Opinion of the Court by Chief Justice MINTON.
We accepted discretionary review of this case primarily to resolve whether a trial
This case also presents the issue of whether a motion for modification of child support was properly denied, especially in light of the fact that the amount of child support established in the divorce decree was based upon the parent's imputed income as a result of a finding of voluntary under-employment. We conclude that the trial court properly denied the motion for modification because the evidence presented on the motion for modification did not establish a material and continuing change in circumstances.
On a third issue, we find no error in the trial court's awarding attorney's fees to one party.
As a consequence of our analysis, we affirm the decision of the Court of Appeals affirming the rulings of the trial court on these three issues.
The decree dissolving the marriage of Roy Shane Howard and Sondra Howard provided for joint custody of their minor child with Sondra serving as the primary residential custodian and Shane paying her child support. The amount of child support was not derived from Shane's actual earnings at the time of the divorce decree but, from his recent history of earnings as a federal prison guard. The decree stated that Shane "is voluntarily under employed since he voluntarily quit his job and gave no testimony which would justify him quitting his employment."
Shane claimed in pre-decree papers that he and Sondra agreed that he should quit his job at the federal prison because Sondra also worked there as a guard, and their marital split created an awkward working environment. Sondra denied making such an agreement and alleged that Shane's continued employment at the federal prison would not pose a problem because they worked different shifts. Shane also claimed in his papers that he unsuccessfully tried to regain employment as a federal prison guard.
In addition to ordering Shane to pay child support, the trial court divided the parties' marital property and determined which marital debts each party was to pay. Relevant to the issues raised before us, the decree stated that the trial court found, as a matter of fact, that "[t]he parties have agreed" that Shane would be liable for certain debts incurred by the parties, including a National City loan on the parties' Dodge Durango, which was repossessed by the time of the decree.
Some fifteen months after entry of the decree, Shane filed a motion in the trial court to reduce his child support obligation because of an alleged material change in circumstances. With his motion, Shane filed a supporting affidavit in which he claimed health problems, inability to find correctional work or similarly lucrative positions, and filing for bankruptcy. He requested that his child support obligation be reduced retroactive to the date he filed his motion.
The parties acknowledged at the hearing that Sondra received notice of Shane's filing for bankruptcy and that she did nothing to challenge the discharge of his debts. They also acknowledged that Shane received a Chapter 7 discharge and that the creditor then sought collection from Sondra, rather than Shane, on the repossessed Durango.
The trial court found Shane to be in contempt for failure to pay the debt on the repossessed Durango. The trial court also denied Shane's motion to modify child support, stating that no new facts had been adduced on this issue following entry of the decree in which he was found to be voluntarily underemployed. The trial court further ordered Shane to pay $500 of Sondra's attorney's fees. Sondra requested that he pay $1,500 in attorney's fees; but the trial court stated it would limit the award to $500 because it had only found Shane in contempt on one issue.
Shane appealed all of these rulings to the Court of Appeals, which affirmed on all issues. And we affirm, addressing each issue in turn.
The Court of Appeals properly affirmed the trial court's denial of Shane's motion to modify child support because we discern no abuse of discretion in the trial court's ruling.
Kentucky Revised Statutes (KRS) 403.213(1) states that child support may be modified "only upon a showing of a material change in circumstances that is substantial and continuing." Shane averred in his affidavit that a material change in circumstances occurred since the establishment of his child support obligation in the divorce decree. He stated in his affidavit that he suffered health problems, including severe back pain for which he underwent surgery; and he had been under a doctor's treatment "for several medical conditions for over two years now," and these health conditions made him ineligible for employment as a correctional officer. He also stated that he unsuccessfully applied for correctional work, both with the Federal
While the affidavit at least arguably identifies issues that support Shane's claimed difficulty in satisfying his child support obligation, the affidavit does not definitively establish that these events — other than filing for bankruptcy — occurred since the decree or resulted in material changes in his circumstances since entry of the decree. For example, Shane failed to provide any dates to establish when medical procedures occurred or medical diagnoses were made. In fact, his testimony at the hearing on his modification motion was that he had back surgery — possibly the back surgery to which he alludes in his affidavit — while he was separated but before entry of the decree. Also, his affidavit states that he had been undergoing medical treatment for over two years, suggesting that some of this treatment commenced before the decree. Shane's proof did not specifically indicate that any medical treatments, diagnoses, or medical problems occurred since entry of the decree. He also does not indicate when he applied for correctional officer positions. In fact, the record indicates that Shane unsuccessfully applied for such positions before entry of the decree.
