GUY R. HUMPHREY, Bankruptcy Judge.
Debtor
The issue on appeal is whether the bankruptcy court erred in finding that Creditor's claim is a domestic support obligation and overruling Debtor's objection to Creditor's proof of claim.
Under 28 U.S.C. § 158(a)(1), this Panel has jurisdiction to hear appeals "from final judgments, orders, and decrees" issued by the bankruptcy court. For purposes of appeal, an order is final if it "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citation and quotation marks omitted). "The concept of `finality' in the bankruptcy context," however, "should be viewed functionally," with appellate courts enforcing this threshold requirement "in a more pragmatic and less technical way in bankruptcy cases than in other situations." Simon v. Lis (In re Graves), 483 B.R. 113, 115 (E.D.Mich.2012) (quoting Cottrell v.
The Sixth Circuit Court of Appeals has held that the determination of non-dischargeability for a domestic support obligation is a mixed question of law and fact.
Sorah v. Sorah (In re Sorah), 163 F.3d 397, 400 (6th Cir.1998).
Debtor, James Thomas, and Creditor, Jennifer Clark, were originally married on August 4, 1995. They had two children together, born during the term of the first marriage. Debtor and Creditor purchased a family home on July 12, 1999, using a loan secured by a first mortgage on the property. On April 28, 2001, the couple obtained a loan in the amount of $15,463.79 secured by a second mortgage on the property.
On May 13, 2003, the parties entered into a separation agreement pertaining to child custody, division of property and child support. Their divorce was final on June 25, 2003.
In the 2003 divorce consent decree, Debtor agreed to relinquish any interest in the family home and Creditor agreed to
The couple remarried on April 30, 2004. However, on April 18, 2007, this marriage also ended in divorce. Like their first separation, Debtor and Creditor reached an agreement for the "distribution of assets, payment of debts, and other matters." The 2007 divorce consent decree provided that the agreement was "in all respects fair, just and equitable" and adopted and approved the terms of the settlement agreement reached by the parties. Debtor and Creditor were each represented by counsel who signed off on the 2007 consent decree.
The terms of the 2007 consent decree were similar to the parties' 2003 consent decree in some respects. Neither spouse was obligated to provide spousal support. Creditor received primary custody of the children. Debtor again agreed to give up any interest in the property, which he had never conveyed as required by the 2003 consent decree. Creditor agreed to assume and hold Debtor harmless on the first mortgage loan in the 2007 consent decree.
However, there were several important differences. Debtor's child support obligation was just $369.15 per month, and Debtor and Creditor agreed to split the second mortgage obligation. Specifically, Section 4 of the 2007 consent decree provides:
Consistent with the 2007 consent decree, Debtor quit-claimed his interest in the property to Creditor by Deed dated April 4, 2007, and recorded May 31, 2007.
On November 18, 2004, Auto Now Acceptance Co., LLC ("Auto Now") obtained a judgment against Debtor in the amount of $8,082.37, plus interest and costs. On October 20, 2005, Auto Now filed a judgment lien against Debtor. The judgment lien was not addressed in the 2007 consent decree even though it had attached to the property prior to the second divorce. Creditor testified that she was not aware of the judgment lien until she offered the property for sale. Although Debtor's affidavit addresses the circumstances preceding imposition of the judgment lien, the record does not disclose whether Debtor knew that the judgment lien had attached to the property at the time of the 2007 divorce proceeding. On appeal Debtor asserts that Creditor knew about the circumstances leading to the judgment lien.
Creditor sold the family home to third-party buyers on September 18, 2008. The
On January 15, 2009, the state court entered another order in the 2007 divorce proceeding (the "2009 order"), which provided in part:
Debtor filed a petition for relief under chapter 13 of the Bankruptcy Code. Debtor's schedules listed two obligations to Creditor. The first was a $560.00 unsecured priority claim for child support on Schedule E, which was not disputed. The other was a $15,000.00 unsecured claim on Schedule F described only as "Debt." Creditor filed Proof of Claim 6-1 asserting a priority unsecured claim for "[a]limony, maintenance, or support" in the amount of $12,500.00 for the second mortgage debt and the judgment lien debt. Debtor objected, arguing that Claim 6-1 is not in the nature of alimony, maintenance, or support, but "is for a second mortgage debt and judgment lien on property that were satisfied when the real estate was sold by creditor previously," and is thus not a domestic support obligation.
Debtor and Creditor submitted a joint stipulation of facts, acknowledging entry of the 2007 consent decree and the 2009 order and attaching copies of each. The parties each presented testimony by affidavit. No objections were raised and the affidavits were admitted as the direct testimony of the witnesses. At the evidentiary hearing, both parties agreed to forego cross-examination, allowing the affidavits to stand as the witnesses' only testimony. In addition to their direct testimony, each party submitted an exhibit list and copies of relevant documentary evidence. The exhibits of both parties were admitted without objection.
