Opinion
Bankruptcy No. 01-30979, Chapter 7, Adversary No. 01-7051
January 14, 2002
Suzanne M. Schweigert, Attorney for Plaintiff.
Rob Forward, Attorney for Defendant.
MEMORANDUM AND ORDER
The plaintiff Kimberly Thiel (Kimberly) commenced the above-captioned adversary proceeding by Complaint filed September 10, 2001, seeking a determination that certain obligations stemming from a settlement agreement entered by the parties in connection with their divorce are actually in the nature of alimony, maintenance or support, and therefore nondischargeable under section 523(a)(5) of the United States Bankruptcy Code. Alternatively, she requests that the obligations be determined nondischargeable under section 523(a)(15). By Answer filed September 26, 2001, the debtor/defendant Carl Thiel (Carl) disputes that the obligations are dischargeable.
Trial was held on December 11, 2001 From the evidence presented, the court finds the material facts to be as follows:
FINDINGS OF FACT
The parties were married on June 19, 1987. During their marriage, they had two children, currently ages 15 and 12. Among other marital debts and expenses, the parties mortgaged their marital home. They took out a second mortgage on January 20, 1999, characterized in the mortgage as a construction mortgage, with Green Tree Financial Servicing Corporation, n/k/a Conseco Finance Corporation (Conseco).
In November 1999, the parties entered into a settlement agreement, the terms of which were incorporated into a North Dakota state court divorce decree dissolving their marriage. Under the settlement agreement, Kimberly was awarded physical custody of the parties' children, and Carl was granted liberal visitation rights. Carl is obligated to pay $488.00 per month in child support, an amount determined applying Carl's income at that time to the North Dakota child support guidelines. Carl concedes in his post-trial brief that his $488.00 monthly child support obligation is nondischargeable. In addition to child support, Carl is also required to maintain health insurance for the children. With regard to medical expenses that are not covered by health insurance, the settlement agreement provides: "[A]ny medical expenses in excess of $500 total, including both children, that are not covered by insurance will be divided equally between the parties. These expenses include costs from medical, dental and optometric expenses, including insurance deductibles if insurance is involved."
The settlement agreement also provided for the division of the parties' assets and debts. Kimberly retained certain real property, including the parties' former marital residence (family home) and the land on which it is located, the property located next to the family home, and an adjacent vacant lot. Kimberly and the parties' children have resided in the family home since the parties' divorce. Kimberly also retained the household possessions and a 1984 Honda car. She assumed the indebtedness related to the car, as well as the first mortgage and one-half of the second mortgage against the family home. Carl retained a 1998 Dodge truck, a 1998 Harley Davidson motorcycle, and a shed located on the property upon which the family home is also situated. He assumed the indebtedness related to the truck and the motorcycle, as well as one-half of the second mortgage against the family home. With regard to the second mortgage, the provisions in the settlement agreement are identical, and state that the respective party is responsible for "[o]ne half of the second mortgage to Green Tree Financial, its successors and assigns, which is one half of the total sum of approximately $19,000.00 or about $9,500.00."
On May 22, 2001, Carl filed a petition for relief under Chapter 7 of the United States Bankruptcy Code. On Schedule F of his petition, Carl listed Kimberly as un unsecured creditor with a claim of an "unknown" amount. Carl also scheduled Conseco as an unsecured creditor in the amount of $19,124.62. Kimberly commenced an adversary proceeding seeking a determination that the debts owed to her by Carl for child support, health insurance, the children' medical expenses, and one-half of the second mortgage on the family home are in the nature of support or maintenance and are therefore nondischargeable under sections 523(a)(5) and (a)(15) of the Bankruptcy Code.