Shane also failed to present strong evidence of a change in circumstances since the decree at the hearing on his motion. In fact, when asked on cross-examination whether he raised the same issues to the trial court before the decree, he admitted that he had. And he offered no medical evidence regarding specific treatments, diagnoses, or limitations placed on his activities since the decree.
On cross-examination, opposing counsel elicited from Shane testimony that he filed bankruptcy about a year after entry of the decree. But Sondra testified that Shane made his child support payments after the bankruptcy discharge despite falling behind on his obligation before the discharge, suggesting that despite — and maybe even because of — the bankruptcy relief, Shane could make the payments. And he testified to having back surgery before the divorce decree when questioned about an issue concerning whether he might have used Sondra's health insurance after the divorce.
In short, Shane made an insufficient demonstration of change of circumstances post-decree with the exception of his filing for bankruptcy and obtaining a bankruptcy discharge sometime before the evidentiary hearing on the motion for modification. Because other financial obligations were discharged, more of Shane's income could presumably be applied to child support. And Sondra testified that Shane's child support payments had become more regular since the bankruptcy discharge.
The dissent points out that Shane worked full-time since the decree and switched jobs, resulting in higher earnings, which we note were still about half his earnings as a prison guard. We fail to see how this evidence of full-time work and higher earnings compelled the trial court to find a "material and continuing change of circumstances" post-decree. Shane was working full-time at the time of the decree at a similar noncorrectional job. And, contrary to the dissent, we saw no indication
Based upon our review of the evidence presented to the trial court, we conclude that the trial court did not abuse its discretion in denying Shane's motion for modification. Shane's evidence simply fell short of showing a material change of circumstances in the fifteen-month span between the decree establishing his original child support obligation and his motion to modify child support. The Court of Appeals correctly affirmed this ruling.
Contrary to the fears expressed in the dissent, we do not hold that "once a person is found to be `voluntarily underemployed,' he or she will remain [to be considered] so, unless and until, he or she returns to the income level previously enjoyed." In some cases, one may never return to the earlier income level and still establish a "material and continuing change of circumstances" sufficient to demonstrate that one is no longer voluntarily underemployed and entitled to a reduction in the child support obligation. But the party requesting the change must prove a material and continuing change of circumstances by presenting evidence of what has occurred since the initial obligation was established. Shane is not foreclosed from filing motions for modification in the future. And he may prevail if the evidence he presents in the future actually shows such a material and continuing change of post-decree circumstances.
We do not suggest in our holding that trial courts may never take into account whether personal or family concerns may legitimately spur changes to less lucrative employment in determining whether income should be, or should continue to be, imputed to a parent. But a trial court must also recognize that the child's reasonable needs do not necessarily change when a parent switches to less lucrative employment and the parent's financial responsibility is not abrogated simply because the parent voluntarily switches to, or stays with, less lucrative employment.
And it is not our responsibility as an appellate court to weigh the evidence. Although Sondra now earns approximately twice as much money as Shane, and perhaps a large portion of Shane's income is devoted to child support, the dissent fails to note how the child's reasonable needs have become less; and the dissent does not mention the fact that Sondra has at least one other prior-born child to support and has continued to work as a prison
While the deadline to appeal any issue in the divorce decree itself has long since expired
In particular, Shane argues that the trial court could not find him (or continue to find him) underemployed in the absence of a finding of bad faith, citing the 1991 Kentucky Court of Appeals case of McKinney v. McKinney.
Further contrary to Shane's arguments, the trial court was not necessarily required to consider anew whether he was currently voluntarily underemployed. The question before the trial court was whether there
Shane also argues that Sondra "should have had the burden to show why the court should continue to impute such a high income rather than using [Shane's] actual income history for the two years since he was employed by the federal prison[,]" citing Keplinger v. Keplinger.
