Opinion
No. 02-13018, Adversary Proceeding No. 02-1169.
April 13, 2007
James R. Paris, Mabee, Paris, Dreaden Cox, Chattanooga, Tennessee, Attorney for the Plaintiff.
Shannon L. Clark, Chattanooga, Tennessee, Attorney for the Defendant.
MEMORANDUM
This case is before the court on the complaint of the debtor's former spouse, Ammie Currin Pike (hereinafter "Ms. Pike"), for a determination of whether the debtor's obligation to pay $370 per month for a period of ten years pursuant to the parties' divorce decree is non-dischargeable under 11 U.S.C. § 523(a)(5) as an obligation that is in the nature of alimony, maintenance, or support of a former spouse or child. In the alternative, Ms. Pike contends that the obligation is non-dischargeable under the provisions of 11 U.S.C. § 523(a)(15). This is a pre-BAPCPA case.
Findings of Fact
The parties were married for nine years and resided in a mobile home at 8786 County Road, 19 Piedmont, Alabama, with their minor son, Luke Currin. Marital problems developed and a divorce ensued. The parties were divorced by a decree in the Circuit Court for Cherokee County, Alabama, which was signed by the Circuit Court Judge on October 11, 2001, and entered in the Clerk's Office October 12, 2001.
The divorce decree ratified and adopted as a part of the decree and incorporated in the decree by reference the parties' divorce agreement, which was signed on August 31, 2001. Ms. Pike was granted full care, custody and control fo the parties' minor child, Lucas Keanu Currin, with liberal and explicit visitation rights for the debtor. Paragraphs 6, 7, 8, and 11 of the decree provide as follows:
Paragraph 6
"The marital residence shall be awarded to the Plaintiff, and the Plaintiff shall [sic] solely responsible for the debt on said real estate to Union Planters Bank PMAC and the debt on the mobile home to Chase Manhattan, and will hold Defendant harmless as to the same.
Paragraph 7
"Defendant shall pay to the Plaintiff as a property settlement in this matter the amount of $370.00 per month for the next 10 years, beginning at the signing of this agreement by the parties. Payments must be made by the first day of the month.
Paragraph 8
"Defendant shall pay, for the support, maintenance, and education fo the minor children, the sum of $382.00 each month to the Plaintiff. Said payments shall be made through the office of the Clerk of the above-styled Circuit Court. Said child support payments shall continue until the child attains the age of majority, or until age 23 if the child attends a college or university. In addition, all college expenses such as tuition, books, and room and board shall be split equally between the parties.
. . .
Paragraph 11
"Defendant shall be responsible for maintaining health and dental insurance on the minor child."
The marital residence consisted of a mobile home located upon approximately 47 acres of land. The indebtedness to Union Planters was secured by the land. The mobile home was subject to an indebtedness at Chase Manhattan. The property that secures the note to Union Planters was purchased with a cash gift from Ms. Pike's grandmother. This gift represented an anticipation of the inheritance Ms. Pike would receive from her grandmother. The land was purchased in November 1996 for approximately $46,000.
Originally, the parties' mortgaged the land to pay for improvements and to set up their mobile home. Later, the land was mortgaged to Union Planters. The proceeds from that loan were used to pay off the first loan and also some bills of the parties.
A divorce agreement was entered into by the parties. This divorce agreement was incorporated into the divorce decree. Entry of the divorce decree was not contested, and Mr. Currin was not represented in the negotiations for the divorce agreement. By the divorce agreement and by the divorce decree, each party received the vehicles which they normally used and each was required to hold the other harmless for any debt relating to the vehicles. The parties also received the property that was in their possession at the time of the divorce. The divorce decree also provided for child support payments by Mr. Currin to Ms. Pike in the amount of $382 per month.
The parties had two major assets, both of which were encumbered: the mobile home with a debt to Chase Manhattan, and the real estate mortgaged to Union Planters. Ms. Pike received both assets and assumed the debts on each, agreeing to hold Mr. Currin harmless. In return, Mr. Currin agreed to pay Ms. Pike $370 per month for 120 months, a total of $44,400.
