Iowa Court of Appeals Determines Gifted Farm Assets not Divisible during Divorce
On May 26, 2021, the Iowa Court of Appeals affirmed a divorce decree crediting one spouse with inherited assets. After inheriting farmland, the husband sold the property and used the proceeds to purchase other properties. Because Iowa Code § 598.21 exempts inherited assets from division during a marriage dissolution, the court affirmed that neither the funds from the sale of the farmland, nor the subsequently purchased assets were divisible.
Background
A couple initiated divorce proceedings after nearly 25 years of marriage. Several years earlier, the husband inherited 35 acres of farmland. The husband sold the farm property for $1,332,869. He deposited the proceeds into the couple’s joint account. He soon used the funds to pay off debt on an existing farm as well as purchase two additional properties, including the “Danner” farm. The couple owned all of their property as joint tenants.
In the divorce decree, the district court credited the husband $1,332,869 for the sale of the inherited farm. It also awarded him the Danner farm purchased from the sale proceeds. The wife appealed.
Inherited Property during Divorce Proceeding
In general, the court will divide all property equitably between the two parties upon the dissolution of a marriage. Iowa Code § 598.21. There is an exception, however, for property that is either inherited or gifted. As long as there is not an inequitable result, these assets must be set aside.
On appeal, the wife argued that a “confusion in Iowa law” existed and the $1,332,869 proceeds were not separate property, but rather marital property subject to division. The Iowa Court of Appeals previously held that “[a] transfer of property into joint tenancy where one party furnishes all of the consideration is presumed to be a gift to the other party of one-half interest in the property.” In re Marriage of Butler, 346 N.W.2d 45, 47 (Iowa Ct. App. 1984). Thus, the wife alleged that properties purchased using the funds from the farmland sale were gifted to her as a joint tenant.
The court rejected this argument finding that the Iowa Supreme Court overruled Butler because it was contrary to Iowa Code § 598.21. In re Marriage of Hoffman, 493 N.W.2d 84,89 (Iowa 2002). Thus, there was no confusion as to which law controlled. Additionally, because the wife was receiving a net property award of $1.5 million, the division was not inequitable.
The wife also argued that the Danner farm should not be awarded to the husband because there was insufficient evidence that the proceeds from the sale of the inherited farm were used. The court also rejected this argument. After entering into a contract to purchase the Danner farm, the husband sold the inherited farmland six days later. The husband used the joint account to pay a total of $415,551 for a half interest in the $757,500 farm. Although there was no explanation for the $36,801 overpayment, the court found that the account records weigh in favor of finding that the funds were used to purchase the property. Therefore, the court affirmed the district court’s order.