MEMORANDUM OPINION

ELIZABETH W. MAGNER, Bankruptcy Judge.

On May 9, 2019, the partition of former community property between Lynda Ronquillo Ton ("Lynda Ton") and Hendrikus Ton ("Hank Ton") came before the Court. Post-trial briefs were submitted on June 5, 2019 after which the Court took the matter under advisement.

I. FACTS:

On November 4, 1987, Lynda and Hank Ton (collectively the "Parties") married.1 The Parties did not execute a marriage contract or prenuptial agreement. As a result, all property acquired during their marriage is presumed to be community property.2

On November 14, 2012, Lynda Ton filed a Petition for Divorce in the 25th Judicial Court ("25th JDC"), Parish of Plaquemines, Louisiana ("Petition for Divorce").3 On August 5, 2013, the Judgment of Divorce was entered ("Divorce Judgment").4 Under Louisiana law, a judgment of divorce is retroactive to the date of filing suit.5 Thus, the community terminated on November 14, 2012 ("Termination").6

A. Tax Liability

During the marriage, Hank Ton owned, as either the majority or sole owner and operator, Abe's Boat Rentals, Inc. ("Abe's"), Gulf Wells, Inc. ("Gulf Wells"), B&H Marine Transportation, L.L.C. ("B&H Marine"), and Mardi Gras Central, L.L.C. ("Mardi Gras Central").

On October 18, 2012, the Internal Revenue Service ("IRS") filed a criminal complaint against Hank Ton for failure to pay employee and employer payroll taxes. The Complaint alleged Hank Ton was a "responsible person" with a duty to collect and pay payroll taxes withheld from employee pay, as well as the employer's portion, to the IRS.7 Hank Ton entered a Plea Agreement on October 5, 2012.8 He admitted to underreporting withheld taxes related to Abe's from 2006 to 2009 ("Tax Liability").9 As restitution to the IRS, he agreed to pay payroll taxes attributable to Abe's of $3,582,451.92.10 Abe's was not charged nor did it sign the Plea Agreement.

A Factual Basis for Guilty Plea ("Factual Basis") was entered in the criminal case on October 24, 2012.11 In the Factual Basis, Hank Ton stipulated to the following:

On May 30, 2013, Hank Ton was cast in judgment for restitution of $3,582,451.92 ("Restitution"), fined $25,500.00 and assessed $200.00 (collectively these sums are referred to as the "Restitution Judgment").13

On May 29, 2013 or approximately six (6) months after the Divorce Judgment, Abe's borrowed $3,222,451.00 from Hancock Whitney Bank, N.A. ("Whitney") to partially satisfy the Restitution Judgment ("Loan 2").14 Loan 2 was guaranteed by Hank Ton.15 Lynda Ton did not consent.

B. 25th JDC Orders Regarding Management of Community Assets

On November 21, 2013, Lynda Ton filed a Petition to Partition Community Property Pursuant to Louisiana Revised Statute 9:2801 and to Fix Time within Which Descriptive Lists Must be Filed ("Partition Petition") in the 25th JDC.16 Thereafter, the 25th JDC entered a number of orders regarding the management of community assets during the pending divorce proceedings and prior to the partition of the former community. A consent judgment executed August 27, 2013, ("August Consent Order") ordered:

A consent judgment executed February 14, 2014 ("February Consent Order") ordered:

C. 25th JDC Orders for Spousal Support

On January 13, 2014, Lynda Ton filed a Petition for Final Spousal Support and Motion and Order to Set Final Trial for Determination of Fault ("Support Petition").19 The 25th JDC had previously approved several consent judgments for spousal support pending termination of the marriage and the entry of a final ruling on permanent support.20 The February Consent Order fixing interim spousal support due Lynda Ton at $15,000.00 per month21 provided:

On August 13, 2018, the 25th JDC awarded Lynda Ton permanent spousal support in the amount of $3,783.00 per month ("Final Support Judgment") retroactive to January 13, 2014.23 The Final Support Judgment states:

Accordingly, any amounts paid over and above the $3,783.00 per month owed under the Final Support Judgment constitute an advance on the community.25

D. Bankruptcy and Partition Hearing

On April 27, 2018, Hank Ton filed a Voluntary Petition under Title 11 Chapter 11 of the United States Code.26

On October 8, 2018, Lynda Ton removed the Partition Petition to the United States District Court for the Eastern District of Louisiana. On October 15, 2018, the District Court referred the partition proceedings to this Court.27

E. Assets of the Former Community

The Parties have stipulated to the following values regarding the former community property:

F. Alienation of Former Community Property

Hank Ton liquidated or received the following community assets:

