No. 04-0494.Court of Appeals of Iowa.
March 16, 2005.
Appeal from the Iowa District Court for Woodbury County, David A. Lester, Judge.
Petitioner appeals and respondent cross-appeals from the economic provisions of the decree dissolving their marriage.AFFIRMED AS MODIFIED.
Elizabeth Rosenbaum, Sioux City, for appellant.
Barbara Orzechowski, of Klass, Stoik, Mugan, Villone, Phillips, Drzechowski, Clausen Lapierre, L.L.P., Sioux City, for appellee.
Heard by Sackett, C.J., and Vogel, Zimmer, Hecht and Eisenhauer, JJ.
EISENHAUER, J.
Richard Scott Rhinehart (Scott) appeals from the economic provisions of the decree dissolving his marriage to Deborah Rhinehart (Deborah). He contends the district court erred in valuing the parties’ property and in awarding Deborah alimony. He further contends the division of property is not equitable. Deborah cross-appeals, contending the court erred in valuing Scott’s law practice. She also contends the district court erred in failing to award her a portion of her attorney fees. We affirm as modified.
I. Background Facts and Proceedings.
Scott and Deborah were married on August 4, 1979. The parties have three children. At the time of trial the oldest had graduated college, the middle child was twenty years old and attending college, and the youngest child was eighteen years old and a senior in high school.
At the time of trial, Deborah was forty-eight years of age and has been employed as an elementary school teacher throughout the marriage. Her salary for the 2002-03 school year was $43,782.96. Her salary for the 2003-04 school year increased to $45,073.00. Deborah has earned thirty hours toward a master’s degree. Completion of that degree would result in an increase in salary of approximately $2000 per year.
Scott was forty-seven years old at the time of trial. He received his law degree and has been practicing law since 1981. He is in a limited liability partnership with his father, Richard S. Rhinehart, and Harold K. Widdison. Under the partnership agreement, Scott receives forty-five percent of the net income of the partnership. His father and Mr. Widdison receive thirty and twenty-five percent respectively.
Scott’s annual income fluctuates. From 1992 through 2002 it ranged from $52,309.00 to $215,246.00. The ten-year average was $108,960.00. From 1998 though 2002, Scott’s earnings ranged from $95,080.00 to $215,246.00, with a five-year average of $145,409.00.
Scott’s income in 2001 and 2002 was significantly greater than in prior years as a result of a complex personal injury litigation settlement, known as the Walker-Castle case. The case netted the firm $118,577.00 in 2001, of which Scott received $53,360.00. In 2002, the firm received a $106,666.00 payment from the settlement, of which Scott received $61,051.00. In 2003, the firm received another $106,666.00 payment, and Scott received $49,900.00 of that amount. The firm will receive a 2004 payment of $58,333.00, of which Scott will receive $26,250.00. The firm does not currently have any contingency cases of similar magnitude as the Walker-Castle case.
In 1981, Scott and Deborah purchased a home for $39,500.00. Deborah’s parents gave them a gift of $15,000.00 to use as a down payment on the home. The home was sold in 1986 for $40,000.00. The parties purchased another home in 1996 for $70,000. Again, Deborah’s parents gave the couple $5000.00 for a down payment. The parties agree the home’s value at the time of trial was $148,000.00, with a mortgage of $29,104.00.
At the time of trial, the parties owned two vehicles. The trial court valued Deborah’s 2001 Chevrolet Impala at $8390.00, and Scott’s 2002 Chevrolet Trailblazer at $13,990.00. The trial court also valued the parties’ investments in the Mainstay Family Funds at $88,768.00, and their investments with the American Funds Group at $7839.00.
Along with her eight siblings, Deborah is a beneficiary of the Collison trust, a trust established by her father in September 1969. At the time of trial, the trust was valued in excess of $5,000,000.00. Since 1990, the trustees have made equal annual distributions to the nine beneficiaries. The distribution has been approximately equal to the amount of federal and state income taxes resulting from the distribution.