The divorce agreement describes this obligation of Mr. Currin to Ms. Pike as a property settlement. Ms. Pike now contends that the obligation was in the nature of support.
At the time of the divorce, Mr. Currin was employed at Mohawk Industries earning approximately $13.00 per hour. His income for 2002 was $37,000. Ms. Pike worked at Learning Tree and part-time at Tony's Steak Barn. Her monthly income was approximately $660. She also was attending Jacksonville State in anticipation of receiving a master's degree and a teacher's certificate. She had approximately $21,000 of student loans.
Conclusions of Law
In this circuit any discussion of whether a debt can be excepted from discharge under § 523(a)(5) should begin with the Sixth Circuit's decision in Calhoun. Long v. Calhoun (In re Calhoun), 715 F.2d 1103 (6th Cir. 1983). In connection with a divorce, the state court adopted a separation agreement between Calhoun and his former wife. The agreement required the debtor to pay five joint debts that were incurred during the marriage and to hold his former spouse harmless on those debts. The question was whether this obligation to pay the joint debts was non-dischargeable under § 523(a)(5). The separation agreement did not label the obligation as alimony, maintenance or support. Furthermore, the debtor was to pay the debts directly to the creditors. The court set out a list of criteria for deciding whether such an obligation is actually in the nature of support:
(1) The court must decide whether the parties or the state court intended the obligation to provide support. In making this decision, the bankruptcy court should consider factors the state courts would apply in deciding whether to require support.
(2) The court must decide whether the obligation will provide necessary support to the former spouse. It is not sufficient that payment of the debts will support the former spouse by relieving him or her of the debt burden. The payment must provide support needed by the former spouse or children to meet daily needs. [In other words, if the obligation was imposed so that the former spouse can maintain a particular standard of living, but it is not needed for the former spouse to meet daily needs, then the obligation is not support for the purposes of § 523(a)(5).]
(3) The court must consider whether the amount is so excessive that it is manifestly unreasonable under traditional concepts of support. The decision depends on the earning power and financial status of the debtor at the time the state court imposed the obligation.
Calhoun, 715 F.2d 1103, 1109-1110.
In Fitzgerald, the Sixth Circuit limited the use of this analysis. It held that the bankruptcy court should not consider whether the support is necessary when the divorce decree or agreement identifies the obligation as alimony, maintenance, or support, and the evidence shows that the parties or the court intended it as support. Fitzgerald v. Fitzgerald (In re Fitzgerald), 9 F.3d 517 (6th Cir. 1993). In this situation, the court can consider only the first and third steps in the Calhoun analysis. Was the obligation intended as support, and considering the debtor's financial circumstances, is the obligation so excessive that it is manifestly unreasonable in light of traditional concepts of support?
The Sixth Circuit applied the same rule in the Sorah case. It held that the bankruptcy court should not have considered the former wife's need for support. It was irrelevant since the obligation was identified as support and was intended as support. Sorah v. Sorah (In re Sorah), 165 F.3d 397, 402 (6th Cir. 1998). Again, only the first and third steps in the Calhoun analysis could apply.
The Sorah decision, however, also refined the law even more with regard to obligations that are labeled as alimony, maintenance, or support. The first question in the Calhoun analysis is whether the state court or the parties intended the obligation as support. The decision in Calhoun allowed the bankruptcy courts to consider the facts that were before the state court. Considering those facts and the state law at the time of the divorce, the bankruptcy court could attempt to determine what the state court or the parties intended. Calhoun, 715 F.2d 1103, 1107-1109. The point was not to take the place of the divorce court; the point was to determine why the divorce court did what it did.
Of course, this allowed the bankruptcy court to consider all the facts presented to the state court that were relevant to its decision on the question of support, including the financial circumstances of both parties at the time of the divorce.
The Sorah decision seems to add a step before this. The divorce decree may include certain indicia that an obligation is a support obligation. In Sorah there were three: (1) the obligation was labeled as support; (2) it was payable directly to the former spouse; (3) it terminated when the former spouse would no longer need support. The Sixth Circuit held that these indicia created a conclusive presumption that the obligation was not dischargeable under § 523(a)(5). In other words, these indicia established that the obligation was intended as support and was actually in the nature of support.