In addition, Hank Ton liquidated a Prudential Life Insurance Policy ("Policy") for $263,924.12.61 Hank Ton advanced the Policy's proceeds to Abe's, and Abe's credited Hank Ton's loan account.62 Abe's utilized the funds:

Finally, Hank Ton placed security interests in favor of Whitney and encumbering certain real property owned by the former community:

G. Whitney Debt

Whitney made a total of five(5) loans to Abe's72 all guaranteed by Hank Ton.73 Through refinancingsand loan consolidations, the five (5) loans have been reduced to two (2) outstanding notes.74

Whitney funded Loan 1 on August 16, 2011 in the amount of $1,822,462.00.75 On May 8, 2012, it was renewed for $3,209,234.00.76

On May 29, 2013, Whitney advanced Abe's $3,222,451.00 to partially satisfy the Restitution Judgment ("Loan 2").77

On September 23, 2014, a new loan paid off Loan 2 and advanced Abe's $2,985,184.80 as a Non-Revolving Line of Credit ("Loan 3").78

On November 10, 2014, Loan 4 was extended to Abe's in the amount of $410,000.00.79 On January 4, 2015, Loan 5 in the original principal amount of $6,105,010.79,80 consolidated Loans 1 and 4 and advanced additional funds of $3,682,855.85.81 At the time, Loan 4 had a balance of $412,072.77 and Loan 1 a balance of $2,010,082.17.82

All the loans are secured by assets of Abe's and former community real property located in the states of Mississippi and Florida.

Loans 1 through 5 (collectively "Whitney Claims") were carried as obligations on Abe's balance sheet.

II. LEGAL ANALYSIS

When the community regime is terminated, property comprising the community is no longer considered "community property;" instead, it is referred to as "former community property."83 This term applies even before a court partitions the property. La. C.C. art. 2369.2 provides, "Each spouse owns an undivided one-half interest in former community property and its fruits and products." Thus, former community property comprises: (1) property acquired during the existence of the community regime through the efforts of either spouse; (2) property acquired with community property; and (3) the fruits or products from property.84

La. R.S. 9:2801 provides the process for partitioning former community property when the spouses are unable to agree.85 First, the court must classify the property as community or separate and establish the value of each community asset and liability.86 Next, the court totals all advances taken from community assets and community debts satisfied from separate property to calculate if either spouse is due reimbursement.87 Last, the court divides the community assets and liabilities so that each spouse receives property of equal net value.88 A court has broad discretion regarding the partition of community property.89 It may divide an asset equally or allocate the entire asset to one of the spouses.90 If, however, the allocation or division causes an unequal net distribution, then the court may order the spouse with more to make an equalizing monetary payment.91 When dividing assets, the court may considereach spouse's economic condition as wellas any other conditions that the court deems relevant.92

The following results from the partition of former community property:

A. Characterizing Assets and Debt

In this case, the Parties do not dispute which assets comprise the former community. Instead, the Parties disagree as to the nature, community or separate, of some obligations imposed against community assets or incurred by community businesses. Resolution of this dispute will affect the value of former community assets as well as the Parties' claims for reimbursement.

Lynda Ton objects to the inclusion of Whitney Claims in (1) the calculation of Abe's value; or (2) against the community either as secured or contingent debt arising through Hank Ton's guaranty. She objects to the inclusion of Whitney Claims in calculating Abe's value because (1) debt acquired after February 2013 violates the February and August Consent Orders; (2) debt was used to acquire new vessels without her consent; and (3) debt repaid Hank Ton's separate and personal obligations.94

1. Whitney Claims and the Valuation of Abe's

The Whitney Claims95 are now represented by two (2) outstanding notes.96 The history of Whitney Claims affects the outcome of this issue.

Whitney funded Loan 1 on August 16, 2011 for $1,822,462.00.97 On May 8, 2012, Whitney renewed it for $3,209,234.00.98

On May 29, 2013, Whitney advanced Abe's $3,222,451.00 to partially satisfy the Restitution Judgment. ("Loan 2").99

On September 23, 2014, a new loan paid off Loan 2 and advanced Abe's $2,985,184.80 as a Non-Revolving Line of Credit ("Loan 3").100

On November 10, 2014, Whitney extended Loan 4 to Abe's in the amount of $410,000.00.101

On January 4, 2015, Loan 5 in the original principal amount of $6,105,010.79102 consolidated Loans 1 and 4 and advanced additional funds of $3,682,855.85.103 On the date of consolidation, Loan 4's balance was $412,072.77 and Loan 1's balance was $2,010,082.17.104

Loans 2, 3, and 4 were issued after the institution of the Divorce Proceedings. Loans 3, 4, and 5 were issued after the Divorce Judgment.

