January 03, 2009
Case Law Development: Husband who has no title to family home may not claim homestead exemption in bankruptcy
Teaching in a common law property state, I am struck by how often my students have difficulty separating out property title systems during the marriage from those used in divorce. They want to apply "marital property" characterizations during the marriage, though I repeatedly emphasize that there is not such a scheme in common law title-based states.
The United States Court of Appeals for the Seventh Circuit has provided a lovely case for emphasizing to the students the importance of the distinction between ownership systems during the marriage and those that govern upon divorce. The case involved a husband and wife who had joint title to their home and then divorced. The home was awarded to wife. The couple then reconciled and remarried, but wife continued to hold the home in her name only. During the second marriage, the couple filed for bankruptcy. They each claimed a state homestead exemption in the family home. Though title to the home was in wife only and husband was not liable on the mortgage, he had contributed funds and labor and the home had appreciated in value. Under Illinois law, he could have asserted this contribution as entitling him to a marital property interest in at least some of the value of the home upon divorce. However the couple were not divorcing, so the divorce laws did not apply.
Resolving conflicting lower court opinions and reversing the decision of the district court, the court of appeals held that, during the marriage, husband's inchoate marital property interest did not give him a present ownership interest in the home so that he could claim a homestead exemption.
As the oral arguments make clear, the interaction of state homestead laws and federal bankruptcy laws results in a dizzying array of decisions on the principle issue in this case, depending on one's jurisdiction. For a good overview article of the intersection of family law and bankruptcy, see Shayna M. Steinfeld, The Impact of Changes under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 on Family Obligations, 20 J. Am. Acad. Matrimonial Law. 251 (2007).
June 14, 2007
Case Law Development: Dischargeability of Mortgage Payments Required by Divorce Decree
In a chapter from a "protracted and ugly" divorce case, the bankruptcy court held that a Husband's obligation to "assume and pay and hold [Ex-Wife] harmless from . . . the second mortgage on the parties' home" was in the nature of support and thus was not dischargeable in bankruptcy. The case would be useful for students to read not only for the bankruptcy analysis, but as a demonstration that securing a divorce decree is only the first step in enforcing support obligatiosn. As the court here noted, the husband's attempts to discharge the mortgage obligation "has almost exhausted the resources of both the federal and state courts of Utah."
As to the characterization of the obligation itself, the court noted that whether an order is in the nature of support is a matter of federal bankruptcy law, so that "a debt could be in the 'nature of support' under [bankruptcy law] even though it would not legally qualify as alimony or support under state law." Here the court correctly determined that to the extent the mortgage obligation was premised on the right of the Debtor's children to live in the home until age 18.
The court split on the issue of whether attorneys fees were properly awarded.
Busch v. Hancock (In re Busch), US Bankruptcy Appellate Panel of the 10th Circuit (June 4, 2007)
Read opinion (last visited June 14, 2007 bgf)
January 09, 2007
Law Review Articles: Bankruptcy and Family Law
Daniel A. Austin, For Debtor or Worse: Discharge of Marital Debt Obligations Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 51 WAYNE L. REV. 1369 (2005). This article provides an overview of the connection between divorce and bankruptcy including an analysis of the impact of the Bankruptcy Abuse Prevention and Consumer Protection Act (2005) changes to the 1978 Bankruptcy Code. The author predicts how the revisions are likely to be applied with respect to marital debt discharge. Link to Article
Jackie Gardina, The Perfect Storm: Bankruptcy, Choice of Law, and Same-sex Marriage, 86 B.U. L. REV. 881 (2006). This article analyzes choice of law issues likely to arise when bankruptcy courts consider property interests arising from same-sex marriages and civil unions. The author concludes that bankruptcy courts are not mandated to apply a forum state’s choice of law rules and that bankruptcy courts should instead apply the state law most consistent with underlying Bankruptcy Code policy. Link to Article on Westlaw
Anthony Michael Sabino, Violence of Action: the Bankruptcy Code, Domestic Relations Law, and the New War with State Probate Law, 19 QUINNIPIAC PROB. L.J. 264 (2006). This article discusses the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 focusing in part on automatic stay and dischargeability of debts arising from domestic relations proceedings. Link to Article on Westlaw
Last visited 1-8-07 NVS
September 27, 2006
Case Law Development: Costs for Recovering Abducted Child from Another Country as Child Support or Attorneys Fees
The Maryland Court of Special Appeals addressed a case that I'm inclined to assign to students at the end of the semester with the instructions, "Here, read this case about all the topics we barely touched upon in the course and don't ever let me hear you say -- 'if I can't find a job, I can always do some family law!'"