The bankruptcy court entered an opinion and order finding Creditor's claim is in the nature of "alimony, maintenance or support" and overruling Debtor's objection to her proof of claim. In re Thomas, No. 13-10043, 2013 WL 5493214 (Bankr. E.D.Ky. Oct. 2, 2013). Debtor timely filed an appeal to this panel.
"Sections 523(a)(5) and (15) operate to provide greater protection for alimony, maintenance, and support obligations owing to a spouse, former spouse, or child of a debtor in bankruptcy[,]" In re Johnson, 397 B.R. 289, 295 (Bankr.M.D.N.C.2008) (citation omitted). Such debts are non-dischargeable for individuals in a Chapter 7, 11 or 12. However, unlike those chapters, chapter 13 distinguishes between § 523(a)(5) domestic support obligations, which are non-dischargeable, and other § 523(a)(15) "post-marital obligations," including property settlements, which are dischargeable. Id. See 11 U.S.C. § 1328(a)(2). In addition, domestic support obligations, as a priority debt, must be paid in full during the chapter 13 plan. 11 U.S.C. §§ 507(a)(1)(A) and 1322(a)(2).
"Domestic support obligation" is defined by the Bankruptcy Code as follows:
11 U.S.C. § 101(14A).
In Long v. Calhoun (In re Calhoun), 715 F.2d 1103, 1109-10 (6th Cir. 1983), the Sixth Circuit enunciated a four-part analysis for making the determination whether an obligation that was not specifically designated as alimony or maintenance was actually in the nature of support, and thus, nondischargeable. As subsequently re-stated in Fitzgerald:
Fitzgerald v. Fitzgerald (In re Fitzgerald), 9 F.3d 517, 520 (6th Cir.1993) (citing Calhoun, 715 F.2d at 1109-10). "The burden of demonstrating that an obligation is in the nature of support is on the non-debtor." Fitzgerald, 9 F.3d at 520 (citing Calhoun, 715 F.2d at 1111).
The bankruptcy court applied the proper test and analyzed the claim at issue using the Calhoun factors.
The bankruptcy court determined that it was the intent of the state court and the parties to create a support obligation. The bankruptcy court cited five reasons for its decision: (1) support is inferred because the second mortgage payments protected the children's home; (2) the lack of an upward deviation in child support payments in the 2007 consent decree indicates a support payment; (3) the 2007 consent decree's provision that if a sale of the family home created a deficiency debt that the parties split the debt, while if it created a surplus, Creditor was entitled to all of the surplus, was intended to assist in providing a home for the children; (4) Creditor's hold harmless agreement in the 2003 consent decree does not relieve Debtor from his obligation to pay the disputed claim; and (5) the agreements do not show that Debtor was entitled to spousal support.
Debtor's brief implies that Creditor's obligation to pay both mortgages in the 2003 divorce decree is binding despite entry of the 2007 consent decree and the 2009 order, but does not cite any authority for this proposition. The bankruptcy court took the better view, that is, that the 2007 consent decree and the 2009 order superceded the 2003 divorce terms. However, the bankruptcy court did also consider the terms of the 2003 divorce in determining the state court and parties' intent.
Debtor also challenges the bankruptcy court's reliance on the fact that in the 2007 consent decree child support payments went down, but that Debtor became obligated on the second mortgage as a further indication that the obligation was in the nature of support. Debtor argues that the record indicates that the reason for the reduction in child support was the fact that he was unemployed. While that fact is supported by the record, that fact does not negate the bankruptcy court's inference. They are not mutually exclusive. The 2003 upward deviation from the standard calculation of child support clearly ties payment of the second mortgage to the children's support. The fact that Debtor was out of work at the time of the second divorce and the amount labeled as "child support" decreased but that he obtained a new obligation to pay half of the second mortgage supports an inference that the mortgage payment was part of support for the children. As stated by one bankruptcy court:
In re Palmieri, No. 11-51224, 2011 WL 6812336, at *5 (Bankr.E.D.Mich. Nov. 21,
The bankruptcy court also found that Debtor's payment of the second mortgage provided necessary support because the uncontradicted testimony of Creditor was that her income was insufficient to cover both the first and second mortgage payments. Although Debtor has asserted that he was out of work at the time and that Creditor made more money, Debtor has not disputed the finding that Creditor could not afford both the first and second mortgage payments.
Debtor argues that the debt created by the requirement in the 2007 consent decree that he pay half of the second mortgage is a property settlement rather than a domestic support obligation. He argues that nothing in either divorce decree was labeled as spousal support and that the 2003 consent decree specifically says that no alimony or spousal support was awarded. Debtor asserts that the bankruptcy court erroneously relied on "stock language" in the 2007 consent decree, which referred to spousal support, even though none had been awarded. See Thomas, 2013 WL 5493214 at *8.