Abe's assets and the former community's real property located in the states of Mississippi and Florida secure the loans.

Because Abe's carried Loans 1 through 5 as obligations on its balance sheet, they contribute to Abe's negative net worth of -$1,015,620.00.105

a) Alleged Violations of the August and February Consent Orders

Pending the community partition, Hank Ton, as Abe's sole, registered shareholder and president, managed the business. While the Divorce and Partition Petitions were pending, Abe's acquired several vessels, refinanced and incurred new bank debt, and paid the Restitution Judgment.106 Lynda Ton avers that the Whitney Claims should be excluded in the Abe's valuation because Abe's violated the 25th >JDC Consent Orders which prohibit encumbering community assets and acquiring debt pending the partition of the former community.107

The August Consent Order provides in relevant part:

The February Consent Order states in pertinent part:

Nothing in either Order prohibits Abe's from borrowing funds, encumbering its assets, or acquiring new assets. Although the August Consent Order prohibits the former spouses from "[A]lienating, encumbering, wasting, disposing of, transferring, concealing, or damaging any assets of the parties," the assets of Abe's are not community property.

Lynda Ton argues that as a community business, Abe's assets are community property.110 She relies on State Bank &Trust Co. of Golden Meadow v. Boat "D.J. Griffin"111 and Rosbottom v. Schiff (In re Rosbottom).112 Rosbottom has no precedential value because it is an unpublished decision.113 State Bank is also inapplicable.

In State Bank, the ex-spouses owned Derris Griffin Boat Operators, Inc. ("Griffin Boat"). During their divorce proceedings, Derris Griffin mortgaged Griffin Boat's assets. His ex-wife challenged the encumberance as a violation of La. C.C. art 2369.4, which prohibits the alienation of a community asset during a divorce proceeding without both spouses' consent or a court order.114

The State Bank Court ultimately voided the mortgage because it violated a resolution of Griffin Boat's board of directors and was therefore unauthorized. Notably, the mortgage was not cancelled because it violated La.C.C. art 2369.4.115

Nevertheless, Lynda Ton points to language in the opinion which declares Griffin Boat's assets to be community assets because the community owned the company itself.116 This language is merely dicta because it is not necessary to the Court's findings or ruling. It is also worth noting that the statement is clearly at odds with Louisiana law which holds that a validly formed corporation's assets are not its shareholders' personal property.117

Accordingly, only the ownership interest in Abe's (Hank Ton's stock) is a community asset. Therefore, Abe's and Hank Ton did not violate the August Consent Order's terms by acquiring assets, incurring debt, or granting security interests in favor of Whitney without Lynda Ton's consent.

As to the February Consent Order, it prohibits the sale of assets owned by Abe's without Lynda Ton's consent. Again, acquiring assets, borrowing funds or refinancing debt, and granting security interests do not violate this Order's terms.

The Court concludes that neither acquiring new vessels, additional credit, the granting of security, nor refinancing existing debt violates the Consent Orders.

b) Abe's Failure to Secure Lynda Ton's Consent

Lynda Ton avers that the Court should not consider the Whitney Claims when valuing the community's interest in Abe's because the debt was incurred without her consent. She relies on La. C.C. art. 2369.4 because it prohibits the alienation of community assets during a pending divorce and partition.118 For the reasons already stated, nothing in the marriage, divorce, or partition laws, nor Orders of the 25th JDC require Abe's to obtain Lynda Ton's consent to borrow funds, refinance debt, encumber or acquire assets.

Further, Lynda Ton raises no claim of defect in the form or execution of the Whitney Claims and security interests. In fact, this Court entered an Order in the Abe's bankruptcy proceeding allowing the Whitney Claims as valid and enforceable.119

c) Allegations that Abe's Satisfied a Separate, Personal Obligation

Lynda Ton complains that the Court should exclude a portion of the Whitney Claims in calculating Abe's value because the loans were used to satisfy personal and separate obligations of Hank Ton not owed by the company.

From 2006 through 2009, Hank Ton, in his capacity as Abe's president, failed to report wages for Abe's employees to avoid payroll tax liabilities.120 As a result, Abe's did not withhold payroll tax deductions from individual wages, nor did it pay the employer's matching payroll tax to the IRS.121

The IRS investigated and ultimately charged Hank Ton with criminal tax fraud.122 The indictment alleged that, except for Hank Ton, all individuals working for Gulf Wells and B&H Marine were Abe's employees for payroll and tax purposes.123 It also alleged that the company and Hank Ton conspired to conceal the true employment status of these persons to evade payment of matching payroll taxes.124 In the Plea Agreement, Hank Ton admitted to the charges and agreed to pay criminal restitution in the amount of $3,582,451.92.125 That sum includes the taxes owed by both Abe's and the employees.126 Abe's satisfied this amount in large part through Loan 2.127

Hank Ton was charged for Abe's liability because he was a "responsible person"128 under 26 U.S.C. § 7202129 of the United States Tax Code. As a responsible party, Hank Ton was obligated to the government for the satisfaction of the employment taxes jointly and severally with Abe's.130 As a result, the Restitution Judgment was a valid obligation of Abe's properly satisfied by the company through an advance made by Whitney. It is correct to consider the Restitution amount, now incorporated into the Whitney Claims, when valuing Abe's.

