Opinion
Case No. 03-14557-SSM.
February 18, 2005
Robert M. Gants, Esquire, Redmon, Peyton Braswell, LLP, Alexandria, VA, Counsel for Gordon P. Peyton, chapter 7 trustee.
Arman Ghanei, McLean, VA, Debtor.
Steven B. Ramsdell, Esquire, Tyler, Bartl, Gorman Ramsdell, PLC, Alexandria, VA, Special counsel for the debtor.
David E. Jones, Esquire, Fairfax, VA, Counsel for Panthea Mohtasham.
MEMORANDUM OPINION
A hearing was held in open court on February 15, 2005, on the motion of Gordon P. Peyton, chapter 7 trustee, for turnover of a portion of the 2003 Federal income tax refund received by the debtor after the filing of the bankruptcy petition. The only disputed issue is whether the debtor's two children are his "dependents" for the purpose of calculating his Virginia homestead exemption. The debtor was present in person and was represented by counsel, who entered a limited appearance for that purpose. The trustee was present by counsel. Panthea Mohtasham, the debtor's former wife and a creditor in this case, was present by counsel. For the reasons stated, the motion for turnover will be granted.
Background
The facts are essentially undisputed. The debtor, Arman Ghanei, filed a voluntary petition under chapter 7 of the Bankruptcy Code in this court on October 6, 2003. On his schedules, he claimed $1.00 in Federal and State tax refunds as exempt under the Virginia homestead exemption, § 34-4, Code of Virginia. The exemption was perfected by the timely recording of a homestead deed in the clerk's office of the Circuit Court of Fairfax Country on November 10, 2003. The total exemption claimed on the homestead deed was $4,005.00 ($4,000.00 in an automobile and 5 nominal $1.00 exemptions in various assets, including "Federal and State Tax Refunds"). On the homestead deed the debtor stated that he was not a disabled veteran entitled to the additional exemption under § 34-4.1, Code of Virginia, but did support two named dependents, one age 8 and one age 9. There is no dispute that the dependents listed are the minor children of the debtor's marriage with Ms. Mohtasham.
Subsequent to the bankruptcy filing, the debtor received his 2003 Federal income tax refund in the amount of $13,336.64. Of that amount, the trustee seeks to compel turnover of $8,161.77, which the trustee calculated as the prorated portion attributable to the pre-petition filing period, less what the trustee calculates as the debtor's remaining available homestead exemption. The debtor does not oppose turning over this amount. Ms. Mohtasham, however, has filed an objection asserting that the amount to be turned over should be at least $1,000 more, because the debtor, according to Ms. Mohtasham, has inflated his remaining available homestead exemption by improperly claiming the two children as dependents on his homestead deed.
More precisely, the debtor states that he has spent the funds and does not have them; but he consents to entry of a judgment against him for the amount the trustee requests.
There seems to be no dispute that for the tax year 2003 the children were claimed as dependents on Ms. Mohtasham's federal income tax return and not on the debtor's. The final decree of divorce, which was entered on September 5, 2003 (approximately a month prior to the bankruptcy filing) reflects a shared custody arrangement in which the children reside with Ms. Mohtasham 262 days of the year and with the debtor 103 days of the year. The decree requires the debtor to pay Ms. Mohtasham $857 a month in child support. The child support computation shows the "total shared support" of the children as $2,684 per month plus $100 a month in child care costs. The debtor effectively ends up shouldering $1,614 of this amount, while the amount effectively paid or provided by Ms. Mohtasham is $1,169.
This calculation is based on the "Shared Custody Support Guideline Worksheet" attached to the divorce decree. The support "need" of the children is initially allocated between the parents based on the relative number of days in the year they reside with a particular parent. Adjustments are then made for the amounts each parent owes the other (based on their relative incomes) for the period the child is with the other parent:
Mohtasham Debtor Custody share of children's need $2,026 $757 Due from other parent ($1,175) ($318) ___________________ sub-total $851 $439 Owed to other parent $318 $1,175 ___________________ Net burden $1,169 $1,614
Discussion A.
Among the exemptions available to a Virginia "householder" who files for bankruptcy is a homestead exemption which may be claimed in either real or personal property in the amount of $5,000.00. Va. Code Ann. § 34-4. The exemption is increased by $500 for each dependent the householder supports and by an additional $2,000 if the householder is a disabled veteran. Va. Code Ann. §§ 34-4 4.1. The statute defines "dependent" as
A "householder" is defined as any resident of Virginia. § 34-1, Code of Virginia.
an individual who derives support primarily from the householder and who does not have assets sufficient to support himself, but in no case shall an individual be the dependent of more than one householder. Va. Code Ann. § 34-4. Nothing in the definition expressly limits "dependents" to those persons who would qualify as dependents for Federal or state income tax purposes.
