In RE the Marriage of Julianne R. Schenkelberg and Gary W. Schenkelberg. Upon the Petition of Julianne R. Schenkelberg , 824 N.W.2d 481 ( 2012 )

IN THE SUPREME COURT OF IOWA
No. 10–1919
Filed October 26, 2012
IN RE THE MARRIAGE OF JULIANNE R. SCHENKELBERG
AND GARY W. SCHENKELBERG.
Upon the Petition of
JULIANNE R. SCHENKELBERG,
Appellant,
And Concerning
GARY W. SCHENKELBERG,
Appellee.
On review from the Iowa Court of Appeals.
Appeal from the Iowa District Court for Carroll County, Joel E.
Swanson, Judge.
A spouse seeks further review of a court of appeals decision
affirming a decree of dissolution. DECISION OF COURT OF APPEALS
AFFIRMED IN PART AND VACATED IN PART; DISTRICT COURT
JUDGMENT AFFIRMED AS MODIFIED.
J.C. Salvo and Bryan D. Swain of Salvo, Deren, Schenck &
Lauterbach, P.C., Harlan, for appellant.
Gregory J. Siemann of Green, Siemann & Greteman, P.L.C.,
Carroll, for appellee.
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WIGGINS, Justice.
On further review, a spouse asks us to determine the validity of a
premarital agreement, the fairness of a property settlement, the
sufficiency of the spousal support, and the denial of expert fees incurred
by a spouse’s attorney in preparation of the case for trial. The court of
appeals affirmed the district court decision upholding the premarital
agreement, the property settlement, and the award of spousal support.
The court of appeals also upheld the district court’s denial of the expert
fees. We affirm the court of appeals opinion and the district court
decision concerning the premarital agreement and the distribution of
property, because we agree with the court of appeals that the premarital
agreement was valid and the property settlement was equitable. Thus,
the court of appeals opinion on these issues will stand as our final
decision. However, we disagree with the court of appeals opinion and the
district court decision regarding the spousal support award and the
expert fees. Accordingly, we vacate that part of the court of appeals
opinion and modify the district court decision regarding spousal support
to require spousal support in the sum of $7000 per month until the
spouse’s death or remarriage. We also vacate that part of the court of
appeals opinion regarding the expert fees and modify the award of
attorney fees to require an additional payment of $17,050 in attorney
fees for the expert services provided to the other spouse’s attorney.
I. Prior Proceedings.
This appeal involves the dissolution of marriage between Gary and
Julianne Schenkelberg. In a bifurcated trial, the district court found the
parties’ premarital agreement was valid under Iowa Code chapter 596
(2009), the Iowa Uniform Premarital Agreement Act (IUPAA). The court
finalized its decree in October 2010. The court divided the property
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pursuant to the premarital agreement by awarding Julianne $312,295 in
property and Gary $1,769,517 in property. The court also awarded
spousal support to Julianne in the sum of $5000 per month until age
sixty-two, her death, or her remarriage. The payments then reduced to
$2000 until age seventy, her death, or her remarriage. Finally, the court
denied Julianne’s request for Gary to pay her attorney for the expert fees
incurred in preparation of the case.
Julianne appealed, contending the premarital agreement was void,
the property settlement was inequitable, the spousal support was
inadequate, and the denial of expert fees was improper. We transferred
the case to the court of appeals. The court of appeals affirmed the
district court on all issues. It also denied her appellate fees. Julianne
then sought further review, which we granted.
II. Issues.
In this appeal, Julianne raises four issues. She claims (1) the
court erred in finding the premarital agreement was valid; (2) the court
distributed the property inequitably, considering the terms of the
premarital agreement and provisions of the IUPAA; (3) the court awarded
an insufficient amount of spousal support; and (4) the court erred by not
requiring Gary to pay the expert fees incurred by her attorney.
In considering an application for further review, we have the
discretion to review all or part of the issues raised on appeal or in the
application for further review. In re Marriage of Becker, 756 N.W.2d 822,
824 (Iowa 2008). In exercising our discretion, we choose only to review
the support award and the expert fees. Therefore, we will let the court of
appeals’ affirmance of the district court’s decision concerning the
premarital agreement and the property distribution stand as the final
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decision of this court. See Hills Bank & Trust Co. v. Converse, 772
N.W.2d 764, 770 (Iowa 2009).
