Rob’s separate property.

Overall, the district court awarded Rob approximately $4.6 million, and Julie $1.4 million. The district court awarded alimony of $1,285 per month to Julie for 10 years. 

Court of Appeals Decision

The Court of Appeals agreed with the district court that the partnership interests were gifted to Rob by his father as part of his father’s estate plan. First, the tax record showed that Rob never paid for the gifted partnership interests or received a diminished draw in return for the additional partnership interests. Second, the father’s estate planning was well-documented and planned, so the intent requirement behind gifting was established. Therefore, there was ample evidence in the record that the interests were gifts and not compensation for Rob’s work. The court further found that exchanging partnership interests for real estate did not change the character of the property into marital property. Further, the court agreed that the Home 80 was not marital property. It was Rob’s separate property because it was gifted to him by his parents slowly over the years, even though Rob and Julie had lived on the property and raised their children on the property.

Despite finding that the property was gifted to Rob, the court continued the analysis.  Iowa law provides that if excluding gifts from the marital division would be unjust, then the gifted property should be included in the division. The court reviewed a multi-factor test to determine if the exclusion of the property would be unjust. Specifically, the court asked the following questions:

1. Did Julie contribute to the care, preservation or improvement of the property?
2. Did she have an independent close relationship with Davy and Dar (Rob’s parents)?
3. Did Julie’s contributions to the economic welfare of the marriage help preserve the gifted property?
4. Does either Julie or Rob have special needs?
5. Does any other matter render it unfair to Julie to have the property set aside for Rob’s exclusive enjoyment?

The court found compelling arguments for both sides; two weighing for division and two weighing against. The court admitted it was a “close call,” but ultimately found that excluding the gifts from the division was not unjust.

Since the real estate was excluded from the property division, the court found that Julie was entitled to a larger alimony award under both the traditional and reimbursement theories of alimony. The court put great emphasis on the fact that Rob’s award was close to three times the value of Julie’s award, and that Julie worked full-time while maintaining the marital house and children.  The court also examined the annual income of both individuals. The disparity between the two annual incomes also weighed in favor of a larger alimony award. As such, the court ordered Rob to pay Julie $4,000/month for the next 15 years.