2. Valuation of Abe's

Having determined that the Whitney Claims are properly included as Abe's obligations, the next step is to value the Parties' equity interests in Abe's.131 No set formula exists to determine a business' value for a community property partition.132 Moreover, an expert's testimony as to a business' value depends on the expert's professional qualifications, experience, and most importantly the facts the expert relied on to develop his opinion.133

At trial, Hank Ton admitted the expert report of Malcolm Dienes134 to support his calculation of Abe's value.135 Dienes used Abe's December 31, 2018, balance sheet136 and relied on vessel surveys from August 11, 2018, to value the vessels at $7,281,250.00137 and Abe's total assets including vessels at $10,139,549.00.138

Dienes found Abe's liabilities to be $11,155,169.00.139 Dienes' report assigns Abe's a negative equity value of -$1,015,620.00 and its fair market value of zero dollars.140

Lynda Ton disagrees with this valuation.141 She values Abe's at $2,100,000.00 based on marine surveys not admitted into evidence.142

Lynda Ton's omission of the Whitney Claims accounts for the difference between Dienes' value and that of Lynda Ton. Since the Court ruled the Whitney Claims are valid obligations of Abe's, it accepts Dienes' value of zero. However, for purposes of this Opinion, that value will be adjusted as explained below.

B. Characterizing and Valuing Community Liabilities

The Parties dispute which liabilities are community liabilities and the corresponding amount of debt owed. There is a rebuttable presumption that any debt incurred during the community property regime's existence is a community obligation.143 In this case, the Parties do not dispute that the debts incurred prior to the Divorce Petition's filing are community obligations. Instead, their dispute concerns obligations arising after the Divorce Petition's filing.

La. C.C. art. 2360 defines a community obligation as "[a]n obligation incurred by a spouse during the existence of a community property regime for the common interest of the spouses or for the interest of the other spouse . . ." In contrast, under La. C.C. art. 2363, a "separate obligation" is:

1. The Whitney Guaranty

Normally, including the Whitney Claims in the calculation of Abe's value would end any consideration of the debt in relation to the community; having been provided for once, a court would not need to include the debt in the partition. However because Abe's net worth is actually negative,144 a shortfall in Abe's repayment to Whitney may result in a claim against Hank Ton under his guaranty.145

Although Abe's filed for bankruptcy relief on April 27, 2018,146 the personal disputes between Hank and Lynda Ton have hampered Abe's ability to formulate a plan of reorganization. Therefore, at this juncture, the Court is unable to determine with any degree of certainty what, if any, liabilities Abe's cannot satisfy.

Abe's most recent plan of reorganization, filed on May 15, 2019, proposes to satisfy all Whitney Claims through post-confirmation operations.147 Abe's values Whitney's collateral interests at $6,907,500.00148 based on the total value of vessels encumbered by First Preferred Ship Mortgages in favor of Whitney. According to the proof of claim filed by Whitney in Abe's bankruptcy case, the Whitney Claims have an outstanding balance of $9,533,579.00 as of April 27, 2018.149 In addition, this Court presided over Abe's request for the use of Whitney's cash collateral. According to the Order entered in connection with that request, Whitney holds a debt of not less than $9,515,535.53 secured by Abe's equipment, inventory, accounts, and general intangibles as well as certain preferred ship mortgages dated July 10, 2008; February 13, 2012; May 8, 2012; May 29, 2013; January 5, 2015; January 1, 2016; and June 1, 2016.150 Thus, it appears that Whitney is undersecured, but other Abe's assets may reduce its deficiency.

Given Abe's precarious financial state and negative net worth, it seems likely that Hank Ton's guaranty will be called to satisfy a portion of the Whitney Claims. Because of this potential, the Court must consider the characterization of that guaranty as separate or community debt.

