Opinion
Case No. 03-05693-TOM-7, A.P. No. 03-00264.
March 3, 2006
MEMORANDUM OPINION AND ORDER
This proceeding is before the Court on the Complaint to Determine Dischargeability of Debt Under 11 U.S.C. § 523(a)(5) filed by Plaintiff, Anna T. Martin, against Defendant, Ernest C. Martin, Jr. Appearing at the December 20, 2005, trial were Anna T. Martin, Plaintiff; Charles R. Johanson, attorney for Plaintiff; and Wheeler Smith, attorney for Defendant. This Court has jurisdiction. 28 U.S.C. § 1334(b). This is a core proceeding. 28 U.S.C. § 157(b)(2)(I). This Court has considered the testimony, the documents admitted as evidence, the arguments of counsel and the law and finds and concludes as follows.
This Memorandum Opinion constitutes findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52, applicable to adversary proceedings in bankruptcy pursuant to Federal Rule of Bankruptcy Procedure 7052.
I. FINDINGS OF FACT
On or about October 3, 1990, the Chancery Court of Jackson County, Mississippi, entered a Final Judgement of Divorce for Plaintiff, Anna T. Martin (hereafter "Plaintiff" or "Ms. Martin") and against Defendant, Ernest C. Martin, Jr. (hereafter "Defendant" or "Mr. Martin"). The Judgement incorporated terms negotiated by the parties and included in Property Settlement Agreement, setting forth explicit terms under two sub-headings: "Child Custody, Visitation, and Support" (hereafter "Child Support"), and "Property Settlement" (hereafter "the Property Settlement"). Under Child Support, Defendant was obligated to pay Plaintiff $1,750.00 per month for child support, and he was to maintain medical insurance on the minor children and pay any expenses not covered by the health insurance. Defendant was further responsible for maintaining a $150,000.00 life insurance policy with the children as beneficiaries and also assumed responsibility for the children's elementary, secondary and college expenses.
See Plaintiff's Exhibit 1.
The terms of the Property Settlement and Judgement were later modified in 1992.
Plaintiff and Defendant's marriage produced 3 children.
Plaintiff testified this amount was modified to $1,000.00 per month and then later to $510.00 per month.
The Property Settlement provided Plaintiff with exclusive use and possession of the marital home, which she has enjoyed for some 22 years. However, the Property Settlement imposed upon Defendant the responsibility for any indebtedness, insurance, taxes and repairs on this home, and he agreed to hold the Plaintiff harmless from these obligations. If a sale of the marital home occurred, Plaintiff was entitled to the proceeds. If the mortgage was paid in full, Defendant was to quitclaim his interest in the home to Plaintiff. Additionally, Plaintiff was to receive periodic alimony of $450.00 per month.
Defendant was responsible for household repairs exceeding $500 for each calender year.
On June 20, 2003, Mr. Martin filed a Voluntary Petition under Chapter 7 in the United States Bankruptcy Code. On October 6, 2003, Plaintiff filed this adversary proceeding to determine the dischargeability of Mr. Martin's debt to Plaintiff pursuant to 11 U.S.C. § 523(a)(5). At trial, Plaintiff testified that Defendant became current on his child support arrearage in 2003, but has since gotten behind and currently owes a balance of $5,701.00. She testified that in 1991, Defendant cancelled the children's medical insurance and currently owes $21,602.60 for the children's medical bills that she had to pay. She does not know if Mr. Martin has maintained his life insurance policy. Mr. Martin has paid none of the children's secondary or college expenses and Ms. Martin claims she is owed $5,123.75 as reimbursement for those expenses.
Ms. Martin testified this balance does not include 2005, but 2005's arrearage could be calculated by multiplying 12 times $510.00 (the current monthly child support). This results in an additional amount of $6,120.00, bringing the total to $11,821.00.
Plaintiff still resides in the marital home and she testified that she has made all payments for the mortgage, insurance and taxes, and Defendant owes her $123,820.84 for these payments. Plaintiff alleges Defendant has also not reimbursed her for repair expenditures on the house totaling $3,213.95. In May 2005, Plaintiff paid off the mortgage on the home, and Defendant has yet to quitclaim to her his interest in the home. Ms. Martin further alleges that Mr. Martin has paid her only $2,300.00 in alimony over the last fourteen years and currently owes her $21,700.00. Plaintiff alleges that all of the money owed by Defendant to her is in the nature of support and alimony and is non-dischargeable.