The Court of Appeals, in Keplinger, stated that generally one's potential future income should be presumed to "be on a par with the worker's most recent experience."
The fact that his actual earnings since the divorce had been lower than his pre-decree earnings as a prison guard, standing alone, did not entitle Shane to modification. To prevail, Shane needed to show
Shane argues that the trial court erred in holding him in contempt for failing to comply with a divorce decree provision requiring him to make payments on the loan for the Dodge Durango vehicle because of his bankruptcy discharge. Apparently, Shane and Sondra jointly obtained the loan on the Dodge Durango before the decree, the vehicle was repossessed before the decree, and the decree stated that Shane would be responsible for payments on the Durango loan in accordance with the parties' agreement. But Shane did not explicitly agree to hold Sondra harmless
After the decree, Shane failed to make these payments and filed for bankruptcy under Chapter 7. Sondra received notice of his bankruptcy filing, but she did not file an adversary proceeding challenging Shane's discharge of the Durango debt. After Shane received a bankruptcy discharge, the creditor pursued collection from Sondra, who testified to experiencing credit problems as a result. She filed a motion with the trial court to hold Shane in contempt for failing to make payments on the Durango loan. The trial court held Shane in contempt, although it did not impose a sanction for Shane's contempt of court.
The Court of Appeals affirmed the contempt finding, concluding that Shane's obligation was not discharged under 11 United States Code (U.S.C.) § 523(a)(15). The Court of Appeals noted that this statute had been amended, effective in 2005, to provide that a discharge under Chapter 7(11 U.S.C. § 727) does not discharge the debtor from any debt "to a spouse, former spouse or child" for something other than a "domestic support obligation" (i.e., child support or maintenance)
As the Court of Appeals states, obviously Shane had an obligation to pay the Durango debt under the divorce decree. But the tricky question is whether this was a debt to his former spouse that would not be subject to discharge under the post-BAPCPA
Before we address the merits on this issue, we must first address whether Kentucky state courts have jurisdiction to determine the dischargeability of a debt. As we recently stated, "[w]hile . . . state courts lack jurisdiction to modify or to grant relief from a bankruptcy court's discharge injunction, they retain, with a few exceptions not pertinent here, concurrent jurisdiction under 28 U.S.C. § 1334(b) to construe the discharge and determine whether a particular debt is or is not within the discharge."
Shane contends that he was discharged of any obligation to pay the Durango deficiency debt because he received a Chapter 7 bankruptcy discharge, citing the 2004 Kentucky Court of Appeals case of Holbrook v. Holbrook.
Before the enactment of BAPCPA in 2005, 11 U.S.C. § 523(a) provided that a Chapter 7 discharge did not discharge a debtor from: "any debt . . . (5) to a spouse, former spouse, or child of the debtor" for child support or maintenance under a separation agreement or divorce decree. Also excepted from discharge under Chapter 7 was "any debt . . . (15) not of a kind described in paragraph 5 [i.e., not for child support or maintenance] that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record" unless the debtor was not reasonably able to pay the debt and the benefits of discharge to the debtor outweighed the detriment to the spouse, ex-spouse, or child.
In other words, under pre-BAPCPA bankruptcy laws, an ex-spouse was required to take action in a former spouse's Chapter 7 bankruptcy case, or a non-support divorce debt would be discharged if the debtor received a Chapter 7 discharge. So as to pre-BAPCPA cases, Holbrook dictates that an ex-spouse, who receives notice of the debtor's Chapter 7 bankruptcy filing but who fails to file an adversary complaint in the bankruptcy court to obtain a determination that a non-support divorce debt is excepted from discharge, cannot obtain enforcement of that debt in state court once the bankruptcy court has granted a Chapter 7 discharge to the debtor.
Following the BAPCPA amendments,
Not only was 11 U.S.C. § 523(a)(15) amended to require that the debt be to a present or former spouse or a child and to no longer permit discharge upon consideration of the debtor's ability to pay and balancing of the benefits and burdens on both sides, but 11 U.S.C. § 523(c)(1) was also significantly amended. Contrary to the pre-BAPCPA requirement that divorce debts other than those for child support or maintenance would be discharged unless the present or former spouse or child filed a complaint for an exception to discharge under 11 U.S.C. § 523(a)(15), the post-BAPCPA version of 11 U.S.C. § 523(c)(1) no longer includes debts under subsection (a)(15) among its list of debts that will be discharged unless the creditor takes action to obtain a determination that the debt is excepted from discharge.