Lynda Ton argues that the guaranty is not a community obligation because it was incurred (1) in violation of the Consent Orders; (2) after the Divorce Judgment; and (2) in partial satisfaction of a separate obligation, the Restitution Judgment.

a) The February Consent Order

Again, the Consent Orders prohibits "alienating, transferring, selling, wasting, liquidating, or otherwise disposing of any or all of the assets of the parties or any property."151 This Order's plain language does not prohibit Hank Ton from incurring an obligation.

b) The Novation or Satisfaction of Community Debt

Loans 2, 3, 4, and 5 were all executed after the Divorce Petition was filed on November 14, 2012.152 All advanced new money to Abe's and/or refinanced prior loans.153 Loan 5 paid off Loans 1 and 4, while Loan 3 paid off Loan 2.154 As of today, only Loans 5 and 3 remain outstanding.155

Lynda Ton argues that, under Louisiana law, the refinancing of Loans 1 and 4 into Loan 5 and Loan 2 into Loan 3 extinguished the former community's obligation because performance (payment in full of Loans 1, 2, and 4) was completed.156 Moreover, she asserts that when Abe's executed the new note evidencing Loan 5, at least to the former community, this was a novation of a previously existing community debt.157

Hank Ton argues that although the refinancings and credit extensions occurred after Termination, Abe's incurred Loan 3 during the pendency of the divorce proceedings, and Abe's incurred both Loans 3 and 5 in connection with Hank Ton's fiduciary responsibilities to manage the community.158

A community obligation is incurred during the existence of the community regime.159 When a judgment of divorce is entered, it terminates the community retroactively to the petition for divorce's filing date.160 Therefore, upon the filing of a petition for divorce, a gap period arises during which debts incurred and property acquired maintain a fluid status. If a judgment of divorce is entered, they are considered separate in nature, although an ex-spouse may seek reimbursement for the satisfaction of community debt.161

At least one court has held that the obligation to prudently manage former community property does not "appl[y] to the classification of an obligation as community or separate or to the valuation of that asset or liability."162 In Benoit v. Benoit, a spouse took additional draws on a line of credit subsequent to the community's termination. The Court found that the additional draws constituted a separate obligation, and only the credit line's balance at the time of termination was a community debt.163 In Clemons v. Clemons, the Court held that following termination, a spouse's conversion of a community line of credit to a permanent loan and its subsequent refinancing did not transform the true nature of the original debt. As a result, the Court classified the refinanced debt as a community obligation.164 This case involves a hybrid of the circumstances existing in Benoit and Clemons.

The increase in Hank Ton's obligations under the guaranty after the entry of the Divorce Judgment is factually similar to Benoit. The new advances made under Loans 3, 4, and 5 were not only made after the retroactive date of the community regime's termination, but after the entry of the Divorce Judgment.165 Like the additional draws on the credit line in Benoit, the new advances are Hank Ton's separate obligation and total $7,078,040.65.166

The guaranty of Loan 1 was given during the community to assist a community company. As such, it is presumed to be a community obligation. However, Loan 1 was refinanced into Loan 5 after the Divorce Judgment was rendered. Like Clemons, Loan 1's balance can be traced to a portion of the balance created under Loan 5. However, unlike Clemons, Loan 1 was combined with Loan 4 and a new advance when Loan 5 was made. This is more than the mere issuance of a new note or refinancing of the Loan 1 debt.

La. C.C. art. 1881 states:

The comments to art. 1881 make clear that novation is not favored in the absence of a clear indication that a new obligation has been contracted and the original extinguished.167 In this case, Loan 5 extinguished the notes represented by Loans 1 and 4. Whitney admits that only the notes associated with Loans 3 and 5 are outstanding. Thus, the execution of Loan 5 novated the community guaranty of Loan 1.

Nevertheless, while the guaranty of Loan 1 is no longer a community debt, Hank Ton is due a reimbursement claim for its conversion to separate debt.

This leaves the "gap" advance or Loan 2 made to partially satisfy the Restitution Judgment. Loan 2 could be characterized as either separate or community while the divorce was pending, but after Termination, obligations incurred during the gap period are considered separate. Although when a spouse incurs debts after termination of the community, he is not automatically disqualified from seeking reimbursement for half of the amounts so long as he incurred them while fulfilling his statutory duty168 to preserve the former community property under his control.169

Hank Ton argues that paying the Restitution Judgment was in Lynda Ton's interest because it satisfied a community business debt.170 Further, it relieved the business from the risk of government seizure had the IRS elected to collect the debt.