Trial was held in September 2003. In December 2003, the district court, at the request of the parties, issued a partial decree of dissolution of marriage, which simply dissolved the marriage between the parties. The court reserved all remaining issues for a later ruling.
In March 2004, the court issued a supplemental decree, resolving the various economic issues between the parties, including valuations of property, determinations of marital and premarital property, and alimony awards. The court declined to include any portion of Deborah’s undistributed income from the Collison trust as marital property. The court valued Scott’s law practice at $62,568.00. The court valued the remaining property of the parties and divided it, awarding Deborah $213,082.00 and Scott $226,677.00 in property. The court also awarded Deborah $1800.00 per month in traditional alimony for five years, followed by $1100.00 per month in traditional alimony until either party dies or Deborah reached the age of sixty-five. Each party was assessed their own attorney fees.
Scott appeals. He contends the district court erred in awarding Deborah traditional alimony, in determining the reinvested income from the Collison trust was not marital property, and in valuing and dividing the parties’ assets. Deborah cross-appeals, contending the court erred in valuing Scott’s law practice, in failing to consider the good will of Scott’s law practice in awarding alimony, and in denying her request for partial award of attorney fees.
II. Scope and Standard of Review.
Our review of the economic provisions of a divorce decree is de novo. In re Marriage of Campbell, 623 N.W.2d 585, 586
(Iowa Ct.App. 2001). This standard requires us to examine the entire record and adjudicate anew rights on the issues properly presented. Id. We recognize the value in listening to and observing the parties and witnesses. See Iowa R. App. P. 6.14(6)(g). Consequently, we give weight to the findings of the trial court, although they are not binding. Campbell, 623 N.W.2d at 586.
III. Alimony.
We first consider the parties’ arguments regarding the district court’s award of alimony to Deborah.
Alimony is not an absolute right. In re Marriage of Dieger, 584 N.W.2d 567, 570 (Iowa Ct.App. 1998). Instead, an award of alimony depends on the circumstances of each particular case Id. When determining the appropriateness of alimony, the court must consider the length of marriage, the age and health of the parties, and the distribution of property. Iowa Code §598.21(3)(a) — (c) (2001). The court also considers “(1) the earning capacity of each party, and (2) present standards of living and ability to pay balanced against the relative needs of the other.” In re Marriage of Hettinga, 574 N.W.2d 920, 922
(Iowa Ct.App. 1997) (citation omitted). We consider the economic provisions of the dissolution decree as a whole, taking into consideration both the property division and spousal support award in evaluating their individual sufficiency. In re Marriage of O’Rourke, 547 N.W.2d 864, 866 (Iowa Ct.App. 1996).
The district court found that although rehabilitative and reimbursement alimony were not appropriate, an award of traditional alimony was warranted. The court cited the twenty-four years of marriage, Scott’s significantly greater earning capacity and Deborah’s inability to meet her monthly obligations as justification for the award.
In calculating the amount of alimony Deborah was to receive, the court figured the parties’ monthly incomes and deducted their monthly expenses. The court found Deborah’s monthly income fell short of meeting her expenses by approximately $1300.00 to $1500.00 per month. The court found Scott’s monthly income exceeded his monthly expenses by $3000.00 to $4000.00 per month. On this basis, the court found an award of $1800 per month for five years to be reasonable. The amount would then be reduced to $1100 per month because Deborah would no longer have a mortgage payment or education expenses for her daughters. The alimony continues until Deborah reaches age sixty-five.
The court rejected Scott’s suggestion that Deborah be awarded a greater share of the marital assets in lieu of receiving alimony. The court found the parties’ assets were not of the type easily liquidated. The court also concluded establishing alimony would allow Scott to modify the amount he was required to pay in the event that Deborah received a greater amount of income from the Collison trust.
