In re McDermott

• Decision Date: 26 March 2013
• Docket Number: No. 11–0445.,11–0445.
• Citation: 827 N.W.2d 671
• Parties: In re the MARRIAGE OF Rachel A. McDERMOTT and Stephen J. McDermott. Upon the Petition of Rachel A. McDermott, Appellee, and Concerning Stephen J. McDermott, Appellant.
• Court: Iowa Supreme Court

827 N.W.2d 671

In re the MARRIAGE OF Rachel A. McDERMOTT and Stephen J. McDermott. Upon the Petition of Rachel A. McDermott, Appellee, and Concerning Stephen J. McDermott, Appellant.

No. 11–0445.

Supreme Court of Iowa.

March 1, 2013.

Rehearing Denied March 26, 2013.

Jennifer A. Clemens-Conlon of Clemens, Walters, Conlon & Meyer, L.L.P., Dubuque, for appellant.

Susan M. Hess of Hammer, Simon & Jensen, P.C., Dubuque, for appellee.

WIGGINS, Justice.

In this case, we consider whether the district court's award of an equalization payment totaling over one million dollars in a divorce action was equitable, where most of the underlying assets were associated with a farming operation. We also consider the child support and attorney fees award. The court of appeals reduced the equalization payment to $250,000. The court of appeals did not alter the child support obligation regarding income and health insurance costs, but did modify the provision dealing with the children's extracurricular expenses. We granted further review.

We find the district court was correct in its calculation of the equalization payment, its order fixing the amount of child support, and its decision regarding the extracurricular activities. However, we agree with Stephen that he should be allowed to deduct one-half of the health insurance payments. As to attorney fees, we find that neither party should pay the other's appellate attorney fees. Therefore, we vacate the court of appeals decision and affirm the district court judgment as modified.

I. Issues.

The issues on appeal are whether the district court's property distribution was equitable and whether the child support obligations were correct. Both parties ask for appellate attorney fees, so we will also address this issue.

II. Standard of Review.

In this equity action involving the dissolution of a marriage, our review is de novo. In re Marriage of Schenkelberg, 824 N.W.2d 481, 484 (Iowa 2012); see alsoIowa Code § 598.3 (2009); Iowa R.App. P. 6.907. Accordingly, we examine the entire record and adjudicate anew the issue of the property distribution. In re Marriage of Steenhoek, 305 N.W.2d 448, 452 (Iowa 1981). We give weight to the findings of the district court, particularly concerning the credibility of witnesses; however, those findings are not binding upon us. Schenkelberg, 824 N.W.2d at 484;see alsoIowa R.App. P. 6.904(3)( g ). We will disturb the district court's “ ‘ruling only when there has been a failure to do equity.’ ” In re Marriage of Schriner, 695 N.W.2d 493, 496 (Iowa 2005) (quoting In re Marriage of Romanelli, 570 N.W.2d 761, 763 (Iowa 1997)).

III. Factual and Procedural Background.

Under our de novo review, we find the relevant facts to be as follows. On June 7, 1997, Stephen and Rachel McDermott married in Epworth. Stephen was thirty-three, and Rachel was twenty-two.

At the time of the marriage, Stephen lived and worked on the farm owned by his parents, Irwin and Joanell. This three-hundred-acre property, referred to as the Irwin farm, has been in the McDermott family since 1943. Stephen was also working on the adjacent farm, which totaled over two hundred acres and belonged to his uncle, Patrick McDermott. The McDermott family has owned Patrick's farm since 1888, making it a century farm. Stephen had premarital assets he valued at $657,885. These assets included bank accounts, real estate, vehicles, farm equipment, crops, and livestock.

Rachel is a physical therapist. She worked in that capacity prior to and, for a time, during the marriage. Rachel brought into the marriage a savings account containing approximately $34,808.

After their marriage, Stephen and Rachel lived on the Irwin farm. Rachel stopped working as a physical therapist when their first child was born in January 1999. The couple later had five more children. Rachel was their primary caregiver.

Stephen supported the family with income generated from the farming operation, which initially included raising hogs and cattle, as well as planting and harvesting crops. To maintain the operation, Stephen received assistance from his father, uncle, brother, and other relatives. None of the family members received compensation for their labor.

Stephen also obtained support from his family in the form of favorable purchase agreements. When his brother, Thomas, entered seminary school in 1992, Stephen received seven thousand bushels of corn, several thousand bales of straw, a herd of cattle, and a herd of swine. Stephen agreed to pay his brother for the farm products and livestock with no interest accumulating.

