ALAN M. KOSCHIK, U.S. Bankruptcy Judge.
Harold A. Corzin, the duly-appointed Chapter 7 trustee (the "Trustee") in the underlying bankruptcy case in which this adversary proceeding arises, has filed a complaint for declaratory and injunctive relief regarding the right, title, and interest of the parties in the 403(b) custodial account (the "Plan") of defendant Todd A. Osborne ("Osborne"), the husband of debtor Carla M. Lawson (the "Debtor"). The Debtor had filed a complaint for divorce against Osborne prior to filing her Chapter 7 petition. As of the petition date, the Ohio domestic relations court with jurisdiction over the divorce action, the Stark County Court of Common Pleas Family Court Division (the "State Court"), had entered an order styled as a "judgment entry" approving a property settlement between the Debtor and her husband, but not a formal qualified domestic relations order ("QDRO") as defined in the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1461 ("ERISA"). The Trustee asserts that this particular posture allows him to stand in the shoes of the Debtor and ultimately receive the Debtor's share of the funds from the Plan upon completion of the divorce without running afoul of either the ERISA-required anti-alienation provision of the Plan itself or the exemptions applicable to qualified tax-advantaged retirement accounts under Ohio and federal bankruptcy law.
The Debtor and the United States of America (the "United States"), on behalf of its defendant agency, the Internal Revenue Service (the "IRS"), each filed answers substantively contesting the Trustee's claims. Osborne also filed a pro forma answer but did not substantively contest the Trustee's claims and did not take part in the subsequent summary judgment briefing or oral argument that is the subject of this Memorandum Decision.
The following motions are currently before the Court: First, the Trustee's motion for summary judgment (Docket No. 26) (the "Trustee Motion"); second, the United States' motion for partial summary judgment (Docket No. 27) (the "United States Motion");
The collection of issues presented by the eleven briefs and subsequent oral argument in this matter can be summarized as follows:
This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334 and General Order No. 2012-7 entered by the United States District Court for the Northern District of Ohio on April 4, 2012. Venue is proper pursuant to 28 U.S.C. § 1409(a). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B), (E), and (O).
In bankruptcy cases, including adversary proceedings, a party may move for summary judgment at any time before 30 days before the initial date set for an evidentiary hearing on any issue for which summary judgment is sought, unless a different time is set by local rule or the court orders otherwise. Fed. R. Bankr. P. 7056 (otherwise incorporating Fed. R. Civ. P. 56); see also Fed. R. Bankr. P. 9014(c). When a party so moves, the court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); see also Celotex Corporation v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A Plaintiff movant must establish all essential elements supporting its claim in this fashion; a defendant must establish that any one (or more) essential elements of Plaintiff's claim fails, or establish all elements of one or more of defendant's affirmation defenses, in order to obtain a defense judgment by summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
Evidence presented in support of summary judgment is viewed in the light most favorable to the non-moving party "drawing
In this adversary proceeding, and on the cross-motions for summary judgment currently before the Court, the parties are of the unanimous opinion that summary judgment is appropriate here without the need for a trial. The Court agrees. The disputes before the Court concern only the correct legal conclusions based on undisputed facts.
The parties submitted a substantial stipulated record for the Court to take under advisement, including exhibits. (Docket No. 24.) The following facts are derived from those stipulations, stipulated exhibits (which include, inter alia, the State Court's docket through June 2, 2015), and this Court's own docket.
The Debtor married Todd A. Osborne, also a defendant in this action, on or about May 16, 1998. She filed a complaint for divorce against him in the State Court on March 7, 2014.
Osborne is employed by Summa Akron City Hospital/Summa Health System ("Summa"). Through that employment, he holds an interest, as a plan participant, in a retirement plan known as the Summa Health 403(b) Plan (as previously defined, the "Plan"). A copy of the Plan document was stipulated as an exhibit. (Docket No. 24 at ¶ 8 and Ex. B.) Section 13.9 of the Plan provides as follows:
Osborne opened his Plan account on or about July 8, 1999. The Debtor is not and has never been employed by Summa, and has never made any direct contributions into Osborne's Plan account.
Osborne, who is still living, has designated the Debtor as the primary beneficiary of his interest in the Plan account, and Jessie Lawson as sole contingent beneficiary. (Docket No. 24 at ¶ 12 and Ex. C.)
