In re Marriage of Rhinehart

• Decision Date: 07 October 2005
• Docket Number: No. 04-0494.,04-0494.
• Citation: 704 N.W.2d 677
• Parties: In re the MARRIAGE OF Deborah Catherine RHINEHART and Richard Scott Rhinehart, Upon the Petition of Deborah Catherine Rhinehart, Appellee, and Concerning Richard Scott Rhinehart, Appellant.
• Court: Iowa Supreme Court

704 N.W.2d 677

In re the MARRIAGE OF Deborah Catherine RHINEHART and Richard Scott Rhinehart,

Upon the Petition of Deborah Catherine Rhinehart, Appellee, and

Concerning Richard Scott Rhinehart, Appellant.

No. 04-0494.

Supreme Court of Iowa.

October 7, 2005.

Elizabeth A. Rosenbaum, Sioux City, for appellant.

Barbara F. Orzechowski of Klass Law Firm, L.L.P., Sioux City, for appellee. TERNUS, Justice.

The appellant, Richard Scott Rhinehart (Scott), was granted further review of the court of appeals decision modifying the district court's decree in this dissolution-of-marriage action. At this stage in the proceedings, the dispute between Scott and his former wife, appellee Deborah Catherine Rhinehart (Deborah), centers primarily on whether the trial court gave sufficient consideration to Deborah's interest in a family trust when the court awarded alimony to Deborah and divided the marital assets. Scott criticizes the trial court's refusal to attribute any value to Deborah's interest in the undistributed earnings of the trust when the court allocated the parties' property. Scott also contends Deborah's interest in trust income should have been reflected in a reduced alimony award. Finally, Scott claims the trial court overestimated Deborah's financial needs when it considered Deborah's liability for college expenses.

This case was transferred to the court of appeals, which affirmed the trial court with certain modifications. The principal modification concerned a valuation error in the district court's ruling. After Scott filed his notice of appeal, it was discovered that the trial court had placed a value of $6700 on a retirement account awarded to Scott, whereas the undisputed value of that account was actually $67,000. The court of appeals divided the extra $60,300 equally between the parties.

After considering the arguments of the parties, we agree with the trial court's disposition of the parties' property, as well as its alimony award. Accordingly, we disagree with the court of appeals' modification, awarding $30,150 from the Prudential retirement account to Deborah. Because we think under all the circumstances the entire account should be awarded to Scott, we do not disturb the trial court's decision awarding this asset to him.

I. Background Facts and Proceedings.

Prior to trial, the parties stipulated to many issues, including custody, visitation, child support, and post-secondary education subsidies. The remaining issues — alimony and division of marital assets — generated several disputes, but we limit our discussion to the facts pertinent to those matters that remain contested on further review.

The parties were married in 1979 after Scott had finished one year of law school. Deborah was then employed as an elementary school teacher, and she has continued to teach to the present time. Scott completed law school and currently practices law with his father and another attorney. Deborah was forty-eight years old at the time of trial; Scott was forty-seven. Both are in good health. The couple has three daughters, Rachelle, Melissa, and Erika. At the time of trial, Rachelle had graduated from college and was self-sufficient; Melissa was twenty years old and a junior at the University of South Dakota; Erika was eighteen years old and a senior in high school.

The district court determined that Deborah had net annual earnings of $25,181 after various deductions, plus approximately $1546 in annual payments from the family trust. Scott's annual earnings varied from year to year, so the trial court used a five-year net earnings average of $122,527. After considering the financial needs of the parties and their income, the court awarded Deborah traditional alimony of $1800 per month for five years, and then $1100 per month until she reaches age sixty-five. (Deborah was also awarded child support, but that ruling is not challenged on appeal.)

The proper allocation of the marital assets was also contested at trial. In rejecting an equal division of the parties' property, the court relied primarily on the probability that Deborah would receive substantial income from the trust during her retirement years, whereas Scott would have to earn and save any funds he would need for retirement. Therefore, Deborah received property valued at $213,082, and Scott received property valued at $226,677. Included in the property assigned to each party were their respective retirement accounts.

Scott appealed, challenging the alimony award and the property division. In addition, the parties agreed the trial court had erroneously valued one of Scott's Prudential retirement accounts. This asset, listed in the decree at a value of $6700, was actually worth $67,000. Scott and Deborah disagreed on who was entitled to the unallocated value.