The case involves a factually and legally complicated story of Mother and Father who had a son (while Mother was married to another man). When the son was 2 1/2 years old, and while a custody action between the parents was pending in Maryland, Father abducted him and took him to Turkey. The court chronicles Mother's efforts to recover her son, which required 2 1/2 years, 11 trips to Turkey, multiple court hearings in both Maryland and Turkey, and over $350,000 in legal and private investigation fees and expenses. Simply reading the story of what happened in this case to the point of the child's return is like a short course in international child custody litigation.
However, the case before the Maryland court required even more, as Mother was awarded some of her expenses in securing her son's return to the United States, which Father challenged in this appeal and sought to avoid through a separate bankruptcy proceeding. The trial court had granted Mother $200,000 in costs in one proceeding and then $252,930 in a second hearing, which it treated as an award of counsel fees and costs. Mother sought to have the first award characterized as a contempt sanction and argued that the trial court had erred in overruling her motion to have the second award made as child support.
The court commented on the parties' motivation for this characterization dispute: "The only reason the parties are arguing over whether the court could sua sponte treat Mother's motion as one for counsel fees and costs, and whether the $ 252,930 judgment is for child support, is that they believe the answers to those questions will determine ... whether that judgment was entered in violation of the automatic stay in bankruptcy.... [T]hat issue is to be decided under federal law, not Maryland law; and federal law about what obligations are child support, or "in the nature of child support," differs from Maryland law on that subject. Therefore, our answers to these two questions do not have the significance the parties believe they do." Indeed, the court went on to explain that, while under state law "counsel fees and costs incurred by a parent in a custody case are not child support, even when they are for the benefit of the child", under federal law, these same expenses are "in the nature of child support" and thus non-dischargeable.
Regarding the characterization of the first award, the court found that the trial court had erred in characterizing that award as one for contempt, as there were no purge conditions in the first award. Rather, the court found that the trial court had retroactively re-characterized the first award in the hearing on the second award. That error required reversal and remand.
While Father prevailed in this round of the litigation, the court was not without commentary on his approach to the litigation. The court addressed Father's argument that he should not be required to pay Mother for the expenses incurred in recoverying the child because Mother's husband -- not Mother -- had actually paid those expenses. In rejecting this argument, the court noted "If nothing else, this argument is notable as a fine example of chutzpah" with a footnote that explored the definition of the term and its use by the courts.
So, read and enjoy, and save the opinion in case you have trouble convincing your curriculum committee that there is sufficient content to justify offering an advanced child custody class.
Corapcioglu v. Roosevelt, 2006 Md. App. LEXIS 219 (September 20, 2006)
Opinion on web (last visited September 22, 2006 bgf)
May 09, 2006
Case Law Development: Effect of Bankruptcy Discharge on State Court Judgements to Enforce Non-Discharged Debts
The United States Court of Appeals for the Fifth Circuit was called upon to revisit what it characterized as the “ceaseless litigation” involved following a couple’s divorce in 1993. The case addresses the issue of discharge of debt in bankruptcy but also provides yet another example of how difficult and contentious efforts to enforce obligations under divorce judgments can be.
After their 1993 divorce action, Husband filed bankruptcy and had discharged certain property settlement obligations but was unsuccessful in discharging his alimony debt. Wife then brought several state court contempt actions to enforce the obligations under the divorce proceeding. In one of these actions, she obtained a state court judgment for contempt ordering that Husband pay the discharged property settlement (the court being unaware of the bankruptcy discharge at that point), the alimony arrearages of over $96,000, damages for failure to pay alimony (primarily Wife’s lost equity in property that was foreclosed when she was unable to pay her mortgage), and attorneys fees in enforcing the obligations.
Husband then brought an action in bankruptcy court to reopen the bankruptcy and requested the court to void the state court judgments. The bankruptcy court ruled that Husband's prior bankruptcy discharge caused all of Wife's claims, except for the claim for non-discharged alimony, to be barred by res judicata. The decision was affirmed by the district court.
The court of appeals, rejected the bankruptcy court’s use of res judicata to resolve the dispute and focused instead solely on the questions of focus instead on the requirements of section 524(a)(1) of the Bankruptcy Act regarding whether the state court judgments were for debts that had been discharged by the bankruptcy action. Thus, the court pointed out that the state court’s original judgment for non-payment of the property settlement was clearly an attempt to enforce a discharged debt and was void.