But the question here is whether Shane's obligation under the divorce decree
Shane argues that because he was ordered to make payments to the bank, rather than directly to Sondra, that he did not owe any debt to her. Meanwhile, Sondra contends that the divorce decree established an obligation to her for him to make payments to the bank so it really is a debt to her.
Actually, in the divorce decree provision incorporating the parties' agreement that Shane would make the payments on the bank loan on the repossessed Durango, "two distinct obligations" are at issue.
While the creditor presumably accepted Shane's obligation to it under the car loan had been discharged in bankruptcy,
While the debtor's obligation on an underlying debt to a third-party creditor may be discharged because that underlying debt was not to a spouse or former spouse or child, the weight of authority holds that a separate, otherwise enforceable, obligation to one's present or former spouse under a separation agreement or a divorce decree to make payments on third-party debt is not dischargeable in Chapter 7 bankruptcy following the BAPCPA amendments.
When one spouse's obligation to make payments on third-party debt under a separation agreement or divorce decree is not accompanied by a hold harmless or indemnification clause, the law is perhaps somewhat less settled.
While the issue of whether the absence of a hold harmless provision would preclude an exception to discharge for a divorce-related obligation to make payments on a non-support debt to a third party has apparently not been squarely addressed by the Sixth Circuit Court of Appeals since the 2005 BAPCPA amendments, pre-BAPCPA Sixth Circuit precedent rejected the view that absence of a hold harmless provision would necessarily result in the dischargeability of a divorce-related obligation to pay a debt to a third party.
In view of the broad definition of debt under federal bankruptcy law and a Kentucky trial court's authority to use its contempt powers to enforce obligations under divorce decrees, we conclude that Shane's obligation to Sondra under the divorce decree for him to make payments on the bank loan debt on the repossessed Durango was not discharged in Chapter 7 bankruptcy. While perhaps the trial court's ordering Shane to make payments to the bank may be problematic because any direct obligation he owed to the bank was apparently discharged in bankruptcy and the bank was not a party to these proceedings, the trial court clearly retained the authority to enforce Shane's obligations to Sondra under the divorce decree. And, in any case, given the fact that the contempt finding was not accompanied by a fine or jail time sanction, his injury in being found in contempt appears negligible.
Acknowledging that trial courts have discretion to award attorney's fees
The trial court heard evidence about both parties' financial resources because both parties testified in some detail about their income and expenses. The evidence does not compel a finding that Sondra's financial condition was so much better than Shane's that he could not reasonably be ordered to contribute $500 toward Sondra's attorney's fees. Nor do we agree that he was entitled to a favorable outcome on all issues. We agree with the Court of Appeals that the trial court did not abuse its discretion in ordering Shane to pay $500 of Sondra's attorney's fees.
For the foregoing reasons, we affirm the decision of the Court of Appeals.
All sitting. ABRAMSON, SCHRODER, and VENTERS, JJ., concur. SCOTT, J., concurs, in part, and dissents, in part, by separate opinion in which CUNNINGHAM and NOBLE, JJ., join.
SCOTT, J., concurring, in part, and dissenting, in part:
While I concur with the majority on the other issues, I must dissent as to this Court's approval of the Laurel Family Court's "automatic continuation" of a contested finding of "voluntary underemployment" without addressing Appellant's evidence concerning his two-year effort at economic betterment.
Appellant, Roy Howard, and Appellee, Sondra Howard (now Stewart), were married in Laurel County on September 11, 2004; had a child, Zachary, on March 2, 2005; separated on August 18, 2005; and were divorced on August 11, 2006. Roy has resided with his mother in Fayette County, Kentucky, since their separation in August 2005. Sondra remains in the
Whatever the reason, Roy did quit his job at the Whitley County federal prison during the pendency of their divorce. And although he continued thereafter to remain employed — working forty hours a week — his earnings plummeted from approximately $47,000 per year in 2005 to approximately $17,000 in 2006. In the dissolution action, the Laurel Family Court found Roy to be "voluntarily underemployed" and set his child support based on his previous 2005 earnings as a prison guard. Still working every week, by 2007, Roy had obtained better employment, increasing his earnings to approximately $21,000 per year.
