In Re Marriage of Yates ( 1996 )

NO. 95-575
IN THE SUPREME COURT OF THE STATE OF MONTANA
1996
IN RE MARRIAGE OF
REBECCA JEAN YATES,
Petitioner and Respondent,
and
JUSTIN GREG YATES,
Respondent and Appellant.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone,
The Honorable Russell G. Fagg, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Richard 0. Harkins; Attorney at Law;
Ekalaka, Montana
For Respondent:
Joan Meyer Nye; Nye & Meyer;
Billings, Montana
Submitted on Briefs: November 21, 1996
C'EC 1 9 Tg$j Decided: December 19, 1996
Filed:
Justice Terry N. Trieweiler delivered the opinion of the Court.
Justin Greg Yates filed a petition pursuant to Chapter 7 of
the Bankruptcy Code on September 6, 1994, in the United States
Bankruptcy Court in the District of Montana, in which he named his
ex-wife, Rebecca Jean Yates, as a creditor. In response, Rebecca
filed an adversarial proceeding in Bankruptcy Court, in which she
objected to the discharge of Justin's obligations to her. On
January 12, 1995, the Bankruptcy Court entered an order in which it
abstained from the proceeding and remanded the question of
dischargeability to the District Court for the Thirteenth Judicial
Court in Yellowstone County. Following a hearing, the District
Court issued an order in which it concluded that, pursuant to
11 U.S.C. 5 523(a) (5), Justin's debts to Rebecca for maintenance
and property settlement are not dischargeable. Justin appeals the
District Court's order. We affirm in part and reverse in part the
order of the District Court.
We address three issues on appeal:
1. Did the District Court have jurisdiction to decide the
issue of dischargeability, pursuant to 11 U.S.C. § 523?
2. Did the District Court err when it concluded that
Justin's maintenance obligation is not dischargeable?
3. Did the District Court err when it concluded that
Justin's property settlement obligation is not dischargeable?
FACTUAL BACKGROUND
The marriage of Justin and Rebecca Yates was dissolved by
decree on June 30, 1992. The dissolution decree required Justin to
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pay Rebecca the amount of $23,171.50 for property settlement, and
maintenance in the amount of $300 per month for twenty-four months
or until full-time employment or remarriage.
As of 1994, Justin had not paid any of the amount owed to
Rebecca for property settlement or maintenance. Following a
hearing on August 11, 1994, the District Court entered an order in
which it found that Justin had property and income sufficient to
make some payments on the two obligations to Rebecca. The court
therefore found Justin to be in contempt and ordered him to sell
certain items of property and to sign a partial assignment of wages
to purge himself of contempt. Justin did not appeal the District
Court's order.
On September 6, 1994, Justin filed a petition pursuant to
Chapter 7 of the Bankruptcy Code in the United States Bankruptcy
Court and sought a discharge from his property division and
maintenance obligations. In response, Rebecca filed an adversarial
proceeding in which she claimed that Justin's debts to her were not
dischargeable. On January 12, 1995, the Bankruptcy Court issued an
order of abstention and remanded the case to the Thirteenth
Judicial District Court for a determination of dischargeability.
The District Court held a hearing to consider the issue of the
dischargeability of Justin's two debts to Rebecca on October 27,
1995. 1n its findings of fact, conclusions of law, and order,
entered November 15, 1995, the court concluded that, pursuant to
11 U.S.C. 5 523(a) (5), neither Justin's maintenance obligation nor
his property settlement obligation are dischargeable. The court
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therefore ordered Justin to comply with its contempt order of
August 23, 1994
STANDARD OF REVIEW
Our review of a district court's order is two-fold. First, we
review the district court's findings of fact to determine whether
they are clearly erroneous. Dairies v. Knight (19951, 269 Mont. 320,
324, 888 P.2d 904, 906. Second, we review a district court's
conclusions of law to determine whether the court's interpretation
of the law is correct. Carbon Counly v. Union Reserve Cod Co. ( 19 9 5 ) , 271
Mont. 459, 469, 898 P.2d 680, 686.
ISSUE 1
Did the District Court have jurisdiction to decide the issue
of dischargeability, pursuant to 11 U.S.C. § 523?
In this case, the United States Bankruptcy Court in the
District of Montana entered an order in which it abstained from the
issue of the dischargeability of Justin's debts and transferred the
issue to the Thirteenth Judicial District Court in Yellowstone
County. The Bankruptcy Court reasoned that the proper forum for
the issue of the discharge of a support claim in a divorce action
is the state district court. In support of its conclusion, the
court relied on InreRough (Bankr. Mont. 1986), 3 Mont. B.R. 1, 3, in
which the same court stated:
It is a well settled rule that the Bankruptcy Court
has concurrent jurisdiction, as opposed to exclusive
jurisdiction to determine the dischargeability of a debt
under Section 523(a) (5). In re Aldrich, 34 B.R. 776, 780
(BAP 9th Cir. 1983); State of Montana ex rel. Rouqh v.