On January 6, 2015, the State Court held a hearing on the divorce proceeding during which Osborne's counsel read into the record the terms of the separation agreement negotiated by and between the Debtor and Osborne, which included an equal division of the assets in the Plan account between the Debtor and Osborne. (Docket No. 15 at ¶ 16.) The parties have stipulated to the accuracy of a transcript of those proceedings. (Docket No. 24 at ¶ 15
Harold A. Corzin was duly appointed as the chapter 7 trustee for the bankruptcy estate of the Debtor following the filing of the Debtor's petition.
The Trustee filed his complaint in this adversary proceeding (the "Complaint") on August 20, 2015. The Trustee alleged that the Debtor's "equitable claim to an equal division and distribution of the marital property" is property of the estate (Compl. ¶ 8), and that the Trustee was entitled to an order directing distribution of such property interest to the Trustee. (Compl. ¶ 9). The Trustee's complaint further asks this court "to enter its order authorizing and empowering the trustee to execute a QDRO directing distribution of such funds to the estate and compelling the defendant, Todd Osborne, to join in such [QDRO]." (Compl. ¶ 12.)
Osborne, pro se, filed his answer on September 22, 2015.
The Debtor filed her answer and cross-claim against Osborne on September 23, 2015.
The United States, after an extension, filed its answer on October 2, 2015.
Osborne, by then with assistance of counsel, filed his reply to the Debtor's crossclaim on October 13, 2015.
Following a further pretrial after the close of discovery, the Court entered a scheduling order setting simultaneous deadlines for dispositive motions, response briefs, and replies. The Court informed Osborne that his participation in the dispositive motion briefing was not required by the Court in light of the fact that the Trustee and the Debtor were battling over the one-half share of his Plan account already awarded to the Debtor, his exspouse, by the State Court. In fact, Osborne did not file or respond to any dispositive motions. The Trustee and Debtor each filed a motion for summary judgment; the United States filed a motion for partial summary judgment and a separate motion to dismiss the claims in the complaint against itself.
At the request of the parties, the Court held an oral argument on the cross-motions for summary judgment on May 9,
As in all bankruptcy cases of individual debtors, the Court must determine what legal or equitable interests the Debtor had in property as of the commencement of her case, which interests in her property became property of the bankruptcy estate that the Trustee may administer, and which of those assets may be exempted from the estate and claims of the Debtor's creditors. More specifically, the Court here is called upon to answer those questions with respect to the Debtor's rights to her share of her husband's retirement account after filing a divorce action but before effectuating a division of that account via a transfer of assets authorized by the entry of a QDRO. The peculiar circumstances of this case have caused these questions to be extraordinarily complex.
The Court undertakes these inquiries in this case by examining the distinct forms of interests various parties argue the Debtor had in the Plan assets as of the commencement of the case. First, whether the Debtor had a beneficial interest in the Plan assets, either by virtue of her designation by Osborne as a beneficiary, her status as Osborne's spouse, and/or the entry by the State Court of its January 8, 2015 Judgment Entry, which approved the division of the Plan assets between the Debtor and Osborne. Second, whether the Debtor had acquired a present interest in the Plan assets, or as the Trustee argues, a mere equitable claim to a distribution from marital assets, pursuant to Ohio domestic relations law. The proper legal characterization of these distinct rights informs the further inquiries about what is or is not excluded from property of the bankruptcy estate and what property of the bankruptcy estate is exempt.
The Judgment Entry states that "the proposed divisions of assets and debts is fair and equitable," and that the proposed separation agreement was "approved" and "adopted." (Docket No. 24 at ¶ 17 and Ex. F.) The State Court issued this order after a hearing in open court in which the agreed property division was read into the record. (Docket No. 24 at ¶¶ 15-16 and Ex. E.) The Judgment Entry also granted the divorce of the couple and directed the Debtor's divorcing spouse to attend a parenting seminar. Id. While the Judgment Entry provided that its terms would be incorporated into a future final decree, it did not provide for a stay of its effectiveness. Moreover, unlike the situation in In re Greer, 242 B.R. 389, 394-95 (Bankr. N.D. Ohio 1999), the Judgment Entry here was signed by a state court judge, not a magistrate whose decision could "only become effective when actually adopted by a court of competent jurisdiction." Id. at 394. The fact that the parties failed to file the contemplated final decree within 21 days as ordered does not change the fact that the State Court had already entered an order that approved the division of property and required that the ultimate final decree be consistent with and incorporate the Judgment Entry. The fact that the Judgment Entry would be incorporated into the later final decree did not in any way condition its effectiveness. Indeed, the Judgment Entry conclusively determined that the final decree would be required to incorporate its terms, including the agreed upon division of property. This
Therefore, the Court concludes that the January 8, 2015 Judgment Entry constitutes a domestic relations order of the State Court vesting the Debtor with right to an equal division of the Plan assets between her and her divorcing spouse.