Although Hank Ton's argument is probably true, the Court cannot overlook that Hank Ton's direct actions needlessly increased Abe's liabilities. A spouse may incur separate obligation during the existence of the community property regime if it is not for the spouses' "common interest" or if the obligation arises from an "intentional wrong . . . to the extent that it does not benefit both spouses, the family, or the other spouse."171 Hank Ton engaged in criminal tax fraud.172 By concealing employees from the IRS, Abe's failed to collect the employees' portion of payroll taxes they owed. As a result, under the Internal Revenue Code, Abe's liability increased for their share. The increase amounts to 50% of the tax assessed or $1,611,225.50. The other 50% represents payroll taxes Abe's owed as the employer for tax years 2006 through 2009. While the liability for these taxes was incurred during the existence of the community, it was not owed under the Whitney guaranty until after the Termination. As a result, it too is separate. The Court also notes that the IRS has filed a Proof of Claim in this case for $968,440.88 in interest accrued on the Restitution. Those are additional damages arising from Hank Ton's conduct and separate in nature. Had Hank Ton not committed tax fraud, no interest would be due.173

As of April 27, 2018,174 the balance on Loan 3 was $4,111,194.61 and on Loan 5 $5,404,340.92.175 Due to payments already being made on the Loans, the Court will allocate the balances based on the ratio of former community or reimbursement debt to separate debt outstanding on the date each loan was executed.

c) Security interests in the Mississippi and Florida Properties

Lynda Ton objects to the security agreements on real property placed on the Mississippi parcel and the Florida Condo.176 She alleges that the encumberance of these former community assets violates both Louisiana law and the August Consent Order.177

Hank Ton acquired Bullock while married to Lynda Ton and domiciled in Louisiana.178 The Parties stipulate that it is community property.179 As such, the Parties each own an undivided one-half interest in Bullock.180 However, Hank Ton is listed as the sole owner of record on its title.181 The Parties stipulated that the value of Bullock is $1,020,000.00, and it is subject to a mortgage in favor of Whitney recorded on December 18, 2013.182

When Hank and Lynda Ton finalized their divorce in August 2013,183 the August Consent Order granted Hank Ton exclusive use of Bullock pending a later partition of community property.184 However, the Divorce Judgment enjoined Hank from alienating or encumbering Bullock. It provides:

Despite the Divorce Judgment and August Consent Order, Hank Ton executed a Modified Deed of Trust which granted Whitney a security interest in Bullock.186

Mississippi law governs the validity of the Modified Deed of Trust in favor of Whitney because Bullock is located in Mississippi.187 Lynda Ton argues that Whitney's mortgage is invalid because it was obtained without her consent and after Termination.188 In Mississippi, a person holding record title may lease, sell, encumber, or otherwise alienate the property.189 Those with unrecorded or inchoate property rights are not protected unless they file something of record.

Mississippi law provides that when a suit affecting real property is filed, the movant must file a notice of lis pendens in the county where the property is located.190 A lis pendens gives notice of a potential claim on real property.191 If a notice of lis pendens is not filed, "such suit . . . shall not affect the rights of . . . incumbrancers of such real estate, unless they have actual notice of the suit. . ."192

A lis pendens warning of the pending divorce was not filed in the records of Mississippi. Lynda Ton offered no evidence that Whitney had actual knowledge of the divorce proceedings. Therefore, since the law entitles Whitney to rely on the public records, its security interest in Bullock is valid.

The same may be said of the Florida Condo. In Florida, the record title holder may lease, sell, mortgage, or encumber his interests.193 Both Lynda and Hank Ton were title holders of the Florida Condo.194 Under Florida law, Hank Ton was free to mortgage his half of the property.195 However, Whitney's Mortgage does not affect Lynda Ton's ownership interest.

As between Hank and Lynda Ton, Louisiana law determines their rights. La. C.C.art. 2369.4 states:

While the validity of the Whitney encumbrances cannot be challenged, the Civil Code provides a mechanism for accounting between the spouses in the event of breach. La. C.C. art 3525 states:

He also violated the duty owed to Lynda Ton pursuant to La. C.C. art. 2369.3, which provides:

As a result of this violation, Hank Ton owes damages to Lynda Ton which will be addressed below under the section of this Opinion concerning mismanagement.

C. Reimbursement Claims

The Court must account for income or advances derived from former community property, as well as reimbursements owed to the Parties since the filing of the Divorce Petition.198

In addition, the Final Support Judgment awards Lynda Ton $3,783.00 per month from January 13, 2014, forward.199 Hank Ton and Abe's have made substantial payments to Lynda Ton since January 13, 2014, on this obligation which must be reconciled with the Final Support Judgment.

The Court must also account for the satisfaction of Loan 1 by Hank Ton while also considering that his responsibility for its satisfaction is contingent. Finally, some recompense must also be made for the encumberance of community assets in violation of 25th JDC rulings and Louisiana law.