III. Standard of Review.
Appeals regarding the dissolution of marriage are equitable
proceedings. Iowa Code § 598.3. Therefore, our standard of review is
de novo. In re Marriage of Morris, 810 N.W.2d 880, 885 (Iowa 2012); see
Iowa R. App. P. 6.907. Although we give weight to the factual
determinations of the district court, their findings are not binding upon
us. Iowa R. App. P. 6.904(3)(g); In re Marriage of Brown, 776 N.W.2d
644, 647 (Iowa 2009).
We review an award of attorney fees that includes expert fees for
an abuse of discretion. In re Marriage of Maher, 596 N.W.2d 561, 568
(Iowa 1999); see also In re Marriage of Muelhaupt, 439 N.W.2d 656, 662–
63 (Iowa 1989). An abuse of discretion occurs when the district court
exercises its discretion “on grounds or for reasons that are clearly
untenable or to an extent clearly unreasonable.” State v. Nelson, 791
N.W.2d 414, 419 (Iowa 2010); Graber v. City of Ankeny, 616 N.W.2d 633,
638 (Iowa 2000). “A ground or reason is untenable when it is not
supported by substantial evidence or when it is based on an erroneous
application of the law.” Graber, 616 N.W.2d at 638.
IV. Facts.
On our de novo review, we make the following findings of fact.
Gary and Julianne Schenkelberg married on July 4, 1994. Both were
previously married to others and obtained their respective dissolutions in
1993. Julianne had four children from her first marriage. Gary had six
children by his first wife. All of their children have attained majority.
Prior to their nuptials, Gary and Julianne entered into a binding
premarital agreement.
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The couple’s Iowa tax returns for the years 2005–2009 show
Julianne made little to no income. However, the records indicate that
Gary’s wage, income, and dividend income for those years was as follows:
2005 $182,329
2006 $174,654
2007 $187,068
2008 $250,603
2009 $287,311
Additionally, the records reveal that his subchapter-S corporation gave
Gary a schedule K-1, and that on the K-1, he received the following
taxable distributions:
2005 $134,824
2006 $159,916
2007 $200,381
2008 $243,701
2009 $444,921
Gary claimed his income was limited to his wages and that the K-1
distributions were not actually available to him. The district court
agreed and found Gary’s average income for computing spousal support
for the years 2005–2009 was $208,000. 1 In reaching this conclusion,
the court disregarded all distributions from the subchapter-S
corporation. Based on this finding, the court awarded Julianne spousal
support in the amount it did.
We disagree with the court’s calculation of Gary’s income for the
years 2005–2009 and find his income was substantially higher. We base
our finding on the following evidence presented at trial.
The accountant for Gary and the subchapter-S corporation
explained that the corporation sometimes distributed additional money
to the shareholders, including Gary, in the form of loans. Gary testified
that he had received distributions from the corporation, which he used to
1Inmaking this calculation, the district court only considered Gary’s wages and
excluded his interest and dividend income.
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pay back his loans arising from business and tax liabilities. However,
there are no documents in the record showing that Gary ever signed a
note or had any indebtedness to the corporation. This testimony alone
justifies a finding that Gary’s income was higher than what the district
court and the court of appeals calculated.
Gary’s individual tax returns, as well as the corporation’s tax
returns and balance sheets, also suggest Gary’s income was higher.
Gary’s tax returns show he paid federal and state taxes for the years
2005–2009 as follows:
2005 $88,482
2006 $91,474
2007 $115,102
2008 $167,097
2009 $233,091
Gary could not have afforded to pay this amount of taxes unless he
received a distribution from the corporation. Gary argues that if he did
receive any such funds, the distribution was in the form of a loan that he
was obligated to pay back. However, the evidence shows that even if
these were loans, he paid them back in full by 2009.
The subchapter-S tax returns indicate the outstanding loans to
shareholders for the years 2005–2009 were as follows:
2005 $1,529,501
2006 $1,462,556
2007 $1,123,155
2008 $902,287
2009 $0
These figures demonstrate that even if he received a loan from the
corporation, there were no loans outstanding as of 2009. Therefore, the
corporation either forgave the debt or made distributions to him to retire
the loan. In other words, he had sufficient income to pay his taxes in full
for the years 2005–2009 without sacrificing his lifestyle or incurring any
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debt. It is logical to conclude that Gary must have received more than
just wages from the corporation, because his only source of income was
from the corporation.
The corporate balance sheets also support our conclusion that
Gary received more income from the corporation than just his wages.