We first consider whether Deborah is entitled to an award of alimony. Scott contends Deborah is not entitled to alimony because she is capable of being self-supporting. He argues she could increase her annual salary by $2000 by finishing her master’s degree and that she could work during the summer while on break from the school year. We conclude, as did the district court, that the amount of additional income Deborah could generate is not significant in comparison to Scott’s greater earning capacity. Evidence of Deborah’s economic need was provided in the financial statements filed by the parties. Deborah can only meet her monthly obligations with additional monthly income.
Scott also points to Deborah’s interest in the Collison trust as a factor negating her need for alimony. The purpose of the Collison trust is to provide retirement income for Deborah and her siblings. Accordingly, the income she earns from the trust will not be significant until her retirement. Deborah’s alimony terminates when she reaches the age of sixty-five. Should Deborah ever receive a greater income from the trust, Scott may petition the court for a reduction or termination of his spousal support obligation on this basis. We conclude Deborah is entitled to an award of alimony.
We must also consider the amount of alimony awarded. While Scott believes the amount of alimony awarded is excessive, Deborah argues her alimony should be increased after considering the goodwill of Scott’s law practice. We conclude the alimony award of $1800 per month, reduced to $1100 per month after five years, and continuing until Deborah reaches age sixty-five is appropriate considering the evidence. We, like the trial court, recognize Deborah’s living expenses will be reduced in five years.
Scott also contends the court erred in failing to terminate the alimony award upon Deborah’s remarriage. We conclude this was in error. We modify Deborah’s alimony award to terminate upon her remarriage.
IV. Trust.
Scott next contends the district court erred in concluding the reinvested funds from the Collison trust were not marital assets.
Deborah’s father, Richard Collison, first established the trust to support his wife, Maxine, in 1969. It was to be in effect for thirty years, or until the death of both Collison and his wife. Maxine passed away in 1991. Collison and his children then executed an amended trust agreement.
The trust will not terminate before the death of Collison, and will continue in existence for a period not to exceed twenty-five years following his death. Upon the termination of the trust, the remaining corpus is to be distributed equally among the surviving beneficiaries or their estates. Although the trust is irrevocable, Collison reserves the right to amend the trust agreement.
The trust requires any payout be in equal portion to each of the beneficiaries, and any income not distributed be reinvested in the principal of the trust. Scott contends the reinvested income is a marital asset because Deborah should have received it during the course of the marriage, and because during the marriage he and Deborah paid taxes, penalties, and interest on the unpaid portions.
Deborah’s interest in the trust is a gift that pre-exists the marriage. Such gifts may be divided to avoid injustice. In re Marriage of Fall, 593 N.W.2d 164, 166 (Iowa Ct.App. 1999). Factors to be considered in such circumstances are:
(1) contributions of the parties toward the property, its care, preservation or improvement;
(2) the existence of any independent close relationship between the donor or testator and the spouse of the one to whom the property was given or devised;
(3) separate contributions by the parties to their economic welfare to whatever extent those contributions preserve the property for either of them;
(4) any special needs of either party;
(5) any other matter which would render it plainly unfair to a spouse or child to have the property set aside for the exclusive enjoyment of the donee or devisee.
Id. Other matters such as the length of the marriage or the length of time the property was held after it was devised or given, though not independent factors, may indirectly bear on the question for their effect on the listed factors. Id.
We conclude the circumstances warranting division of Deborah’s interest in the Collison trust are not present here. Although some of the parties’ marital funds were used to pay taxes, interest, and penalties as a result of the trust, these payments amounted to only a few hundred dollars total. Scott does not have a close relationship with Richard Collison. We conclude there are no special circumstances that warrant the division of Deborah’s interest in the reinvested income.
V. Valuation and Division of Assets.
Scott contends the trial court erred in valuing the SEP Prudential account. Deborah contends the court erred in valuing Scott’s law practice. Both parties contend the division of assets should be adjusted to reflect the proper evaluations.