The Property Settlement originally provided that Mr. Martin was to pay $450.00 per month to Plaintiff; this was modified in 1993 to $100.00 per month. Mr. Martin paid the monthly alimony only in 1993 and 1994.
Plaintiff filed a Motion for Injunctive Relief requesting that the potential proceeds from a sale of real property be held or escrowed. (Proceeding No. 41) In 2005, Debtor inherited a half interest in real property from his father and the property was to be sold by the Probate Estate. This Court granted the Plaintiff's request and directed that the Debtor's one-half of any proceeds received from the sale of the real property be deposited with the Bankruptcy Clerk to be held pending further order from this Court. (Proceeding No. 52) Plaintiff asks this Court to find her claims against Defendant in the amount of $181,162.14 to be non-dischargeable as support obligations. She further alleges that the funds on deposit are the only source from which she can recover and requests the funds on deposit with the Clerk be paid to her. Defendant maintains that these financial obligations under the Final Judgment of Divorce are dischargeable. This Court must determine whether any of Defendant's obligations under the Final Judgement of Divorce are non-dischargeable.
A sale did occur and half the proceeds are with the Court.
The Debtor did not appear for the trial, and the Court's findings are based upon his answer in this case, cross-examination of Plaintiff by his attorney and closing arguments.
II. CONCLUSIONS OF LAW
Plaintiff's Complaint asserts that the issue before this Court is governed by 11 U.S.C. § 523(a)(5), which excepts from the bankruptcy discharge the debtor's personal liability on an obligation
to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that — such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support.
11 U.S.C. § 523(a)(5)(B). In determining the dischargeability of these particular obligations under § 523(a)(5), this Court must determine whether the obligations can legitimately be characterized as support as opposed to a property settlement. In re Harrell, 754 F.2d 902 (11th Cir. 1985). Although state law may offer some guidance in making this determination, the bankruptcy courts are not bound by state law. Id. As the Eleventh Circuit noted in Harrell, to adhere to state law considerations in determining dischargeability would risk upsetting the judicial comity between the federal and state courts, as the bankruptcy courts would enter into a field that should be left to the states. Id. at 907. Harrell rejected an approach based on either formulae or a "precise investigation of the spouse's circumstances to determine the appropriate level of need or support." Id. at 907. Therefore, although the sole inquiry is into the nature of the award, the Court must be guided by established principles. First, the purpose of the Bankruptcy Code is to provide the Debtor with a fresh start. Second, all exceptions to discharge are to be narrowly construed in favor of the Debtor. Gleason v. Thaw, 236 U.S. 558 (1915).
A leading post-Harrell decision in this district is In re Delaine, 56 B.R. 460 (Bankr. N.D. Ala. 1985). Delaine thoroughly discusses the effect of the bankruptcy discharge on obligations arising from judgments of divorce in Alabama. This Court notes that the Final Judgement of Divorce was entered in Mississippi. As in Alabama, Mississippi law recognizes both periodic alimony and alimony in gross. See Smith v. Little, 834 So.2d 54, 57 (Miss.Ct.App. 2002). The law in both states concludes that periodic alimony is modifiable and that alimony in gross is not. Id.; see also, In re Delaine, 56 B.R. at 466. In general, most bankruptcy courts interpret the Bankruptcy Code to find that only periodic alimony, which is not fixed as to amount, is non-dischargeable, because it generally provides support and maintenance for the former spouse, whereas alimony in gross, a fixed amount due at a certain time, is considered a property settlement. See Kimbro v. Clem, A.P. No. 93-00216 (Bankr. N.D. Ala. August 23, 1993) (order denying cross motions for summary judgement).
In this case, Ms. Martin's claims for child support arrears, children's medical expenses, educational expenses and periodic alimony are all in the nature of support and maintenance for Plaintiff and/or the children and thus are clearly non-dischargeable. This Court is left to determine whether Defendant's agreement to pay the indebtedness, taxes and insurance on the marital home, and all home expenses exceeding $500.00 in a year are periodic alimony or a property settlement.