Thereafter, by motion and affidavit, dated November 19, 2007, Roy sought to modify his child support obligations based on his continuing effort to better his employment and earnings in the intervening two years between the separation and the motion, noting he had continued to work forty hours per week since leaving his job at the prison, and had even changed jobs to increase his hourly earnings from $9 to $11 per hour. Roy supplied documentation that his average monthly income had increased from approximately $1,436.58 per month in 2006 to over $1,700 per month in 2007, although Roy has only a high school education, with no additional educational or technical training.
His affidavit attached to his motion also asserted that he had applied at FMC in Lexington as a correctional officer and as a community correctional officer with the Division of Community Corrections for the Lexington/Fayette Urban County Government but had been denied employment at both due to health problems, including serious back pain for which he had undergone surgery at Central Baptist Hospital. However, without analyzing the evidence in light of KRS 403.212(2)(d), the court denied the motion, finding, "[t]he Respondent has not presented any new issues since the court determined [initially that] he was voluntarily underemployed." (Emphasis added.) As a result, Roy's child support obligation of $789.25 per month constitutes 41 percent of his gross monthly income and almost 55 percent of his net monthly income. This, even though Sondra's income from her continued prison employment more than doubles his.
My dissent from the majority on this issue is not about the family court's initial finding of "underemployment" — it is about its failure to analyze Roy's subsequent effort at economic betterment and the consequent absence of any guidance to the bar and family courts as to how one can extract his- or herself from such a designation.
Although we should — under the abuse of discretion standard — generally defer to a family court's initial finding that a party is "voluntarily underemployed," I feel compelled to point out the unfairness in expecting a pending divorcee to maintain employment at the same location as the spouse — or the ex-spouse-to-be. If he makes a decision to leave, he risks — especially in this economy — being characterized as "underemployed"; but, if he stays, his emotional turmoil and the consequential
Simply put, I disagree with the majority's contention that the threshold standard for modification was not reached here; and, thus, the family court was not required to consider anew whether Howard remained voluntarily underemployed. Based on the majority's holding, I fear once a person is found to be "voluntarily underemployed," he or she will remain so, unless and until, he or she returns to the income level previously enjoyed.
Although KRS 403.212(2)(d) has been amended to allow a court to deem a parent underemployed without an explicit finding that the parent intended to avoid or reduce his or her child support obligation, the Kentucky Legislature did not aim for voluntariness to equate to Dante's conception of purgatory. Given our concept of due process, it couldn't.
(Emphasis added.)
Accordingly, upon the filing of an appropriate motion and affidavit, a family court must consider anew whether a person remains voluntarily underemployed. I believe evidence sufficient to compel such a renewed analysis exists here.
In this case, the family court's willful ignoring of Roy's facts amid its assertion that there were no new issues presented constituted an arbitrary finding of continued voluntary underemployment. As a result, the family court abused its discretion. Artrip v. Noe, 311 S.W.3d 229, 232 (Ky.
Moreover, in my opinion, Goldsmith v. Bennett-Goldsmith, 227 S.W.3d 459 (Ky. App.2007), does not justify the family court's approach here, as the failure to produce sufficient evidence cannot be analogized to a court's ignoring sufficient evidence as was actually before it. In Goldsmith, the Court of Appeals affirmed the family court's denial of modification because the obligor offered no explanation regarding how he had divested himself of rental properties, which had provided his income in previous years. Id. at 462. Conversely, here, the family court refused to consider substantial facts that it may otherwise have found to be a change, i.e., Howard's evidence showing he had always maintained employment, earning escalating salaries by switching jobs when available that arguably conformed to his educational and occupational qualifications once he left the prison, Sondra, and Laurel County.
Therefore, because the majority has issued a blanket approval of the family court's assertion here that "no new issues were presented," I must dissent on this issue.
CUNNINGHAM and NOBLE, JJ., join.