Opinion
No. 00-81496.
August 22, 2001
OPINION
Before the Court is the objection filed by the Chapter 7 Trustee (TRUSTEE) to the claim of exemption by the Debtor, Marion G. Rieker (DEBTOR), in the cash value of a life insurance policy.
The DEBTOR filed a Chapter 7 petition on May 8, 2000. The DEBTOR claimed an exemption of $7,500 in the cash value of an insurance policy issued by Country Life naming his former spouse, Marjorie Rieker (MARJORIE), as beneficiary. When the TRUSTEE objected to the DEBTOR'S claim of exemption in the cash value of a life insurance policy, the DEBTOR converted the case to Chapter 13. The DEBTOR defaulted on the payments called for by the confirmed plan and the case was dismissed on the motion of the Chapter 13 Trustee. When the TRUSTEE learned of the dismissal, he filed a motion to vacate the order dismissing the case and to convert the proceeding to Chapter 7. This Court granted the TRUSTEE'S motion and the TRUSTEE renewed his objection to the DEBTOR'S claim of exemption. A hearing was held on June 25, 2001, and the Court took the matter under advisement.
The parties agree that the only issue to be decided is whether MARJORIE is dependent upon the DEBTOR within the meaning of § 12-1001(f) of the Illinois Code of Civil Procedure, which provides an exemption for the cash value of an insurance policy owned by the debtor which is payable "to a wife or husband of the insured, or to a child, parent, or other person dependent upon the insured. . . ." 735 ILCS 5/12-1001(f). The DEBTOR contends that based upon MARJORIE'S age and her present financial circumstances, she is in fact dependent upon him. According to her testimony, MARJORIE is seventy years old and lives alone. She was injured in an automobile accident and has lost most of the use of one arm and uses a scooter due to arthritis in her hip and legs. At the time of the hearing she was employed at Foster Gallagher, on a full time basis, earning a net monthly income of $1,078.
In addition, she receives social security in the amount of $542 and other pension income of $100. The DEBTOR and MARJORIE have been divorced for eleven years. Under the terms of an order of the divorce court, the DEBTOR pays her $200 per month, with a lump sum payment of $1,500 in December of each year, which averages out to an additional $125 per month.
Not including the DEBTOR'S support, MARJORIE nets $1,720 per month. On average, the DEBTOR pays her $325 per month. Her total average monthly income is $2,045, sixteen percent (16%) of which is paid by the DEBTOR. The DEBTOR will make the final lump sum payment this coming December. The total of her monthly income will then decrease to $1,920, of which the DEBTOR will pay eleven percent (11%).
MARJORIE submitted a schedule of her current expenses, which shows total expenses of $1,924. Given the close match between her income and expenses, MARJORIE asserts that she relies on the maintenance payments received from the DEBTOR. MARJORIE also testified that it was rumored that her employer was closing down its operations in Peoria and that a meeting had been scheduled for all employees later that same day. (As of the date of this Opinion, the employer is a debtor in a bankruptcy case filed in Delaware and the employer's Peoria, Illinois, facility is closed.)
The DEBTOR testified that the face value of the Country Life insurance policy is $60,000 and that he had borrowed $10,000 against the policy in order to pay an obligation owed to the First State Bank of Princeton, as authorized by the order of the divorce court. The DEBTOR also testified that if he borrowed any additional amounts against the policy he would be in violation of the terms of the divorce court's order which requires him to maintain life insurance on his life in the face amount of $50,000, with MARJORIE as the beneficiary. The DEBTOR has term life insurance through his place of employment in the amount of $10,000, which is payable to his adult children.
Applying the standards set by the Chapter 13 Trustee in determining if a debtor is paying all of the disposable income into the plan, the TRUSTEE suggests that MARJORIE could easily pare down several of her expenses, eliminating her reliance upon the maintenance payments in order to balance her budget. The TRUSTEE submits that this Court should adopt the Internal Revenue Code definition of "dependent," which means certain individuals over half of whose support was received from the taxpayer. 26 U.S.C. § 152(a). In addition, it is the TRUSTEE'S position that the determination must be made as of the date the bankruptcy petition is filed, and that the Court cannot consider any post-filing circumstances, including MARJORIE'S alleged lack of job security (and, presumably, the fact of the subsequent closure of the employer's Peoria facility).