The federal tax code definition of "dependent" is considerably more detailed and would take many pages to quote in full. 26 U.S.C. § 152. Briefly, though, a "dependent" is defined for federal income tax purposes as a "qualifying" child or relative. Id. § 152(a). For a child to be "qualifying," he or she must, among other requirements, have had the same principal place of abode as the taxpayer for more than one-half of the tax year and must not have provided more than one-half of his or her own support for the calendar year in which the taxpayer's tax year begins. Id. § 152(c)(1)(B) (D). A child may not, however, be claimed as a dependent by more than one taxpayer. Id. § 152(c)(4). If more than one parent would otherwise be able to claim a child as a dependent, the dependency deduction goes to the parent with whom the child has resided for the longest period of time during the taxable year, or, if the child resides with both parents for the same amount of time, the parent with the highest adjusted gross income. Id. § 152(c)(4)(B)(i) (ii). Where the parents are divorced, the child will be treated as the dependent of the non-custodial spouse only if the divorce decree or written separation agreement provides that the noncustodial parent is entitled to the deduction or the custodial parent signs a written declaration that he or she will not claim the child as a dependent for the tax year. Id. § 152(e)(2)(A)(i) (ii). The "custodial" parent is the parent with whom the child shares the same principal place of abode for the greater portion of the calendar year. Id. § 152(e)(3)(A).
Although it should be apparent from the foregoing recitation that the definition of "dependent" as embodied in the Virginia homestead exemption statute shares some characteristics with the Federal tax code definition, it is equally apparent that the tax code definition is highly technical in a way that the exemption definition is not. Although dependency for tax purposes will often as a practical matter coincide with dependency for exemption purposes, there is no necessary correspondence between the two.
The issue, accordingly, is not whether the children meet the technical requirements for dependency under the federal tax code. The test, rather, is (1) whether they lack "assets sufficient to support [themselves]" and (2) whether they "primarily" derive their support from the debtor. No party has suggested that the children have assets sufficient to support themselves. The issue then becomes whether they "primarily" derive their support from the debtor. Since the term "primarily" is not defined in the statute, one must assume that the General Assembly intended the ordinary dictionary meaning of the word, that is, "for the most part" or "chiefly." Webster's Ninth New Collegiate Dictionary 934 (1985). In short, more of the dependent's support needs must be paid for or supplied (possibly in kind, such as a roof over the dependent's head or food on his or her table) by the party claiming the exemption than from any other source. Since the exemption statute does not incorporate a historical measuring period (such as the current or preceding calendar year) the court concludes that the dependency test is met if, at the time the exemption is claimed, the debtor is the primary provider of support.
As noted, the child support computation attached to the divorce decree reflects that a greater portion of the support burden is shouldered by the debtor than by Ms. Mohtasham. Because the children do not live with the debtor more than one-half of the tax year, and because neither the divorce decree nor a written agreement with Ms. Mohtasham allocates the dependency exemption to him, the debtor would not be entitled to take a dependency deduction for the children on his federal income tax return. But that is a different issue from whether he is entitled to the additional homestead exemption based on his support of them. Since it appears that the children "primarily" derived their support from the debtor at the time the exemption was claimed, the debtor is entitled to the additional $500 homestead exemption for each child notwithstanding his inability to claim a dependency deduction for them on his federal income tax return.
B.
On his schedule of exemptions and on his homestead deed the debtor claimed only a nominal $1.00 exemption for federal and state income tax refunds. The total homestead exemption claimed was $4,005. Although a debtor in bankruptcy, in order to claim the homestead exemption, must record a homestead deed listing the exempt property within five days after the meeting of creditors, case law has long held that where the debtor has timely staked out a claim of exemption for a particular asset, even if only in a nominal amount, the homestead deed may thereafter be amended to increase the value of the asset up to the unused amount of the homestead exemption. In re Watkins, 267 B.R. 703, 708 (Bankr. E.D. Va. 2001). The debtor here is entitled to a total exemption of $6,000 (the $5,000 base exemption plus the two $500 exemptions for the children). Of that amount, $1,995 remains unused. Thus, the debtor may amend his schedule of exemptions and homestead deed to increase the claimed exemption for federal and state tax refunds from $1.00 to $1,996.00.
The pro rata portion of the income tax refund attributable to the prepetition filing period is $10,157.77 ($13,336.64 divided by 365 days per year times 278 days from January 1, 2003 through October 5, 2003). If the debtor seasonably amends his schedule of exemptions and homestead deed to increase the exemption for federal and state tax refunds to $1,996.00, the net amount subject to turnover would be $8,161.77. Otherwise, the amount to be turned over will be $10,156.77.
A separate order will be entered consistent with this opinion.