As a result, the bankruptcy court could inquire more deeply into the intent of the state court or the parties. The bankruptcy court was not foreclosed from attempting to determine intent by looking at all the facts the state court considered.
Once the non-debtor spouse has established that the obligation in question has all of the indicia of support, the debtor spouse may not introduce evidence to the contrary. In particular, a debtor spouse may not ask the bankruptcy court to assume the role of a psychological examiner, probing the state court's decision for linguistic evidence of ulterior motives. Nor may the debtor spouse introduce evidence regarding the resources, earning potential, and daily needs of the non-debtor spouse, either at the time the obligation arose or at the time of the bankruptcy proceeding. This portion of the Calhoun analysis is inappropriate when the state court has clearly structured the obligation as support.
Sorah, 165 F.3d 397, 402 (6th Cir. 1998).
Perhaps, the key word in this passage is "structure." The structure of the divorce decree may reveal that an obligation was doubtlessly intended as support. If so, the bankruptcy court need not get involved in the more difficult job of reconstructing the thinking of the state court or the parties. The bankruptcy court must first look for structural indicators that an obligation was intended as support, such as the three indicia in Sorah.
The bankruptcy court must still refer to state law because it will reveal various indicators that an obligation was intended as support. But the court is not attempting to see through the eyes of the state court at the time it rendered the decree or approved the agreement.
In Sorah the three indicia proved the obligation was intended as support and was actually in the nature of support. One of the indicia was that the obligation was labeled as support. This and the other two indicia established that the obligation was intended as support. Since the obligation was labeled as support and was intended as support, the Fitzgerald rule applied: the bankruptcy court should not have considered the second step of the Calhoun analysis, the question of whether the support was necessary for the former spouse's support. This left only the third step in the Calhoun analysis. The Sixth Circuit held that it still applied. The debtor could still attack the amount of the obligation. Based on the debtor's earning power and financial condition when the obligation was imposed, is the obligation so excessive as to be manifestly unreasonable under traditional concepts of support? The Sixth Circuit pointed out that the debtor has the burden of proof on this issue. Sorah, 165 F.3d 397, 402-403 (6th Cir. 1998). If the debtor proves his defense, then the court excepts the reasonable portion from discharge and discharges the unreasonable portion.
This case is the antithesis of the situation in Sorah. In Sorah, the obligation was labeled as support and the facts established that the obligation was intended as support and was actually in the nature of support. Here, the obligation is labeled as a property settlement. It was payable directly to the former spouse, and it terminated at a time when the former spouse would no longer have a need for additional support since the Union Planters loan would be paid within the same time frame. Furthermore, Mr. Currin testified the payments would be used to make payments on the land so as to provide a home for his minor child. The facts support Ms. Pike's contention that this obligation was intended as support and was actually in the nature of support.
Notwithstanding the label of "property settlement," the court concludes that the debtor's obligation to pay $370 per month for a period of 10 years pursuant to the parties' divorce decree is non-dischargeable pursuant to the provisions of 11 U.S.C. § 5239a)(5) as an obligation that is in the nature of alimony, maintenance or support of a former spouse or minor child. One can only surmise why the label of property settlement was attached to the obligation. Perhaps it was some attempt to structure tax benefits or deductions. The parties both testified that the provision was not discussed between them.
Having considered the financial condition of the parties at the time of the divorce, the court concludes that the payment as set forth was not unreasonable.
The conclusions reached above pretermit any consideration of non-dischargeability under 11 U.S.C. § 523(a)(15); however, the court would observe that the debtor's argument that Ms. Pike could herself have filed bankruptcy and avoided some of her obligations only emphasizes the hardship that Ms. Pike would suffer under the (a)(15) test.
Accordingly, the court will enter a separate order declaring that the debtor's obligation to pay $370 per month for a period of 10 years pursuant to the parties' divorce decree is a non-dischargeable obligation pursuant to 11 U.S.C. § 523(a)(5).