At the trial on the matter, Carl conceded he is not currently providing health insurance for the children and has not provided health insurance for them since the end of November 2000. He indicated that prior to that time, he had received health insurance coverage for the children through his employer. When his employment with that employer ended because of a knee injury. the insurance coverage lapsed. He stated that he did not have the financial ability to provide the children with health insurance on his own at the time, nor does he have such ability currently. He testified that he told Kimberly in December 2000 that the children' s heath insurance coverage had lapsed. In his post-trial brief, Carl concedes that payment for his debt to Kimberly for health insurance is nondischargeable, but disputes the amount owed.
Kimberly testified that Carl did not inform her that the children's health insurance coverage had lapsed. Rather, she testified, she discovered the absence of coverage when the parties' older child suffered a hockey injury and needed medical attention in February 2001. Kimberly has been providing health insurance for the children through her employer since March 1, 2001. She stated that the only insurance option available to her to cover the children is a family policy under which she is also covered. Although she initialiy testified that the health insurance for her and the parties' children costs her $384.50 per month, she conceded during cross-examination that her employer pays the health insurance premiums on her behalf as an employment benefit. She stated that if she did not have her employer provide the insurance for her and the children, her employer would give her a year-end bonus equal to $200.00 times the number of months she did not have the family coverage. If she had her employer provide coverage for her and not the children, her employer would give her a year-end bonus equal to $100.00 times the number of applicable months. She conceded that the health insurance for the parties' children effectively "costs" her $100.00 per month, i.e., she incurs no out-of-pocket expense, but she does not receive $100.00 per month that she would receive if Carl provided health insurance for the children.
Since January 2000, the children have had various medical and dental problems and expenses. Kimberly testified about the older child's particularly costly medical and dental problems. As previously mentioned, he suffered a hockey injury and needed medical attention. He also injured his knee in track and required surgery. He had braces removed from his teeth, and as a result needed veneer work to repair missing enamel. He had his wisdom teeth removed, a root canal performed, and a crown placed on a tooth. Additionally, both of the children wear glasses.
Kimberly introduced into evidence photocopies of canceled checks she stated she wrote for the children's medical and dental expenses to various medical providers, and estimated Carl's unpaid one-half of the children's uninsured medical and dental expenses to be between $3,000.00 and $4,000.00. She testified that she had paid approximately $2,200.00 of the children's total uninsured medical and dental expenses and that she currently owes an additional $4,200.00 for the same. The canceled checks in evidence total $2,217.48. She acknowledged receiving a total of $310.00 from Carl for the medical expenses, but stated that in spite of repeated requests for payment from Carl for his half of the expenses as they were incurred, he did not pay. Carl testified that he made payments to Kimberly totaling approximately $2,000.00 for the children's medical expenses, but he did not offer any documentary evidence as to these alleged payments.
Kimberly introduced statements from various medical and dental providers. During cross-examination she conceded that expenses for her care are also listed on the statements from Beulah Vision and Harris Dental, but she explained that she did not include those expenses in calculating the amount of the children's expenses. She testified that she financed a portion of Cody's dental expenses through a loan from a bank, against which she is currently paying $83.33 per month. Although it was not made clear through testimony, from the statement in evidence it appears the loan amount was $1,500.00. As of the date of the statement, which appears to be December 5, 2001, Kimberly had made six payments of $83.33. Also as of December 5, 2001, she had made four $100.00 monthly payments to Harris Dental. The balance on the Harris Dental account as of that date was $3,158.57. As mentioned, Kimberly's expenses are also listed on the Harris Dental statement. However, as of March 29, 2001, the account balance was $0.00, and the only charges attributable to Kimberly after that date were services charges, presumably for the outstanding debt. The Beulah Vision statement lists expenses since January 11, 2000. The total expenses for the children's eye care is $473.00. A statement from St. Alexius Missouri Slope Clinic lists uninsured expenses for the parties' older child's knee totaling $52.91. The statement from the Bone Joint Center indicates total uninsured expenses for the older child's knee totaling $1,201.00. The uninsured expense for the older child's care at Bismarck Surgical Associates was $100.00. Lastly, Kimberly testified that the older child needed crutches after his knee surgery. A statement from Hanger Prosthetics Orthotics, Inc. indicates the crutches cost $45.00.