Partners to a marriage are entitled to a just and equitable share of the property accumulated during the marriage through their joint efforts. In re Marriage of Miller, 552 N.W.2d 460, 463 (Iowa Ct.App. 1996). Iowa law does not require an equal division or percentage distribution, but rather merely requires us to determine what is fair and equitable under the circumstances. In re Marriage of Russell, 473 N.W.2d 244, 246
(Iowa Ct.App. 1991). We must take into consideration those factors set forth in Iowa Code section 598.21(1) (2001).
Scott first contends the court erred in valuing the parties’ SEP Prudential account at $6700.00 instead of $67,000.00. He argues he should be awarded the entirety of this amount to compensate for the reinvested income from the Collison trust he did not receive and the alimony he must pay. Deborah agrees the court was in error, but argues the court clearly intended Scott to only receive approximately $13,500.00 more in assets, not $73,500.00. Accordingly, Deborah argues the property should be divided in accordance with the district court’s intention.
The parties are in agreement that the proper value of the SEP Prudential account in question is $67,000.00 rather than the $6700.00 assigned by the district court.[1] The significant difference in value requires a re-examination of the property distribution. We disagree with Scott that he should be awarded the additional $60,300.00. As we have already determined, he is not entitled to any share of the reinvested funds of the Collison trust. Nor does the amount of alimony he is required to pay justify the additional property award.
We conclude it is equitable to divide the SEP Prudential account in question and to award Scott the $6700 awarded to him by the district court, plus one-half of the remaining $60,300. Accordingly, Scott will receive $36,850.00 and Deborah $30,150.00. This increases Scott’s total property award to $256,827.00 and Deborah’s total property award to $243,232.00.
Deborah also contends the court erred in valuing Scott’s share of the law practice at $62,568.00 instead of $100,000.00. Although our review is de novo, we will defer to the trial court when valuations are accompanied with supporting credibility findings or corroborating evidence. In re Marriage of Vieth, 591 N.W.2d 639, 640 (Iowa Ct.App. 1999). Scott’s expert witness placed the value of his share of the firm at $37,500.00. Deborah’s expert witness placed the value of Scott’s share at $156,000.00. The district court found neither figure appropriate, but helpful in providing a range of figures for the court to conduct its own analysis. The court listed positive factors associated with Scott’s practice: (1) the type of law practice; (2) steady level of income with some significant personal injury settlements; (3) the firm’s location; (4) a long-established presence in the community; and (5) a trained and knowledgeable office support staff. The court found the following negative factors effecting the value of the practice: (1) the firm does not own the building in which its located; (2) old equipment and hard assets; (3) limited areas of practice; (4) an attorney coming into the firm would have to be able to work with Scott’s father and Mr. Widdison; and (5) only one payment remained from the Walker-Castle settlement.
The difficulty in valuing a professional partnership occurs because its income comes almost exclusively from the efforts of the professionals and its value is dependent on continual professional performance and the cooperation among the partners See In re Marriage of Hogeland, 448 N.W.2d 678, 681-82 (Iowa Ct. App. 1989). A partner’s share can only be sold to another professional of the same discipline. Id. at 682. Furthermore, another professional would purchase the share only if he or she felt they could establish a working relationship with the other professionals. Id.
We find the trial court’s valuation was well within the permissible range of evidence and will not disturb it. In re Marriage of Versluis, 521 N.W.2d 760, 761 (Iowa Ct.App. 1994).
VI. Attorney Fees.
Finally, Deborah contends the district court erred in denying her request for trial attorney fees.
An award of attorney fees rests in the sound discretion of the trial court and will not be disturbed on appeal in the absence of an abuse of discretion. In re Marriage of Wessels, 542 N.W.2d 486, 491 (Iowa 1995). Awards of attorney fees must be fair and reasonable and based on the parties’ respective abilities to pay In re Marriage of Hansen, 514 N.W.2d 109, 112 (Iowa Ct.App. 1994). Upon review of the record, we decline to award Deborah trial attorney fees. Likewise, we award no appellate attorney fees.