The tax records of the corporation indicate that the total schedule K-1
distribution to all the shareholders 2 for the years 2005–2009 was as set
forth below:
2005 $607,392
2006 $720,044
2007 $926,522
2008 $1,224,804
2009 $1,931,793
Additionally, the balance sheets for the subchapter-S corporation
indicate that the shareholders’ equity in the corporation for the years
2005–2009 was as follows:
2005 $1,403,588
2006 $1,447,195
2007 $1,447,195
2008 $1,447,195
2009 $1,401,523
If the corporation was retaining distributions as Gary argued, the
shareholders’ equity should have increased dramatically. As illustrated
above, it did not.
From these documents, the figures contained therein, and the
testimony of Gary and the accountant, it is apparent that Gary was
getting substantial distributions from the corporation above his wages.
This evidence leads us to find that Gary’s average income for the years
2005–2009 was more than $400,000 per year, not just $208,000 as
found by the district court.
2During the years from 2005–2009, Gary owned approximately twenty-five
percent of the subchapter-S corporation.
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As for Julianne’s expenses, we agree that her estimate of $7028 in
monthly expenses is reasonable. Although some of the estimates may
appear high, the expenses are in line with the lifestyle she enjoyed while
married to Gary. We will discuss additional facts as necessary to decide
the issues on appeal.
V. Spousal Support.
Spousal support “is not an absolute right, and an award thereof
depends upon the circumstances of a particular case.” In re Marriage of
Olson, 705 N.W.2d 312, 315 (Iowa 2005) (quoting In re Marriage of
Spiegel, 553 N.W.2d 309, 319 (Iowa 1996)) (internal quotation marks
omitted). “[P]rior cases are of little value in determining the appropriate
alimony award.” In re Marriage of Becker, 756 N.W.2d at 825–26.
The amount of spousal support is always calculated equitably
based upon “all of the following” factors contained in Iowa Code section
598.21A(1) (emphasis added). These include:
a. The length of the marriage.
b. The age and physical and emotional health of the
parties.
c. The distribution of property made pursuant to
section 598.21.
d. The educational level of each party at the time of
marriage and at the time the action is commenced.
e. The earning capacity of the party seeking
maintenance, including educational background, training,
employment skills, work experience, length of absence from
the job market, responsibilities for children under either an
award of custody or physical care, and the time and expense
necessary to acquire sufficient education or training to
enable the party to find appropriate employment.
f. The feasibility of the party seeking maintenance
becoming self-supporting at a standard of living reasonably
comparable to that enjoyed during the marriage, and the
length of time necessary to achieve this goal.
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g. The tax consequences to each party.
h. Any mutual agreement made by the parties
concerning financial or service contributions by one party
with the expectation of future reciprocation or compensation
by the other party.
i. The provisions of an antenuptial agreement.
j. Other factors the court may determine to be relevant
in an individual case.
Iowa Code § 598.21A(1).
A trial court has considerable latitude when making an award of
spousal support. Olson, 705 N.W.2d at 315. Therefore, we will only
disturb the trial court’s award of spousal support if it fails to do equity
between the parties. Id. In reviewing the record and the factors
contained in section 598.21(A), we conclude the award by the trial court
failed to do equity.
Gary and Julianne were married for sixteen years, and thus, the
length of the marriage merits support payments. See Fenchel v. Fenchel,
268 N.W.2d 207, 210 (Iowa 1978) (upholding award of spousal support
for marriage lasting sixteen years).
The parties had a mutual agreement that Gary would be the
breadwinner and Julianne would stay home. The comparative income of
the spouses is another factor for the court to consider when evaluating
an award of spousal support. See, e.g., In re Marriage of Hansen, 733
N.W.2d 683, 704 (Iowa 2007) (considering comparative income of the
parties at $46,300 versus $18,900 as evidence that $500 per month in
spousal support to wife was proper). Here, Gary’s income during the
marriage was substantial, while Julianne’s was negligible. At age fifty-
seven, with her education and employment history, even with some
retraining, it is unlikely Julianne will ever be able to generate enough
income to support herself in the style that Gary did during the marriage.
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Gary also received a substantial property award from the court
because of the premarital agreement. It would be improper to increase
the spousal support award solely to penalize him for the premarital
agreement. However, we believe that in calculating spousal support, it is
proper to look at the assets each party received. We do so to determine
the income potential of the property distributed to each party. In this
case, Gary received assets that will continue to generate substantial
income. The assets the court awarded Julianne will not. These assets,
together with his wages, will give Gary the ability to pay a substantial
amount of support indefinitely into the future.