As mentioned, the settlement agreement provided that each of the parties would assume one-half of the second mortgage taken against the family home on January 20, 1999. Both parties signed the second mortgage in the amount of $19,575.00 with a 14.99% interest rate. Monthly payments on the second mortgage are $273.84. Although the second mortgage was a construction loan, none of the money from the loan was actually used for home improvement. Carl testified that the money was used to pay the parties' credit card debt, and although Kimberly was uncertain as to how the money was used, she stated that it was not used for home repairs and it could have been used to pay off credit cards.
After the divorce, Carl made the monthly payments on the second mortgage. Kimberly testified that she realized Carl was no longer making the payments when Conseco representatives began calling her in beginning of June 2001, because, as Kimberly was told, she is a signer on the mortgage and the other signer, Carl, was in bankruptcy. Kimberly has been making the payments since June 2001, but the payments were not current at that time and she had to make back payments to bring the account current. The balance on the principle of the loan as of December 6, 2001, was $18,731.92, as evidenced by a statement submitted by Kimberly and explained through her testimony.
Kimberly testified that she cannot afford to make the payments on the second mortgage in addition to her other expenses. She submitted as evidence an income and expense ledger. She lists her monthly income as $2,388.00 and her monthly expenses as $2,510.33, not including payments on the second mortgage.
Carl acknowledged that the family home might be lost to foreclosure if the payments are not made. He stated that although he would like the children to live in the family home, Kimberly also owns a mobile home in which she and the children could live.
CONCLUSIONS OF LAW
Section 523(a)(5) of the Bankruptcy Code excepts a debtor's obligation to make alimony, maintenance, or support payments to a former spouse and dependents from discharge. 11 U.S.C. § 523 (a)(5). Whether a particular debt is a support obligation or is part of a property settlement is a question of federal bankruptcy law, not state law. Scholl v. McLain (In re McLain), 241 B.R. 415, 418 (B.A.P. 8th Cir. 1999); Beach v. Beach (In re Beach), 220 B.R. 651, 654 (Bankr D.N.D. 1998). The fact that a divorce decree or stipulation does not call an obligation alimony, support, or maintenance does not prevent a finding that it is such because it is the actual nature of a debt, not its label, that determines whether it is dischargeable. McLain. 241 B.R. at 418; Beach, 220 B.R. at 654. The crucial issue in making the determination is the intent of the parties and the function the award was intended to serve.Tatge v, Tatge (In re Tatge), 212 B.R. 604, 608 (B.A.P. 8th Cir. 1997) (citing Holliday v. Kline (In re Kline), 65 F.3d 749. 751 (8th Cir. 1995); Adams v. Zentz, 963 F.2d 197, 200 (8th Cir. 1992); Boyle v. Donovan 724 F.2d 681, 683 (8th Cir. 1984); Williams v. Williams (In re Williams), 703 F.2d 1055, 1056 (8th Cir. 1983)); Beach, 220 B.R. at 654.
While exceptions to discharge are generally construed narrowly in order to give effect to the goal of the fresh start of the debtor, the exceptions from discharge for spousal and child support are given a more liberal construction, and the policy considerations underlying section 523(a)(5) favor enforcement of support obligations over a debtor's fresh start. Williams v. Kemp (In re Kemp), 242 B.R. 178, 181 (B.A.P. 8th Cir. 1999); Beach, 220 B.R. at 653-54. Whether a debt arising out of an dissolution of marriage constitutes an award of alimony, support, or maintenance for purposes of section 523(a)(5) is a question of fact.McLain, 241 B.R. at 418; Beach. 220 B.R. at 654.