District Court, [218 Mont. 499, 502, 710 P.Zd 47, 491, 42
St. Rep. 1773, 1775 (1985); 3 Collier on Bankruptcy,
523.15(6), pp. 108-109 (15th edition).
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The District Court accepted concurrent jurisdiction and concluded
that (1) Justin's maintenance obligation is not dischargeable,
pursuant to 11 U.S.C. 5 523(a) (5), and that (2) Justin's property
settlement obligation is not dischargeable, pursuant to 11 U.S.C.
5 523(a) (5).
It is well established that a state district court has
concurrent jurisdiction with a federal bankruptcy court to
determine the issue of the dischargeability of debts pursuant to
11 U.S.C. § 523(a) (5). Stateexrel.Roughv.Dis~ictCourt (1985), 218 Mont.
499, 502, 710 P.2d 47, 49. Therefore, we hold that the District
Court in this case had jurisdiction, following the Bankruptcy
Court's abstention, to decide the issue of the dischargeability of
Justin's maintenance and property division obligations pursuant to
§ 523(a) (5).
ISSUE 2
Did the District Court err when it concluded that Justin's
maintenance obligation is not dischargeable?
The parties' decree of dissolution, entered on June 30, 1992,
required Justin to pay Rebecca the amount of $23,171.50 as the
value of her interest in marital property, and maintenance in the
amount of $300 per month for twenty-four months or until full-time
employment or remarriage. In support of its award of maintenance,
the District Court made a finding that:
Rebecca had no skills or job training at the time of
separation. She has embarked on a plan of vocational
training, and she needs some financial assistance to
complete that so that she can become self-supporting. She
is receiving financial assistance during her training by
reason of a PELL grant. Justin's living expenses are
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very low because he lives on his parents' ranch and is
able to contribute something to Rebecca's reasonable
maintenance . . Commencing July lst, 1992 Justin
should pay Rebecca $300 per month until she obtains full
employment or remarries, but in any event not to exceed
24 months.
Justin did not appeal the District Court's order which awarded
Rebecca maintenance
In determining the issue of the dischargeability of Justin's
debt, the District Court concluded that its original ma.intenance
award is not dischargeable pursuant to 11 U.S.C. 5 523(a,) (5).
11 U.S.C. 5 523(a) (5) excepts from discharge a debt
to a spouse, former spouse, or a 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
. .
Section 523(a) (5) (B) provides that the exception does not extend to
a debt 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.
In this case, Justin maintains that the District Court's award
of maintenance is not "in the nature of . . maintenance,"
pursuant to 11 U.S.C. § 523(a) (5) (B), and is thus dischargeable.
Specifically, Justin alleges that Rebecca became self-supporting in
mid-September 1992, so that the District Court's maintenance award
was no longer necessary after that date. Justin therefore
maintains that "[tlhe portion payable after Rebecca became self-
supporting . should be discharged."
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The determination of whether a debt to a former spouse
qualifies as nondischargeable support pursuant to 11 U.S.C.
§ 523(a) (5) (B) is a matter of federal law. In ye Gianakas (3d Cir
1990), 917 F.2d 159, 762. Federal courts have held that "[t]he
critical question in determining whether the obligation is, in
substance, support is 'the function served by the obligation at the
time of divorce.'" InreSampson(10th Cir. 1993), 997 F.2d 717, 725.
Factors relied on by bankruptcy courts in making such a
determination include:
(1) Whether the obligation under consideration is
subject to contingencies, such as death or remarriage;
(2) Whether the payment was fashioned in order to
balance disparate incomes of the parties;
(3) Whether the obligation is payable in installments or
a lump sum;
(4) Whether there are minor children involved in a
marriage requiring support;
(5) The respective physical health of the spouse and the
level of education;
(6) Whether, in fact, there was a need for spousal
support at the time of the circumstances of the
particular case.
InreRobinson (Bankr. N.D. Ga. 1996), 193 B.R. 367, 372. See also In YE
Bowsman (Bankr. M.D. Fl. 1991), 128 B.R. 485, 487; InreGraves (Bankr.
S.D. Fla. 1987), 69 B.R. 626, 628.