1. Advances Made to Lynda Ton

The Parties stipulated that the following payments were made to Lynda Ton after Termination:

Under the Final Support Judgment, Lynda Ton is entitled to $3,783.00 per month from January 13, 2014 to present, a period of 57 months,205 or $215,631.00 in support payments.206 She received a total of $262,500.00 from Hank Ton.207 In addition, $19,473.00 in expenses paid by Abe's for the maintenance and protection of Sarah Victoria Drive are additional support under the 25th JDC Consent Orders. The total support paid is $281,973.00.

Lynda Ton was overpaid support in an amount equal to $66,342.00. Under the 25th JDC Final Support Judgment, this sum is to be treated as an advance of community property.208

According to 25th JDC rulings, wages orother advances from community businesses are advances of community property. Similarly, rents paid to Lynda Ton are also a share of community income earned from former community property. Lynda Ton received $315,000.00 related to rents and $266,982.00 in profits from Abe's.209

2. Advances Made to Hank Ton

The Parties stipulated the following payments were made to Hank Ton following Termination:

As with the rents paid to Lynda Ton, the rents paid to Hank Ton constitute advances on income earned from former community property. Hank Ton received $465,000.00 in rents.226 Hank Ton also received $39,000.00 from Gulf Wells; an advance of $175,000.00 from Gulf Wells and $96,372.00 from B&H Marine; dividends; interest; and capital gains. Hank Ton's total distributions of profits is $319,282.00.227

a) Prudential Life Insurance Policy

The former community property included a life insurance policy (the "Policy") with Prudential Financial and its subsidiary, Pruco Life Insurance Company.228 On March 16, 2016, Hank Ton surrendered the Policy, and a cash surrender value check was issued to him in the amount of $263,924.12 ("Insurance Funds").229 Hank Ton transferred the Insurance Funds to Abe's, which deposited them in a dedicated account at Whitney.230 Abe's used the dedicated account to pay business expenses. After paying expenses, $3,838.94 remains in the dedicated account.

Lynda Ton argues that the Insurance Funds were an advance to Hank Ton for which she should receive reimbursement.231 Hank Ton contends that his actions fulfilled his duty under Louisiana Civil Code article 2369.3 to prudently manage former community property. He argues that payments (1) maintained Abe's asset base in the vessels; (2) allowed Abe's to maintain the revenue stream in the vessels by avoiding the imposition of maritime liens or seizures; and (3) helped Abe's remain in operation because they paid insurance premiums necessary to maintain vessel registrations.232 He also contends that the transfer of funds to Abe's merely converted former community property from one form into another.233

La. C.C. art. 2369.3 states:

A community enterprise is not a separate legal entity from the former spouses.235 It is most often a proprietorship or joint venture. Legal entities such as corporations, limited liability companies, and partnerships are not community enterprises even if their ownership is a community asset.236 Because Abe's is a corporation and, therefore, a legal entity, it is not a community enterprise, and the provisions of Article 2369.3 are inapplicable.

Because Hank Ton violated the February Consent Order's terms when he liquidated a former community asset without Lynda Ton's consent, he owes damages to Lynda Ton for its loss.237 While a cash investment into a community company could mitigate this damage, in fact the decision to advance community cash into a business did not, in theory or otherwise, benefit the former community. Although Hank Ton argues that by reducing Abe's debt the Insurance Funds theoretically increased Abe's value, he also admits that Abe's has a negative net worth of -$1,015,620.00.238

Because the investment of the Insurance Funds was done without Lynda Ton's consent and in violation of Louisiana law and several Orders of the 25th JDC, Hank Ton owes Lynda Ton reimbursement.239

b) Other Former Community Property Alienated by Hank Ton

Finally, Hank Ton's use of monies held in the Ameriprise, Stifel, two (2) Whitney accounts as well as a Wells Fargo Advisor Prudential Annuity, interest, and dividends violates the terms of the February and August Consent Orders prohibiting the alienation of former community property. As such, Hank Ton owes Lynda Ton reimbursement for the balances existing in each of these accounts.

3. Summary of Disbursements

Netting the advances results in a reimbursement claim of $972,876.12 in favor of Lynda Ton.

D. Damages — Mismanagement of Community Property

Lynda Ton alleges that due to the mismanagement of community assets, the value of the former community has been decreased. She complains that through increases in Hank Ton's guaranty, the encumberance of community assets and the addition of debt to Abe's the community has suffered.