Additionally, Stephen's father and uncle allowed him to use their farm equipment and buildings. Stephen agreed to purchase the equipment and buildings, as he could afford to, for their value upon the date of his first use.

In 1998, Stephen's parents sold their farm to Stephen and Rachel for $200,000—half the farm's market value. The sale occurred with the consent of Stephen's siblings and the understanding Stephen would inherit nothing further from his parents. The biannual payment was set at $5000, with an interest rate of four percent. Stephen and Rachel paid off the balance and received a special warranty deed in January 2009.

In 2002, Stephen and Rachel purchased Patrick's farm for $100,000. The annual obligation was $10,000. Stephen and Rachel made two payments before Patrick passed away in 2004. At that time, Patrick's farm was worth approximately $427,000. In his will, Patrick forgave Stephen and Rachel's outstanding debt on the farm. Stephen's aunt, Rita, paid the $45,050 ¹ inheritance tax due on Patrick's farm.

After returning to school and obtaining recertification, Rachel filed for divorce on July 9, 2009. At that time, the parties had a total net worth of approximately $2.5 million, most of which was attributable to the farmland acquired from the McDermott family.

In the dissolution proceedings, the parties stipulated to: (1) joint custody, with shared physical care of the children; (2) no alimony award; (3) attorney fees assigned to each party, with each paying half the court costs; (4) the value of certain assets; (5) the value of farm equipment owned by Stephen before the marriage; (6) provisions for the children's health insurance and medical expenses; and (7) the division of the dependency exemptions for the children on federal and state income tax returns. Issues not agreed to by the parties included: (1) the division of marital assets and debts, (2) tax consequences resulting from the decree, and (3) the amount of child support.

The district court determined Stephen's income is $55,000, while Rachel's earnings total $65,520. Accordingly, the court ordered Rachel to pay child support of $219 per month for the six children. The support payment decreases as children no longer qualify for support, ultimately amounting to only ninety dollars per month when the last child is eligible. She is also required to pay half the children's activities fees.

The district court subsequently filed an addendum to the dissolution decree. The court awarded Stephen sole ownership of property, valued at $657,885, which the court previously divided between the parties. The court then distributed the marital property, awarding most of the property to Stephen and assigning all debts to Rachel. Stephen's share of the marital assets was in excess of $2.1 million, but Rachel's was less than $150,000. The court then ordered Stephen to make an equalization payment to Rachel for $1,087,716. The court calculated the equalization payment by dividing the value of the land, the crops, and the farm equipment in half. The court gave Stephen two options for making the equalization payment. First, he could pay equal installments for three years at $362,572 annually. Alternatively, he could make an initial payment of $500,000, and then pay the remaining balance of $587,716 over a five-year period, with annual installments of $117,543. Neither alternative required Stephen to pay interest on the equalization payment.

Stephen chose to make the equalization payment in three equal annual installments. On March 7, 2011, Rachel acknowledged receipt of Stephen's first payment for $362,572. On March 14, the district court denied Stephen's motion to enlarge, amend, or modify the judgment on the most significant issues.

Stephen appealed. The court of appeals modified the property division award by decreasing the equalization payment to $250,000. In reaching this decision, the court of appeals found the district court failed to consider the tax consequences of the property division, and thus, substantially overvalued the assets allocated to Stephen. Furthermore, the court of appeals found inequity would result from awarding Rachel the entire value of the property received from the McDermott family.

Rachel sought further review, which we granted.

IV. Discussion.

A. Introduction. Iowa is an equitable distribution state. In re Marriage of Hansen, 733 N.W.2d 683, 702 (Iowa 2007). “In dissolution-of-marriage cases, marital property is to be divided equitably, considering the factors outlined in Iowa Code section 598.21[ (5) ].” Id. The factors applicable in this case include:

a. The length of the marriage.

b. The property brought to the marriage by each party.

c. The contribution of each party to the marriage, giving appropriate economic value to each party's contribution in homemaking and child care services.

d. The age and physical and emotional health of the parties.

e. The contribution by one party to the education, training, or increased earning power of the other.

f. The earning capacity of each party....

....

i. Other economic circumstances of each party....

j. The tax consequences to each party.

....

m. Other factors the court may determine to be relevant in an individual case.

Iowa Code § 598.21(5).

B. Classification of Assets. The district court's first task was to identify and value all the assets subject to division. In...