In this case, an evaluation of the terms of the dissolution
decree in light of 11 U.S.C. § 523(a) (5) (B) and federal bankruptcy
factors clearly supports the District Court's finding that the
original maintenance award was in the nature of support, and
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therefore nondischargeable pursuant to 11 U.S.C. § 523(a)(s). As
set forth above, the award was payable in monthly installments for
a period of up to twenty-four months and was made contingent upon
remarriage or full-time employment. Furthermore, the award was
based on the court's finding that Rebecca had no skills or job
training at the time of the couple's separation and therefore
needed financial assistance for vocational training. Finally, the
award referred to the couple's disparate incomes and found that
Justin had the means to contribute to Rebecca's reasonable
maintenance. Based on the foregoing factors, we hold that the
District Court's conclusion that Justin's maintenance obligation
was not dischargeable is correct.
Furthermore, we reject Justin's contention that the District
Court was required to re-evaluate the original maintenance award in
light of Rebecca's subsequent employment. The majority of federal
bankruptcy courts holds that an inquiry into whether a maintenance
award is in the nature of support, pursuant to 11 U.S.C.
§ 523(a) (5), should not include an examination of the present
situation of the parties. See, e.g., Forsdickv. Turgeon (2d Cir. 1987) , 812
F.2d 801, 803; InreHarrell (11th. Cir. 1985), 754 F.2d 902, 907; Boyle
v. Donovan (8th Cir. 1984), 124 F.2d 681, 683; InreStone (Bankr. D.Md.
1987), 79 B.R. 633, 639. The Second Circuit Court of Appeals, in
fact, addressed the same issue and held:
As a secondary position the husband argues that even
if the . award was in the nature of alimony and hence
was nondischargeable under 5 523(a) (5), the bankruptcy
court should have taken notice of the alleged "changed
circumstances" of the parties and held that because the
wife apparently no longer requires the support granted to
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her by the state court decision, the obligation is
dischargeable despite the language of § 523(a) (5) . .
.
There is no support in the language of s 523(a) (5)
for the husband's position. As the eleventh circuit
noted in Harrell, 754 F.2d at 906, ti [tl he language does not
suggest a precise inquiry into financial circumstances to
determine precise levels of need or support; nor does the
statutory language contemplate an ongoing assessment of
need as circumstances change." To be exemot from
discharge an award of alimonv or support does not have to
conform exactly to some level that a bankruptcv iudqe
might deem necessarv for maintenance of a former spouse
or children; it merelv has to be "in the nature of"
alimonv or support. In short, there is no warrant for a
federal bankruptcv court to evaluate the state court's
alimonv award asainst the needs of the former spouse to
whom it was sranted.
Forsdick, 812 F.2d at 803-04 (emphasis added) (citation omitted).
In this case, then, the circumstances of Rebecca's employment
after the decree of dissolution are clearly irrelevant to a
determination of the dischargeability of Justin's maintenance
debts. If Justin had chosen to contest Rebecca's award of
maintenance, he could have appealed the District Court's original
dissolution decree or petitioned that court for a modification of
the decree. It is a matter of federal law, however, that the
proper forum for a determination of "changed circumstances" is not
a federal bankruptcy court or a state court sitting as a bankruptcy
court.
We therefore hold that the District Court did not err when it
declined to consider the changed circumstances of the parties. We
affirm the District Court's holding that Justin's maintenance debt
was not dischargeable, pursuant to 11 U.S.C. § 523(a) (5).
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ISSUE 3
Did the District Court err when it concluded that Justin's
property settlement obligation is not dischargeable?
The District Court, in its "Order of Nondischargeability,"
concluded that Justin's obligation to pay Rebecca the amount of
$23,171.50 for settlement of her interest in the marital property
is not dischargeable pursuant to 11 U.S.C. § 523(a) (5), which
provides that debts which constitute alimony, maintenance, or
support are excepted from discharge. On appeal, Justin maintains
that the $23,171.50 obligation is not a debt for alimony,
maintenance, or support of Rebecca, and is thus dischargeable as a
debt for the division of marital property.
It is well established that:
An indebtedness for a former spouse for alimony,
maintenance, or support of the spouse or the couple's
children which is memorialized in the divorce decree is
not dischargeable in bankruptcy. 11 U.S.C. § 523(a) (5).
An indebtedness in the divorce decree that merelv divides
the marriase property, however, is discharseable.
Stafeexrel.Roughv.DistrictCourt (19851, 218 Mont. 499, 503, 710 P.2d 47,
49 (quoting InreCoil (7th Cir. 1982), 680 F.2d 1170, 1171). see also
InreMorel (8th Cir. 1992), 983 F.2d 104, 105; In reBrody (Zd Cir.