As to the judgment for attorney’s fees, the court of appeals noted that reasonable attorneys' fees incurred in collecting support obligations should be treated as support obligations while attorney’s fees related to discharged debts should be considered discharged debt. Wife’s award of attorneys’ fees related to efforts to enforce both discharged and non-discharged debt. The district court had held that, because of this, the entire judgment of attorneys' fees was void under the equitable doctrine of unclean hands. The court of appeals disapproved this use of the unclean hands doctrine, noting that this equitable doctrine may not be used by a federal court to void a state court judgment. Rather, the court held that the state court judgment for fees was void to the extent that those attorneys' fees were incurred in enforcing discharged debt and remanded for a determination of what portion of the attorneys’ fees related to that debt.
As to the damages for foreclosure of Wife’s property, the court noted that because the foreclosure occurred before Husband had filed for bankruptcy, they were “claims” in the bankruptcy and were discharged along with Husband’s other debts. As to losses of other property, the court remanded for a factual determination of how much of that award was for pre-petition and post-petition claims.
In re Egleston, 2006 U.S. App. LEXIS 11296 (May 5, 2006)
Opinion on the web (last visited May 8, 2006 bgf)
April 04, 2006
Case Law Development: Concurrent Jurisdiction of State Court and Bankruptcy Court over Divorce
The US District Court for the Eastern District of Michigan unravelled a jurisdictional knot in a ccase involving a receiver appointed by the state court to oversee sale of a marital home as part of a divorce judgment. The divorce decree also provided that if either party filed for bankruptcy, and that if it was determined that any obligation owed to the other party was dischargeable, then the unpaid amount would be automatically converted to non-dischargeable domestic support.
Husband thereafter filed a bankruptcy petition. The receiver moved for fees in the state court action, which the court granted, finding that these were non-dischargeable debts in the nature of domestic support. The court also ordered that Husband direct his disability check to the receiver to pay for child support arrearages. Husband then filed a motion in the bankruptcy action asking the court to find that the receiver was in contempt for violating the automatic stay.
The district court affirmed the bankruptcy court's denial of that motion. The court emphasized that the state court has concurrent jurisdiction regarding determinations of dischargeability pursuant to 11 U.S.C. § 523(a)(5), and that collection of child support from property that is not property of the estate is excepted from the automatic stay pursuant to 11 U.S.C. § 362(b)(2)(B). Moreover, the court emphasized that, even if the state court was wrong in its determination of non-dischargeability, the Rooker Feldman doctrine prohibited the district court's review of that determination:
"Regardless of whether the state court's ruling that found the receiver's fees non-dischargeable because they were in the nature of support was correct or not, the state court had jurisdiction to make that decision. An erroneous interpretation of the law does not divest a court of jurisdiction to make the erroneous decision. Therefore, because the state court had concurrent jurisdiction over areas of domestic support, the Rooker-Feldman doctrine bars collateral attack or appellate review of state court decisions, even if erroneous. If Appellant wishes to appeal the state court decision granting non-dischargeable status to the receiver's fees, he must do so in the state court system."
In re Moxon, 2006 U.S. Dist. LEXIS 14893 (E.D. Mich. March 30, 2006)(bgf)
September 23, 2005
Case Law Development: Marital Property Characterization During Bankruptcy of Married Couple
Students sometimes have a real difficulty in understanding that the laws governing characterization of property at divorce are not the same as the laws governing characterization of property during marriage. The United States Bankruptcy Court for the Eastern District of Wisconsin recently faced this same confusion in a debtor’s argument that he could claim as exempt from the bankruptcy estate, property that was his wife’s under marital property law because he had contributed to its maintenance.
In re Czerneski, 2005 Bankr. LEXIS 1726 (E.D. Wis. September 13, 2005)
This was a joint bankruptcy petition, filed in anticipation of the couple’s divorce. Wife had some land that had been gifted to her during the marriage and which she had retained in her separate name. She claimed the allowable exemption for a portion of that land. Husband sought to exempt a portion of the land as his own exemption, stacking his exemption with wife’s so as to keep the land out of the bankruptcy estate. He relied on cases holding that, upon divorce, a spouse could be awarded a portion of their spouse’s separate property to compensate for contributions to the property. However, the court held that these cases did not apply to the determination of ownership during the marriage. Citing other instances in which the Wisconsin courts had been asked to apply property principles upon divorce outside that context, the court held that contribution to the maintenance of separate property does not transmute the property into marital property.