Finally, the report prepared by the expert hired by Julianne’s
attorney indicates that the tax consequence of awarding Julianne
substantial spousal support will only minimally affect Gary. This is true
because of Gary’s high income and tax rate, coupled with the fact that
any support payments he makes are deductible from his gross income.
The district court stopped Julianne’s support payments at age
seventy. We find that it should be payable for Julianne’s life. As long as
Gary has an interest in the corporation, there is no reason to believe that
he will not be receiving a substantial cash distribution from the
corporation, even if he no longer receives a salary from it. Moreover, if he
divests himself from his ownership in the corporation, we believe the
value he will receive for his interest in the corporation will generate
sufficient funds to reinvest in another asset that will provide him with
substantial income.
On the other hand, Julianne was fifty-seven years old at the time
of the dissolution. She received no assets that will produce a significant
stream of income to keep her in the lifestyle she had become accustomed
to while married to Gary. Her only retirement account had a fair market
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value of $1328. Based on the property distribution, her past work
record, and age, we have no reason to believe if her support payments
were to stop at age seventy, she would have significant income or assets
to maintain the lifestyle she had with Gary. Realistically, her only source
of income other than spousal support would be a share of Gary’s social
security payments.
Consequently, under the circumstances of this case, we find
Julianne is entitled to traditional spousal support, which is “payable for
life or so long as a spouse is incapable of self-support.” In re Marriage of
Becker, 756 N.W.2d at 826 (citation and internal quotation marks
omitted). Therefore, we modify the district court’s decree and order Gary
to pay Julianne spousal support in the sum of $7000 per month until
her death or her remarriage.
VI. Expert Fees.
Julianne’s attorney hired an expert to assist him with trial
preparation. The expert is a certified public accountant practicing in a
large firm in West Des Moines. The expert is qualified to give opinions
regarding forensic accounting in dissolution of marriage actions.
The expert submitted a bill for services rendered in valuing the
subchapter-S corporation, preparing schedules dealing with the tax
consequences involving various amounts of spousal support, and
reviewing the tax returns and financial statements to trace shareholder
transactions. The bill only covered the services the expert provided in
assisting Julianne’s attorney to prepare for trial and did not cover any
charges for testifying at the trial. The bill itemized each service provided
and totaled $17,050. Gary did not contest the reasonableness of the fee.
The district court awarded Julianne $30,000 in attorney fees, but
refused to reimburse her for the amount her attorney expended to pay
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the $17,050 expert bill. The district court denied expert fees, because it
found the expert’s report “was not necessary and contributed nothing to
the determination of spousal support.”
The court has considerable discretion in awarding attorney fees. In
re Marriage of Maher, 596 N.W.2d at 568. A court may consider expert
fees in an award of attorney fees. See In re Marriage of Muelhaupt, 439
N.W.2d at 662–63; see also Tydings v. Tydings, 567 A.2d 886, 891 (D.C.
1989) (upholding award of expert fees for accountant to value husband’s
corporate interest where husband was in the best financial position to
pay); Stansberry v. Stansberry, 580 P.2d 147, 150 (Okla. 1978) (granting
expert fees to wife for appraisers who valued the marital estate).
We disagree with the district court’s finding that the expert’s
services were not necessary or useful in determining the spousal support
award. The value of the assets received by Gary, the sums he obtained
from the subchapter-S corporation, and the tax consequences of
awarding spousal support were important considerations in making our
award of spousal support. Accordingly, we find the district court
decision in this regard is clearly untenable and unreasonable. Therefore,
we modify the district court’s decree and award Julianne an additional
$17,050 towards her attorney fees for the expert’s services. We do not
make an award for appellate attorney fees.
VII. Disposition.
We affirm the court of appeals opinion and the district court
decision concerning the premarital agreement and the distribution of
property. The court of appeals opinion on these issues will stand as our
final decision. However, we vacate the court of appeals opinion as to the
spousal support award and expert fees. Accordingly, we modify the
district court decision on spousal support to order Gary to pay Julianne
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spousal support in the sum of $7000 per month until her death or her
remarriage. We also modify the award of attorney fees and require Gary
to pay Julianne an additional $17,050 in fees for the expert services
provided to her attorney. We tax the costs of this action equally between
the parties.
DECISION OF COURT OF APPEALS AFFIRMED IN PART AND
VACATED IN PART; DISTRICT COURT JUDGMENT AFFIRMED AS
MODIFIED.