VII. Summary.
The decree as entered is modified to provide alimony shall end on Deborah’s remarriage. The property division is modified to divide the SEP Prudential account in question and to award Scott $36,850.00 and Deborah $30,150.00 from the account. The decree is affirmed in all other respects. Costs of this appeal are assessed to Scott.
AFFIRMED AS MODIFIED.
All judges concur except Sackett, C.J. who partially dissents; Hecht, J., joins this dissent.
SACKETT, C.J., (concurs in part and dissents in part)
I concur in part and dissent in part.
I do not disagree with all of the findings made by the majority. I do, however, find that the economic provisions of the majority’s opinion are not equitable, most particularly the alimony awarded, which I would modify. However, in determining the equity of the economic provisions we are directed to consider the alimony and property division together in evaluating their individual sufficiency. In re Marriage of Callenius, 309 N.W.2d 510, 513-14 (Iowa 1981); In re Marriage of Dahl, 418 N.W.2d 358, 359 (Iowa Ct.App. 1987). Consequently, before addressing the alimony I look first to the ultimate property division, which I believe neither the district court nor the majority has properly assessed.
The majority finds the parties have accumulated approximately $500,000 and has divided that amount nearly equally. While Scott received about $7,000 more in assets, Deborah’s Iowa Public Employees Retirement System (IPERS) account was allocated to her at $50,000, which probably represents her contributions. Its worth may well be greater than the contributions she made and the IPERS account will greatly enhance her retirement. In re Marriage of Fall, 593 N.W.2d 164, 167 (Iowa Ct.App. 1999).
What the majority and the district court have failed to consider is that in addition to the one-half of the $500,000 that was split with Scott, Deborah has a substantial interest in a trust established by her parents and referred to as the Callison trust. Neither the majority nor the district court has valued Deborah’s interest in the Callison trust. The district court excluded it from consideration, finding it was a revocable trust and that Deborah’s father could amend it and change the beneficiaries. The majority dismissed the trust as not being a consideration in assessing the alimony awarded Deborah, reasoning that it is for her retirement.[2]
A careful review of the evidence and the exhibits convinces me that Deborah has a substantial current interest in the trust. Deborah and her father have been less than forthcoming with information on the trust and were unable or elected not to come up with a value as to Deborah’s interest.
Both parties to a dissolution are required to disclose their financial status. See Iowa Code § 598.13 (2003); see also In re Marriage of Williams, 421 N.W.2d 160, 164 (Iowa Ct.App. 1988); In re Marriage of Mueller, 400 N.W.2d 86, 88
(Iowa Ct.App. 1986). However Deborah’s failure to disclose the value of her interest in the trust does not foreclose it being valued and considered.
It is not disputed that from the time of the Rinehart marriage in 1979 until the time of dissolution Deborah received a form K-1 every year, showing that certain of the trust’s income had been distributed to her and that the amount shown as distributed income was taxable to her. She and Scott reported the total amount shown on the K-1 as a taxable distribution on their joint tax return even though only a portion of the money allegedly distributed to Deborah was ever distributed. The balance of the distributions which were Deborah’s were retained and reinvested in the trust. Consequently, with each trust distribution the undistributed portion thereof increased Deborah’s ownership rights to a percentage of trust assets. Through the years the value of the trust and Deborah’s interest has increased through inflation of assets which include both real estate and stock holdings. All distributions that were made through the years came from current income; consequently, the distributions did not decrease the principal and Deborah’s ownership interest therein. Deborah has never relinquished an ownership interest in these trust assets. The only finding that can be made is that she is vested in a portion of the trust. It was given to her and is her property.
Scott’s expert witness, CPA Larry Harden, reconstructed from the available evidence what in his expert opinion was the amount of Deborah’s distributions retained by the trust and determined it to be $152,000. Harden gave the opinion that if Deborah’s retained earnings were invested at the date of distribution at the rate of return of U.S. Treasury notes, her retained earnings in the trust would be worth $277,111 today. If they were invested at the Standard and Poor’s 500 average rate of return, they would be worth $472,546. I anticipate that the value of Deborah’s interest would be somewhere in between these two figures.