1993), 3 F.3d 35, 38. This Court has adopted a test for the
determination of whether an alleged property settlement is intended
for a spouse's support:
In determining whether an obligation is intended for
support of a former spouse, the court must look beyond
the language of the decree to the intent of the parties
and to the substance of the obligation . If an
agreement fails to provide explicitly for spousal
support, a court may presume that a so-called "property
settlement" is intended for support when the
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circumstances of the case indicate that the recioient
spouse needs support . . . . Factors indicating-that
support is necessary include the presence of minor
children and an imbalance in the relative income of the
parties . . Similarly, if an obligation terminates on
the death or remarriage of the recipient spouse, a court
may be inclined to classify the agreement as one for
support . . . . A property settlement would not be
affected by the personal circumstances of the recipient
spouse; thus, a change in those circumstances would not
affect a true property settlement, although it would
affect the need for support. The court will look also to
nature and duration of the obligation to determine
whether it is intended as support. Support payments tend
to mirror the recipient spouse's need for support. Thus,
such payments are generally made directly to the
recipient spouse and are paid in installments over a
substantial period of time.
Rough, 218 Mont. at 503-04, 710 P.2d at 50 (quoting Shaverv.Shaver (9th
Cir. 1984), 736 F.2.d 1314, 1316-17).
In this case, the District Court made no finding that the
amount awarded for division of the couple's marital property was
actually in the nature of support. In fact, a review of the decree
of dissolution makes clear that the $27,171.50 obligation was
solely intended as a division of the couple's marital estate. In
the decree, the District Court entered the following finding:
The court finds that . . the net estate of the parties
at the time of separation is $61,855 ($54,099 [cattle and
other assets1 + $3,450 C.D. + $1,600 state income refund
+ $2,706 federal income refund). Accordingly, each party
should receive $30,927.50 as that party's one-half share
of the net marital estate . . . . Justin shall transfer
to Rebecca said certificate of deposit in the amount of
$3,450 and transfer to her by endorsement of the check,
or otherwise, the federal and state income tax refund in
the amount of $4,306, which, when deducted from her share
of the marital estate, leaves a balance due her of
$23,171.50; said amount shall be paid Justin to Rebecca
as soon as practicable, and in any event, not later than
60 days from the date of entry of judgment herein.
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Based on the Rough factors, the District Court's property division
does not qualify does not qualify as an order in the nature of
support. First, the award was not dependent upon Rebecca's
personal circumstances and was thus not terminable upon Rebecca's
death or remarriage. Second, the award was not payable in
installment payments over a substantial period of time, but instead
was to be paid in one lump sum within a period of sixty days.
Finally, the dissolution decree provided separately for Rebecca's
support in the form of an award of maintenance, which, as set forth
above, clearly addressed Rebecca's need for support in light of the
disparity in the couple's income.
Because the property division award was not in the nature of
alimony, maintenance, or support, it is not a nondischargeable debt
pursuant to 11 U.S.C. § 523(a) (5). On appeal, however, Rebecca
contends that even if Justin's debt is not dischargeable pursuant
to 11 U.S.C. § 523(a) (5), this Court may still affirm the District
Court's "Order of Nondischargeability" on the ground that Justin's
debt is not dischargeable pursuant to 11 U.S.C. 5 523(a) (6).
In this case, the District Court did not address the issue of
the dischargeability of Justin's debts pursuant to 11 U.S.C.
§ 523(a) (6), which provides that a debtor may not be released from
a debt "for willful and malicious injury by the debtor to another
entity or to the property of another entity." The District Court's
failure to address that issue was, however, correct. A claim
pursuant to 11 U.S.C. § 523(a) (6), unlike § 523(a) (5), "may not be
pursued in the state court as a result of the exclusive
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jurisdiction granted to the bankruptcy courts by the bankruptcy
code." InreAldrich (Bankr. App. 1983), 34 B.R. 776, 781. See also In re
Martinez (Bankr. N.D. 111. 1990), 110 B.R. 353, 355; InreHolt (Bankr.
S.D. Ohio 1989), 102 B.R. 116, 119; In ye f’etrotdo (Bankr. W.D.N.Y.
1983), 33 B.R. 750, 751. Because the dischargeability of a debt
pursuant to 11 U.S.C. 5 523(a) (6) is within the exclusive
jurisdiction of a federal bankruptcy court, the District Court in
this case clearly did not have jurisdiction to determine whether
Justin's debt for property division was dischargeable pursuant to
that section.
We hold that the District Court erred when it concluded that
Justin's debt for property division is not dischargeable pursuant
to 11 U.S.C. § 523(a) (5). We further hold that the District Court
did not have jurisdiction to address the issue of the
dischargeability of that debt pursuant to 5523(a) (6). We therefore
reverse that portion of the court's "Order of Nondischargeability"
which concluded that Justin's $23,171.50 debt was not dischargeable
and affirm that portion of the District Court's order which
concluded that Justin's maintenance obligation was not
dischargeable.
ustice
/
Chief'Justice
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