The bankruptcy court's opinion does mention references to "child and spousal support" in the 2007 consent decree to indicate a probability that the state court intended something to be in the nature of spousal support. However, this reference is in passing and is not the primary support for the bankruptcy court's conclusion. If the bankruptcy court erred in using the "stock language" as creating an inference of support, it was harmless in view of the other reasons for finding that the mortgage obligation was in the nature of support. Bankruptcy courts are permitted to find a debt to be in the nature of support regardless of the label used by the state court. In the present case, the bankruptcy court's primary focus was the state court's implications that the mortgage obligation was to assist in providing for the children's support by providing them with a home.
Finally, Debtor asserts that the 2007 consent decree language that contemplates the sale of the home rather than Creditor's continued residence there, undermines the bankruptcy court's conclusion. Accordingly, Debtor argues that the bankruptcy court's reliance on the children's need to maintain their home is a false conclusion and does not support a finding that the requirement to pay the second mortgage is in the nature of alimony, maintenance or support.
The bankruptcy court found paragraph 4 of the 2007 consent decree to create an ambiguity due to the language providing for the allocation of sale proceeds in the event of a surplus arising from the sale of the property or a deficiency in the event that the sale proceeds did not equal or exceed the mortgages. The bankruptcy court acknowledged that this paragraph could be read as an indication of a property settlement. However, the bankruptcy court found it more likely that the order allowing Creditor to keep proceeds of a possible sale, while requiring Debtor to help cover a deficiency was likely intended to provide for the children's need for a home. Allowing Creditor to keep proceeds provided her with a possible down payment on a future home, while requiring Debtor to cover part of any deficiency also increased creditor's ability to come up with a loan payment on a new home.
Looking at the totality of the circumstances, the bankruptcy court's conclusion that the parties and the state court intended to create a support obligation is not clearly erroneous. The fact that the mortgage payments helped provide a residence
The bankruptcy court also held that the $5,000 debt that arose from Creditor paying off a judgment lien against the home was a domestic support obligation.
In re Thomas, No. 13-10043, 2013 WL 5493214 at *10 (Bankr.E.D.Ky. Oct. 2, 2013).
Debtor argues that since the judgment lien was not addressed by the divorce decree it cannot be considered to be alimony, maintenance or support. Debtor argues that it was obtained in July 2004 while the second marriage was still intact, and that Creditor was fully aware of the circumstances leading to the judgment lien.
Creditor argues that the proceeds from the sale of the home were intended to provide support for the children. Since the judgment lien reduced the amount that she received from the ultimate sale of the home, it reduced the amount of support she received. Therefore, she argues the debt should be treated as a support obligation.
Case law explains that debts can qualify as support and be determined nondischargeable pursuant to § 523 even if they are owed to parties other than the payees in the statute, if the former spouse could be held responsible for the debt in question. See Holliday v. Kline (In re Kline), 65 F.3d 749 (8th Cir.1995). See also Rugiero v. DiNardo, 502 Fed.Appx. 436, 439 (6th Cir.2012) (holding that attorney fees could be properly treated as a domestic support obligation under the circumstances of that case, including the fact that they were incurred in a proceeding that concerned the welfare of the children); Kassicieh v. Battisti (In re Kassicieh), 482 B.R. 190 (6th Cir. BAP 2012), aff'g 467 B.R. 445 (Bankr.S.D.Ohio 2012) (guardian ad litem fees constituted a "domestic support obligation").
The judgment lien debt is not a true third-party debt because it has already been paid to the third party and Debtor has been ordered to reimburse Creditor directly for the payment. However, the reasoning for non-dischargeability of third-party debts that qualify as support applies. The state court intended Creditor to keep the family home as a residence and shelter for the children or to have the proceeds of the sale of the home as support. The 2003 consent decree required Debtor to help provide that support for the children by making larger child support payments, while the 2007 consent decree actually required the Debtor to pay half of the second mortgage. The judicial lien filed against
The parties and the bankruptcy court focus on the 2003 and 2007 consent decrees to determine the nature of the debt that Debtor owes to Creditor. However, both the debts also arise from the 2009 order. That order references Creditor's motions for contempt for Debtor's failure to pay child support and for modification of child support. The 2009 order notes that Creditor withdrew both of those motions due to the arrears being paid and due to Debtor being laid off of work. However, the 2009 order goes on to order Debtor to reimburse Creditor for the second mortgage debt and the judgment lien debt, as well as to reimburse half the expenses of certain medical bills. The fact that these two debts were addressed during a hearing to deal with support issues, further indicates that the state court and the parties intended that these debts be considered in the nature of alimony, maintenance or support. Moreover, at the time of the 2009 order, the family home had already been sold. If the intention had been for the proceeds of the sale to be a property settlement, the state court could have made that clarification. Because the payment of the second mortgage is tied to support issues in all three judgments, and the judgment lien debt reduced the amount of support received and is provided for as part of a support order, the bankruptcy court's finding that the state court intended both these debts be treated as support obligations is not clearly erroneous.
The facts presented to the bankruptcy court support the legal conclusion that the debt owed to Creditor is in the nature of alimony, maintenance or support and is therefore non-dischargeable. The bankruptcy court's order overruling Debtors' objection to Creditor's proof of claim is AFFIRMED.