I agree with the majority that Scott should not receive any portion of the trust, as it is property gifted only to Deborah and it is equitable to set it aside to her. Iowa Code section 598.21(2) provides, in part, gifts received by either party prior to or during the course of the marriage are not subject to property division unless the refusal to divide the property is inequitable to the other party or the children. See In re Marriage of Thomas, 319 N.W.2d 209, 211 (Iowa 1982); In re Marriage of Byall, 353 N.W.2d 103, 105-06 (Iowa Ct.App. 1984).
While I agree that the interest in the trust should be set aside to Deborah, my consideration of the trust does not end there. It is very relevant in assessing the parties’ respective economic situations, particularly when assessing the parties’ respective claims on the alimony issue.
The majority has affirmed the district court’s award of alimony for Deborah at $1800 a month for five years and then $1100 a month until Deborah is sixty-five years old. I consider this award excessive. Spousal support is provided for under Iowa Code section 598.21(3). Whether spousal support is justified is dependent on the facts of each case. See In re Marriage of Fleener, 247 N.W.2d 219, 220 (Iowa 1976). In assessing a claim for alimony we consider the property division and alimony together in determining their sufficiency. See In re Marriage of Lattig, 318 N.W.2d 811, 815 (Iowa Ct.App. 1982). Entitlement to spousal support is not an absolute right. In re Marriage of McFarland, 239 N.W.2d 175, 179 (Iowa 1976). An alimony award is justified when the distribution of the assets of the marriage does not equalize the inequities and economic disadvantages suffered in marriage by a party. Id.
There are factors in favor of Deborah obtaining alimony. Deborah taught school and contributed to family finances during Scott’s last two years of law school, although there is evidence he also contributed financially to the household during this period. We give consideration in fixing alimony to the education the parties received during marriage. See In re Marriage of Francis, 442 N.W.2d 59, 62 (Iowa 1989); In re Marriage of Janssen, 348 N.W.2d 251, 253-54 (Iowa 1984); In re Marriage of Passick, 375 N.W.2d 284, 286 (Iowa Ct.App. 1985). Scott also has realized through recent years a higher income than has Deborah.
Other factors militate against Scott paying alimony or paying it in the amount affirmed by the majority. Deborah has remained in the job market throughout the marriage, allowing her to establish seniority in her profession. She has a salary that provides a living wage as well as substantial employee benefits, including insurance and employer contributions to her social security and IPERS. Deborah leaves the marriage with substantial financial interests. Inherited and gifted property can be considered on the issue of alimony and in assessing the need for alimony. See In re Marriage of Moffatt, 279 N.W.2d 15, 20 (Iowa 1979); In re Marriage of Weiss, 496 N.W.2d 785, 788
(Iowa Ct.App. 1992); In re Marriage of Voss, 396 N.W.2d 801, 804 (Iowa Ct. App. 1986); In re Marriage of Stewart, 356 N.W.2d 611, 613
(Iowa Ct.App. 1984).
I also disagree with the determination of additional income needed by Deborah. The district court in fixing alimony apparently considered the expenses that she claimed for a household that included herself and a seventeen-year-old daughter, as well as the contribution she anticipates she will be making to her college age daughters. Scott was ordered to pay $1000 a month child support for the period the seventeen-year-old daughter will live in the household. A parent’s court-ordered college expense contribution is set by statute and Deborah’s share should not be considered an expense of Deborah’s that Scott has to supplement. Also Deborah claims as expenses short-term high-interest debt payments when she obviously has received sufficient assets to discharge that debt. With her retirement secure she can liquidate some assets and decrease her debt service, particularly on high-interest credit cards.
I would modify the alimony award and decrease it to $400 a month to continue for five years.