The provision of the exemption statute at issue does not address the level of support necessary to establish financial dependence. The Illinois legislature and the Illinois courts have defined "dependent" and "dependency" in other contexts. However, there is no reason to assume that those definitions were intended to be applied to the exemption statute and those definitions are of little guidance here. Even farther afield is the definition of "dependent" contained in the Internal Revenue Code. This Court can discern no persuasive rationale for looking to the federal tax laws to aid in deriving the intent behind the Illinois legislature's use of the same word in the state's exemption laws.
For example, the Illinois Probate Act defines "Dependent" as "a person who is unable to maintain himself and is likely to become a public charge." 755 ILCS 5/1-2.06. The Illinois Supreme Court defined "dependency" under the Workers' Compensation Act as implying "a present existing relation between two persons where one is sustained by another or looks to or relies on the aid of another for support or for reasonable necessaries consistent with the dependent's position in life." Crane Co. v. Industrial Commission, 378 Ill. 190, 194, 37 N.E.2d 819, 821 (1941).
In In re Sommer, 228 B.R. 674 (Bankr.C.D.Ill. 1998), Judge Altenberger, this Court's predecessor, employed the test set forth by the court in In re Rigdon, 133 B.R. 460 (Bankr.S.D.Ill. 1991), defining a dependent as:
[A]n individual who is supported financially, either directly or indirectly by another, and who reasonably relies on such support.
This Court adopts that standard here. As the court in Rigdon noted, the definition is a broad one, and the determination of dependency is one to be made on a case by case basis. Such a standard is in keeping with the universal rule that exemptions are to be liberally construed in the debtor's favor.
Among the factors which may be appropriate to consider are the person's age; their health and any special needs; their present income and ability to work; their assets and liabilities; and the percentage of their income that the support in question constitutes.
Though this determination must be made as of the date of the filing of the petition for relief, the window is not as limited as the TRUSTEE would suggest. It does not call for a "snapshot"analysis, limited to whether MARJORIE needs the $200 at that particular point in time. The analysis must include both her present and anticipated needs.
From an examination of MARJORIE'S circumstances at the time the bankruptcy was filed, both present and anticipated, this Court concludes that she is dependent upon the DEBTOR. Given the combination of her age and health, it is unlikely that she will be able to remain gainfully employed for any length of time, whether it be with Foster Gallagher or anyplace else. Without that income, her social security and other pension income will not meet her basic needs, making the maintenance she receives from the DEBTOR indispensable. Should she lose her employment or become unable to work, the maintenance would constitute approximately one-fourth her income. Even if she were able to maintain employment at her present wage rate, she is just able to meet her monthly expenses, which this Court finds to be reasonable.
Applying the Rigdon definition, this Court finds that MARJORIE is supported financially by the DEBTOR, that the level of support is significant in light of her relatively low current income and anticipated future income, and that she reasonably relies on the DEBTOR'S support to pay her necessary expenses and to maintain a modest standard of living. Accordingly, this Court holds that MARJORIE is a "dependent" of the DEBTOR, as that term is used in 735 ILCS 5/12-1001(f). The DEBTOR'S claim of exemption in the cash value of the Country Life insurance policy naming MARJORIE as the beneficiary should be allowed.
This Court's determination that the DEBTOR'S claim of exemption is proper disposes of the TRUSTEE'S contention that the DEBTOR be required to name MARJORIE as the beneficiary on his life insurance with his employer and that he be permitted to obtain the cash value of the policy for the benefit of the creditors. A separate Order will be entered.
This Opinion constitutes this Court's findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.
ORDER
For the reasons stated in an Opinion filed this day, IT IS HEREBY ORDERED that the TRUSTEE'S Objection to DEBTOR'S Claim of Exemption is DENIED.