October 11, 2005
Case Law Development: Expectation of Inheritance Relevant Factor in Dividing Marital Estate
The Supreme Court of Iowa determined the role trust income should play in setting marital property divisions and alimony. Wife was the beneficiary of a family trust. While the trust was irrevocable, it could be modified by the settlor father and the amount of any income distribution from the trust was at the discretion of the co-trustees (Wife's father and four of her siblings). Income allocated to each beneficiary but not distributed to them is added back to the principal of the trust.
The court held that because Wife no right to the allocated, but undistributed, income from the trust, it would not be appropriate to treat the undistributed income from the trust as a current source of financial support in setting alimony. The court also stated that this income would not be considered marital property because Husband had done nothing to contribute to this income from the trust (which was, itself. clearly separate property as the trust existed before the marriage).
Despite this treatment of the trust and its unallocated income as separate property, the court found it proper to consider the value of Wife's expectancy in the trust In dividing the marital property. The court noted that Wife's interest in the $5 million trust was worth a present value of more than $ 550,000. The court commented that "Although Deborah's father has the power to change the beneficiaries of the trust, there is no evidence indicating he is likely to do so...Clearly, it is permissible to consider Deborah's future interest in this trust in determining an equitable division of the parties' property."
The dissenting judge found the majority's consideration of Wife's expectation of a future trust income to be deeply troubling, saying that the opinion "casts a dark cloud over the principle of equitable distribution" and "subverts, if not denigrates, the core concept of a marriage as an equal partnership." The dissent concludes that, "The concept of an equitable division of property has taken on a new meaning in Iowa as a result of this case, far removed from the concept declared by our legislature and articulated by this court in the past. It means that future inheritance has now been injected as a factor in the division of property in all cases. It means a spouse may be deprived of the right to share in an equal distribution of the property of the marriage at the time of the divorce when the spouse is expected to receive an inheritance in the future. "
In Re Marriage of Rhinehart, 2005 Iowa Sup. LEXIS 137 (October 7, 2005)
Opinion on the web at http://www.judicial.state.ia.us/supreme/opinions/20051007/04-0494.asp (last visited October 9, 2005 bgf)