In Delaine, the court considered two consolidated cases: In re Delaine and In re Thompson. In re Delaine, 56 B.R. at 461. Both discussed whether certain marital obligations set forth in a divorce settlement agreement were non-dischargeable. Id. The Delaine case concerned the defendant ex-husband's assumption of the mortgage on the marital home. Id. at 461-62. This obligation was set forth in a separate paragraph from the child support obligations. Id. It provided that the "husband is ordered to make all mortgage payments due on the home . . ."Id. There were also conditions set forth concerning the plaintiff's right to remain in the home. Id. Because Mr. Delaine's obligation to make mortgage payments was not fixed and was subject to conditions, the court concluded that this portion of the agreement was not a property settlement. Id. at 469. Rather, it was in nature periodic alimony and thus non-dischargeable. Id. In the Thompson case, on the other hand, the court held that the husband's assumption of the mortgage was dischargeable as part of a property settlement. Id. at 469. Specifically, the divorce decree provided "Defendant shall indemnify and hold harmless the Plaintiff on the outstanding indebtedness owed . . . on said lake property." Id. at 463. There were no conditions attached to Mr. Thompson's duty to pay and he was to pay the entire mortgage, thus that court found it created a property settlement. Id. at 469.
For example, the paragraph provided that the wife could live in the home "as long as she remains unmarried." In re Delaine, 56 B.R. at 462.
In this case, there are separate paragraphs describing Mr. Martin's duties to his wife and children. The obligations he incurred on the home are set forth in their own paragraph, separate from the obligations for child support and periodic alimony. The language of the Martin's divorce decree closely resembles the language of the Thompson decree. Paragraph 8 of the Martin's Property Settlement provides that the "Husband shall be responsible for any indebtedness, insurance, and taxes on said marital home and Husband agrees to hold Wife harmless therefrom." This Court acknowledges that theThompson case concerned a mortgage on a lake house rather than the primary marital home. However, it is the language that determines the intent of the parties at the time of making the agreement. Mr. Martin's obligation is for the entire mortgage, i.e., an "indebtedness" rather than an obligation for "mortgage payments" due on the home that are subject to any conditions. Also, Mississippi state courts have similarly interpreted such property settlement agreements. These courts define periodic alimony as a "monthly alimony award on the basis of need," whereas alimony in gross is characterized as a lump sum or fixed amount, often used as part of a property settlement.Smith, 834 So.2d at 57-8. Mississippi state courts have also distinguished between child and spousal support and property settlements of real property in divorce agreements. Id. at 60;citing Stone v. Stone, 385 So.2d 610 (Miss. 1980). The property settlements of real property are not modifiable, while the child and spousal support are modifiable. Id. Mr. Martin's obligations to pay the mortgage and related costs for the home were fixed, not modifiable, not subject to any conditions and did not terminate on the death or remarriage of his wife nor upon his children reaching age of majority.
See Plaintiff's Exhibit 1.
Id.
See In re Delaine, 56 B.R. at 469 (In distinguishingThompson from Delaine, the court examined the "four corners of the original decree" and the wording used to set forth the various obligations).
III. CONCLUSION
The structure of the Martin's Property Settlement Agreement and the language of Paragraph 8 support a finding by this Court that the obligations incurred by Mr. Martin on the marital home, i.e., the indebtedness, taxes and insurance, along with the promise to pay repairs over $500.00 on the home are in the nature of a property settlement.
This Court does not believe the issue of title to the home or Defendant's failure to convey it is an issue for this Court to resolve. To the extent necessary, the Court believes that Plaintiff may pursue that relief in Mississippi where the Judgement was rendered, and there is no violating of the stay because it is not applicable.
Based on the foregoing, it is
ORDERED, ADJUDGED, AND DECREED that the following claims are NON-DISCHARGEABLE:
1. $11,821.00 for the child support arrears;
2. $21,602.60 for the children's medical bills;
3. $5,123.75 for the children's secondary or college expenses; and
4. $21,400.00 for the periodic alimony arrearage. It is furtherORDERED, ADJUDGED, AND DECREED that the claim of $123,820.84 for the mortgage, insurance and taxes and the claim of $3,213.95 for expenses on the marital home are declared DISCHARGEABLE.
Finally, this Court concludes that Plaintiff is due to receive $59,947.35 from the funds on deposit with the Bankruptcy Clerk. However, the award of such funds is withheld at this time based upon correspondence from counsel for the Probate Estate. (Proceeding No. 67) This adversary proceeding shall remain open and upon notification from the Probate Court or counsel for that estate, counsel for the Plaintiff shall submit an appropriate order to this Court for the distribution of the funds.