A. Child Support
Carl states in his post-trial brief that he is not seeking discharge of his $488.00 monthly child support obligation, but emphasizes, as he did at trial, that this amount is substantially above what he would be required to pay under a review of his current income. The child support obligation is clearly support within the purview of section 523(a)(5) and is therefore nondischargeable. If Carl thinks the amount of his obligation is unreasonable, he may seek such a determination from the state court that issued the divorce decree. See Henry v. Henry (In re Henry), 239 B.R. 812, 815 (Bankr. D.N.D. 1999) (stating that a determination that a child support obligation is unreasonable or excessive is "wholly and exclusively within the purview of the state court's jurisdiction."). However, any alteration of the amount of the child support obligation will not affect the nondischargeability of the obligation.
B. Health Insurance
In her post-trial brief, Kimberly asserts that Carl owes her a total of $2,000.00 for health insurance coverage that she has provided for the children through her employer. She arrives at this figure by multiplying the ten months in 2000 — March through December — that she provided health insurance for the children times the $200.00 per month bonus that she would have received at the end of the year if she had not had to insure the children. Although Carl concedes that the providing health insurance for the children is a nondischargeable obligation, he disputes the amount Kimberly is owed, arguing that she conceded during cross-examination that $100 per month is all that is attributable to her for the children's health insurance. Because Kimberly began providing coverage for the children in March 2001 and Carl filed bankruptcy in May 2001, he asserts that the amount he owes Kimberly for the children's health insurance is $300.00. This calculation is reached by multiplying the $100.00 Carl argues the coverage actually costs Kimberly by the three months from the time she started providing coverage until the time he filed bankruptcy.
Carl's obligation to provide health insurance for the parties' children is clearly in the nature of alimony, support, or maintenance and is therefore nondischargeable under section 523(a)(5). Based on Kimberly's agreement on cross-examination that $100 per month is essentially what health insurance for the children "costs" her, this court would probably determine the amount owed to Kimberly through December 2001 to be $1,000. However, it is important to impart that the exact amount owed to Kimberly for the children's health insurance is a matter for the court from which the divorce decree originated to determine and enforce.
C. Medical Expenses
Kimberly argues that she is owed $3,048.04 from Carl as his one-half share of the children's medical and dental expenses. Carl concedes that he owes a debt to Kimberly for the children's medical expenses, but he disagrees with Kimberly's interpretation of the settlement agreement provision that states that "any medical expense in excess of $500 total" will be divided equally between the parties. He suggests an interpretation that would look at individual expenses, and if an individual expense exceeds $500.00, then he would be responsible for one-half of that particular expense. He calculates the total of the expenses that individually exceed $500.00 to total $3,891.00, one-half of which is $1,945.50. Because Kimberly conceded that Carl has already paid her $310.00, he asserts the total amount he owes her is $1,635.50.
It is not within the province of the United States Bankruptcy Court to add language to a divorce decree or settlement agreement. Rather, it is within this court's province to determine, simply, whether an obligation is in the nature of alimony, support, or maintenance. Carl's obligation to pay one-half of "any medical expense in excess of $500 total" — whatever that amount may be — is nondischargeable under section 523(a)(5) because it is in the nature of support. See Moeder v. Moeder (In re Moeder), 220 B.R. 52, 55 (B.A.P. 8th Cir. 1998) (affirming the bankruptcy court's determination that the debtor's obligation to pay a portion of all unreimbursed medical expenses incurred on behalf of the parties' child was nondischargeable under section 523(a)(5)). In the opinion of this court, under the language of the settlement agreement in this case, Carl's interpretation of the provision for medical expenses seems to lack efficacy. Nonetheless, to the extent that the parties are unclear as to the intent and interpretation of the settlement agreement, they are left to pursue their state court remedies, including returning to the issuing court for clarification.