A fiduciary duty exists between the ex-husband and wife regarding the former community.240 Louisiana Civil Code article 2369.3 provides:

Article 2369.3 imposes a higher standard of care than existed during the marriage.241 During the period between the filing of a petition for divorce and the judgment of divorce, La. C.C. art. 2347(a) requires:

Nevertheless, a "spouse who is the sole manager of a former community enterprise may alienate, encumber, or lease its movables in the regular course of business."243

Although Lynda Ton argues that Hank Ton had no authority to encumber the assets of Abe's or increase its debt,244 a plain reading of the article leads to a different conclusion. As previously discussed, Abe's is a separate legal entity with the right to incur debt, alienate and acquire assets and operate its business. The management of that business falls to its president, other officers, and the board of directors. Because the Whitney Claims were incurred by Abe's in compliance with all corporate formalities and the monies advanced were used to pay corporate debt or acquire corporate assets, the decision of the company to refinance debt, acquire additional vessels through loans, and pay off corporate tax liabilities does not violate any duty or obligation imposed by law or court order between these Parties. The Court does not find that any of these decisions amount to mismanagement of Abe's.

However, one obligation incurred by Abe's and paid with funds advanced by Whitney is a direct result of Hank Ton's mismanagement of Abe's. Hank Ton's admission to tax fraud resulted in Restitution of $3,222.510.00. As previously explained, half of that sum constitutes a debt Abe's should not have incurred. The increase in Abe's debt reduces its net worth. The community, as the sole shareholder of Abe's, suffers this loss. As a result, Lynda Ton is owed damages equal to $1,611,225.50 plus fines of $25,500.00 and fees of $200.00 or $1,636,925.00.245

Hank Ton also encumbered former community assets in favor of Whitney causing a potential loss to Lynda Ton. The wrongful encumberance of former community assets can be equalized by distributing them to Hank Ton.

Finally, through novation or timing and as more fully set forth above, the obligations owed by Hank Ton under the Whitney guaranty are now all separate. Nevertheless, a portion of that debt was community (Loan 1), and Hank Ton is entitled to reimbursement for its satisfaction through novation. This can be used to offset Lynda Ton's damages through Abe's loss of net worth.246

E. Claim for Special Circumstances

Lynda Ton argues that her medical condition247 should be considered in allocating the community assets. Lynda Ton offered no evidence of unreimbursed medical costs or loss of wages due to a medical condition. Nor did she offer proof of said condition. As a result, she has failed to carry her burden of proof on the issue.

F. Division of Former Community Property

The division of former community property and debt is set forth on Exhibit A to this Opinion. It was calculated by taking the total value of all remaining assets of the former community and providing Lynda Ton a reimbursement claim of $972,876.12.

The Court has distributed the entirety of Abe's to Hank Ton. However, Abe's fair market value has been adjusted for purposes of this partition. Although Abe's starts with a fair market value of $-0-, in reality Abe's has a negative net worth of -$1,015,620.00 when all assets and liabilities are considered. Its negative net worth is attributable in part to the extra $1,636,925.50 in damages incurred as a result of Hank Ton's criminal actions ("Restitution Credit"). The Court has assessed this damage against Hank Ton by increasing the net worth of the company to $621,305.50.248

The assessment of Lynda Ton's damage claim through a recalculation of Abe's net worth in theory results in the reduction or elimination of any call on the guaranty. However, even if community assets are foreclosed on by Whiney, Abe's value will increase. If Abe's pays the debts, community property will not be seized to satisfy them. Either way, the debt can only be paid once and because the Court has distributed Abe's, Bullock, and half of the Florida Condo to Hank Ton, this paradigm is resolved.

The Court next considered Hank Ton's reimbursement claim based on the conversion of former community debt (Loan 1) into separate debt by novation. Loan 1 had a balance of $2,010,082.17 when it was consolidated into Loan 5.249 Loan 5's original balance was $6,105,010.79.250 Loan 1 comprised 32.92% of Loan 5. On April 27, 2018, the balance due on Loan 5 was $5,404,340.92.251 Loan 1's proportionate share is $1,779,108.73.

Loan 1's proportionate share has been included in Abe's net worth, and Abe's net worth remains positive due to the Restitution Credit. Therefore, in theory there should be no call on Hank Ton's guaranty. Given that Abe's positive net worth was accomplished by artificially increasing it to offset the damages owed to Lynda Ton, Hank Ton may indeed be forced to pay on his guaranty. To maintain the offset for the Restitution Credit, any reimbursement due Hank Ton must be delayed or suspended. Thus, until Hank Ton satisfies $1,636,925.00 in debt to Whitney from his personal assets, he may not collect half the difference of any additional amounts he personally pays up to Loan 1's allocated balance of $1,779,108.73 from Lynda Ton.

In the final analysis, Lynda Ton has been given assets with a net value of $2,980,522.00. Hank Ton has received assets with a net value of $2,467,875.50. The difference between the Parties, $512,646.50, represents a payment on the reimbursement claim of $972,876.12 owed Lynda Ton. To completely satisfy the reimbursement claim, Hank Ton owes an equalizing payment of $460,229.62.