EST. 1989
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Gifting and Transferring Family Farms and Other Business Assets

Re: Notice of important Iowa Supreme Court decision concerning gifting and transfer of family farms and other business assets

The intentions of this article are to inform of a significant Iowa Supreme Court decision that was issued this year. This case is important to anyone considering transferring/selling/gifting farmland, real estate or business assets to family members.

In this dissolution of marriage case, the parties had been married approximately 15 years at the time of their divorce. Husband’s family had transferred farmland to the couple which had been in the family for many years. In fact, one of the tracts of farmland was a century farm. This land was transferred at substantially reduced values and the transfer was to the couple as joint tenants with full rights of survivorship.

At the time of the divorce trial, the wife claimed that the land was a marital asset. As a marital asset she would be entitled to an equal share. The court ultimately decided that because the land was legally transferred by deed to both of them (joint tenants with full rights of survivorship) it was a marital asset and thus subject to equal division. The Court decided that they would simply accept the legal documents as controlling and that they would not try to guess what was intended in these circumstances. Ultimately, the husband was ordered to pay his ex-wife over one million dollars ($1,000,000) to equalize the property settlement while he was allowed to keep the farmland.

This Court decision reinforces the importance of understanding the consequences of how transfers of real estate or business interests are legally designated. The Court is not going to try to determine people’s motives when the legal documents are clear and unambiguous. In other words, testimony or other evidence about what was intended is not controlling when there are clear legal documents.

As a practical matter, the husband that was farming this land had been earning approximately $55,000 per year when it was free and clear of any mortgage. After being ordered to pay his ex-wife one million dollars, he would now either be forced to sell a portion of the land to pay his ex-wife, or to take out a loan to pay her. In either event, his income would be significantly reduced. Further, in the event of a sale, the entire tax consequence would fall on him, since he was awarded the land.

Keep in mind that this decision does not just affect transfers of farm land, but the transfer of any property where there are legal documents effectuating the transfer. Therefore, transfers of stock accounts, family business assets, vehicles, etc. are all potentially affected by the Court case.

If you would like a copy of the actual Supreme Court decision, please advise and our office will provide it to you. If you would like an electronic copy of this notice we would be glad to pass it along as well.

If you have any questions about this, feel free to call and I would be happy to discuss this matter with you.

Sincerely,

Steven E. Howes
(319) 396-2410

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