D. Second Mortgage
Often a division of property is employed as a substitute for alimony by providing a means for the disadvantaged spouse to maintain the basics of living. Beach, 220 13.R. at 654. Maintaining the family home for the welfare and benefit of the family is indicative of support as opposed to a mere property interest. Kubik v. Kubik (In re Kubik), 215 B.R. 595, 600 (Bankr. D.N.D 1996). In Beach, this court concluded that a settlement agreement by which the debtor obligated himself to pay the unpaid balance of a debt for a mobile home in which his former wife lived and to contribute $350.00 per year toward related taxes and insurance until the mobile home was paid for was in the nature of alimony and support. 220 B.R. at 654. See also Kubik, 215 BR. at 600 (concluding that a debtor's obligation to pay the mortgage of the former marital home was in the nature of support). In Tatge, 212 B.R. at 608, the Bankruptcy Appellate Panel of the Eighth Circuit concluded that an agreement to maintain mortgage payments was in the nature of support where the mortgage served the most basic of support functions, that is, providing a home for a mother and children that they otherwise could not afford.
Carl acknowledged at trial that the family home might be lost to foreclosure if the payments are not made. He stated that although he would like the children to live in the family home, that Kimberly owns a mobile home in which she and the children could live, in his post-trial brief, he emphasizes that he made the entire monthly payment on the second mortgage from November 1999 until May 2001. He also argues that the settlement agreement clearly denoted the second mortgage as a property division.
First, it is the actual nature of a debt, not its label, that determines whether it is dischargeable. See McLain, 241 B.R. at 418;Beach, 220 B.R. at 654. Second, Carl's payment of the full amount of the second mortgage during that time does not alter the fact that under the settlement agreement his is responsible for "[o]ne half of the second mortgage to Green Tree Financial, its successors and assigns, which is one half of the total sum of approximately $19,000.00 or about $9,500.00." Although this provision does not account for the interest charges included in the mortgage payments, it is quite clear as to the allocation of the principle debt. Carl has not paid $9,500.00 of the principle debt. The court acknowledges Kimberly's argument that Carl should also be responsible for one-half of the interest on the mortgage over the 15-year repayment period. However, the divorce decree does not allocate the debt for the interest on the mortgage, and this court has no jurisdiction to rewrite the decree of the state court. The parties should present their arguments on this issue to the court issuing the divorce decree. Finally, although Carl testified that Kimberly owns a mobile home, situated on the property adjacent to the family home, in which she and the children could live in the event of foreclosure of the family home, is insufficient to establish that the mobile home is a viable alternative living arrangement for the family. Without evidence as to the size, condition, and general habitability of the mobile home, the court cannot conclude that it would be a reasonable living alternative for Kimberly and the children.
Kimberly submitted a monthly income and expense ledger that appears to be reasonable, and in any event, was not challenged by Carl. That ledger indicates that Kimberly's expenses exceed her income even without the payments on the second mortgage. From the foregoing case law discussion and the facts in this case, the court has little trouble concluding that the settlement agreement in which Carl obligated himself to pay one-half of the second mortgage was in the nature of alimony, support, or maintenance and it therefore nondischargeable under section 523(a)(5).
CONCLUSION
Based upon the foregoing, the court concludes that Carl S. Thiel's obligations under the separation agreement, entered by him and Kimberly A. Thiel in connection with their divorce and incorporated by reference into the state court divorce decree, to pay Kimberly child support, to provide the children with health insurance, to pay a portion of the children's medical expenses, and to pay one-half of the second mortgage against the family home are in the nature of alimony, support, or maintenance and are therefore nondischargeable under section 523(a)(5) of the Bankruptcy Code. Determination of the precise amount owing for health insurance, medical expenses, and interest on the second mortgage by virtue of the divorce decree is left to the state district court that issued the decree. Because section 523(a)(15) applies only to debts not otherwise found to be in the nature of support or maintenance, it is unnecessary to address Kimberly's section 523(a)(15) arguments. See Kubik, 215 B.R. at 600.
SO ORDERED.
JUDGMENT MAY BE ENTERED ACCORDINGLY.