The court of appeals affirmed the amount of alimony awarded by the district court,¹ but modified the property division to account for the additional value of the Prudential account. The court of appeals concluded it was equitable to divide the extra $60,300 in the Prudential account equally, awarding $30,150 to each party. Scott's application for further review was granted. He continues to claim the alimony award to Deborah is excessive. He also challenges the property award, claiming (1) Deborah's interest in the undistributed earnings of the trust that accrued during the marriage should be subject to division, and (2) the entire Prudential account should be awarded to him.

II. Scope of Review.

Our review is de novo. See Zinger v. Zinger, 243 N.W.2d 639, 640 (Iowa 1976)

. In undertaking our review, we examine the entire record and decide anew the issues properly presented. See In re Marriage of Steenhoek, 305 N.W.2d 448, 452 (Iowa 1981). Although this court is not bound by the findings of the trial court, we give weight to them. Id.

III. Alimony.

Scott's principal challenge to the alimony award is the failure of the district court to consider Deborah's "vested interest" in the trust in setting the amount of alimony. He also complains that the court considered Deborah's obligation to pay an educational subsidy for the two younger children in determining how much financial support she needed. We address each contention separately.

A. Trust income. To decide whether the alimony was set too high in view of Deborah's interest in the family trust, it is first necessary to determine the nature of Deborah's interest. In 1969, Deborah's parents, Richard and Maxine Collison, established a discretionary support trust. Maxine was the trustee, and Deborah and her eight siblings were designated as beneficiaries. After Maxine passed away in 1991, Richard and his nine children executed an amended trust agreement. Four of Deborah's siblings were named as successor co-trustees. The co-trustees have discretion to pay out income from the trust to the beneficiaries after payment of any taxes and assessments on that income. Any payout must be in equal proportions to each of the beneficiaries. In addition, any income not distributed is to be reinvested in the principal of the trust. By its terms, the trust will not terminate during Richard's lifetime, and will continue in existence thereafter for no longer than twenty-five years. Upon termination, the remaining corpus is to be divided equally among the surviving beneficiaries or their estates. Although the trust instrument states the trust is irrevocable, it expressly reserves to Richard, the grantor, the right to amend the trust.

Records were introduced showing that trust income was customarily allocated to the beneficiaries each year, but only part of the income was actually distributed to the beneficiaries. For example, for the tax years 1990 through 2002, the schedule K-1 tax forms for Deborah showed a total of $210,976 of trust income allocated to her, but only $87,876 was actually distributed to her. The majority of the income received from the trust was used to pay income taxes attributable to the trust income and income tax penalties due to the trust's failure to make estimated payments. Only the remainder, an average of approximately $1500 annually, was disposable income to Deborah and Scott. Income that was not distributed to the beneficiaries was used to pay trust expenses or was added to the trust principal and reinvested.

Scott argues Deborah's interest in the trust fund "was the equivalent of a vested pension account." He claims she has a current vested interest in the trust in the form of the reinvested income, and that interest warrants a reduction in alimony to $400 per month. He relies on our cases stating that inherited and gifted property can be considered on the issue of alimony. See, e.g., In re Marriage of Moffatt, 279 N.W.2d 15, 20 (Iowa 1979)

. We reject Scott's argument, as did the court of appeals and district court.

Deborah's interest in the trust is not vested. The trust can be unilaterally amended by her father at any time, a power that allows him to change the beneficiaries. Scott cites Iowa Code section 633.2202(1) to support his argument that Deborah cannot be removed as a beneficiary, at least not without her consent. That statute states in relevant part: "An irrevocable trust may be modified or terminated upon the consent of the settlor and all of the beneficiaries." Iowa Code § 633.2202(1) (2003). This statute, however, is a default provision that applies only if the trust instrument contains no provision to the contrary. See id. § 633.1105 ("The provisions of a trust shall always control and take precedence over any section of this trust code to the contrary."); Martin D. Begleiter, In the Code We Trust — Some Trust Law for Iowa At Last, 49 Drake L.Rev. 165, 183 (2001) (stating "the Trust Code is a series of default provisions, to be used when the drafter has not included in the governing instrument language controlling the situation").

In addition to the possibility that Deborah could be removed as a...