Iowa Court Determines Proper Allocation of Gifted Property in Farm Divorce

 

On November 7, 2018, the Iowa Court of Appeals issued an opinion regarding division of monetary gifts and assets during a divorce proceeding. The Court found that certain gifted assets could be divided despite being separate property.

Background

An Iowa couple married in early 2010. They were married for five years before the husband filed for divorce in 2015. During the marriage, the husband worked as a heavy equipment operator in addition to raising cattle. The wife had a job off the farm as well. Before the marriage, the husband received twenty cows from his grandfather. He purchased a bull with his own funds before he was married. By the time of the marriage, the herd had grown to 25 cows, one bull, and 10 to 13 calves. The wife was an active participant in the cattle operation. She helped during calving season by contacting the veterinarian when needed, pulling calves, and bottle feeding. She also helped with the bookkeeping for the cattle operation.

The couple had a joint account, which the couple used to deposit both of their paychecks and the wife’s child support payment from her previous marriage. This was both their personal and business account. They also had a joint checking and savings account at another bank.

In 2012, the couple purchased nearly thirty-seven acres of pastureland. The funds for this purchase came from the husband’s mother. The couple bought the land as joint tenants. Throughout the marriage, the couple made significant improvements to the land with the funds for the projects coming from the joint bank account.

By the time of the divorce, the herd had grown to 65 cows. The mother continued to give significant monetary gifts which totaled over $40,000. These funds were used to purchase various farm equipment. The joint account was used to pay for insurance premiums, repair and maintenance of the farm equipment, and to fund the cattle operation.

Gifted Property

During an Iowa divorce proceeding, courts will divide all marital assets according to what is fair and equitable. Factors which are considered to make an equitable division include what property was brought into the marriage, the length of the marriage, and any other specific factors the court may deem relevant. Gifts or inheritance to one spouse are not considered marital assets. However, Iowa law permits division of inherited or gifted property if it would be equitable to the other spouse or children from the marriage.[1]

If a gift is made to one spouse, it remains separate property. However, if a gift is made to both spouses, it becomes marital property. To determine if a gift was given to just one spouse or both, the court will consider the donor’s intent and the circumstances surrounding the gift giving. Here, there was no doubt that the mother intended the money to be a gift. She testified that she gave the gifts to her son to use for whatever he saw fit, even if that was to benefit the wife. The court found that the mother intended that the gifts were for given for the primary benefit of the son. Once the Court determined that the funds were a gift to the husband, it next had to analyze whether the gifted assets should be divided.

Division of Gifts

If it would be unfair to not divide a gift, a court may divide it. Factors to determine fairness of division include: contributions of each spouse to the property’s care, maintenance, and improvement; a close relationship between the donor and spouse who received the gift; separate financial contributions to care for the property; special needs of either spouse; or any other factor that would make it unfair to not split the gifted asset.

Due to the short length of the marriage, the court found that it would be unfair to divide the farm, despite the fact that both spouses were on the deed. However, the court considered the fact that the wife was actively engaged in the cattle operation during the marriage. Improvements made by the couple to the pastureland allowed the property to increase from around $89,000 to a value of $125,000. Additionally, because the wife and the husband’s mother had a good relationship, there was no evidence presented that the husband’s mother did not want the wife to benefit from the gifts.

The Court of Appeals found that because of the wife’s financial contribution and labor, she was entitled to one-fourth of the land’s value ($31,250). The farm equipment bought with the gifted monies was considered gifted property and would remain with the husband because the assets did not contribute to the couple’s lifestyle. In all, the Court lowered the equalization payment of around $149,000 the husband was to make to the wife to $80,000.

Conclusion

An increase of value of premarital property is considered a marital asset. The courts may divide gifted assets if the other spouse contributes to the gift’s increase in value. However, the shorter the marriage the less likely the other spouse will be entitled to gifted assets. Families should consider the implications of a future divorce when gifting assets to farming couples.

The case is In re the Marriage of Stephen D. Agan and Julianne M. Agan, No 17-0678 (Iowa Ct. App. Nov. 7, 2018). 

 

[1] Iowa Code § 598.21(6) (2018).

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