The Trustee argues that nothing short of a QDRO could vest a non-participant spouse with non-alienable rights to her spouse's retirement plan in which he was the employee and the plan participant. The Trustee relies primarily on In re Burgeson, 504 B.R. 800 (Bankr. W.D. Pa. 2014) (Deller, C.J.) in advancing this position. Burgeson concerned a debtor who had filed a divorce action against her husband thirteen months before filing her bankruptcy petition. Her husband was a participant in his employer's pension plan and she, like the Debtor here, had never been employed by her husband's employer.
As of the petition date, the Burgeson debtor had not obtained either an adjudication of her claim for equitable distribution of marital assets or a divorce decree. Id. at 802. The debtor had certainly not yet obtained a QDRO transferring to her assets from her husband's pension plan. Id. at 803. Moreover, the court found the debtor had "not proven or alleged that either her Ex-Husband or the Pension's terms designate[d] her as a beneficiary." Id. at 804.
The Trustee exaggerates the Burgeson reasoning so as to apply it to the facts of this case. Burgeson does not state that a QDRO is required to vest a divorcing debtor with a beneficial interest in her spouse's retirement plan. Rather, Burgeson observed that debtors obtain such interests when they obtain either a QDRO or an order "delineating the debtor's ownership interest in the pension plan prior" to the petition date. Id. at 804 (emphasis added).
Moreover, the bankruptcy court in In re Dively, 522 B.R. 780 (Bankr. W.D. Pa. 2014) (Deller, C.J.)—authored by the same bankruptcy judge who decided Burgeson— distinguished Burgeson by emphasizing the significance of a domestic relations order adjudicating a property division, even if it does not immediately implement that division. In Dively, the domestic relations court had entered a prepetition domestic relations order that was not a QDRO, but nevertheless set forth and approved the property settlement between the parties. Dively elaborated on the distinction as follows:
Dively, 522 B.R. at 786 (emphasis added).
The January 8, 2015 Judgment Entry was not a final decree, but ERISA does not distinguish between final decrees and other domestic relations orders; it distinguishes only between domestic relations orders and qualified domestic relations orders. Compare 29 U.S.C. § 1056(d)(3)(B)(i)
For this reason, regardless of other facts or circumstances, the Debtor in this case became an ERISA-qualified beneficiary of the Plan no later than January 8, 2015, when the State Court entered its Judgment Entry, which constitutes a domestic relations order directing the equal division of the Plan assets that are marital property of the Debtor and her ex-husband, Todd Osborne.
While the State Court's Judgment Entry accorded the Debtor vested rights as a beneficiary of the Plan, the circumstances of the Debtor's case and her husband's Plan provide her with a separate, independent basis to establish herself as a vested beneficiary of the Plan account at the time of the bankruptcy filing. The parties have stipulated that Osborne expressly designated her as a beneficiary of the Plan. In addition, no formal or express designation of a participant's spouse as a beneficiary is required. See, e.g., 29 U.S.C. § 1055(a) (all ERISA-qualified plans must provide for qualified joint and survivor annuities whenever a vested participant does not die before the date benefits begin, and for a qualified preretirement annuity when the participant spouse dies before the starting date and his or her spouse survives). The Summa Plan contains such a provision automatically designating the spouse of a married plan participant as that participant's beneficiary at Section 6.1(b) of the Plan:
"Even a plan participant cannot defeat a nonparticipant surviving spouse's statutory entitlement to an annuity." Boggs v. Boggs, 520 U.S. 833, 844, 117 S.Ct. 1754, 138 L.Ed.2d 45 (1997). ERISA contains detailed provisions regarding the form of written waiver required for a spouse to surrender her statutorily mandated benefits, which must among other things be witnessed by a plan representative or notary public. See 29 U.S.C. § 1055(c)(2)(A).
In both ERISA and the Plan, such automatic beneficiary designations are couched in terms of beneficial interests payable upon death. However, it is evident from provisions relating to the rights of divorcing spouses that the automatic beneficiary designations apply in that context as well. ERISA's qualified domestic relations order provision, which is the mechanism for distributing a court-approved marital share of a retirement account to a divorcing spouse, see Gendreau, 122 F.3d at 819, incorporates the requirements of 29 U.S.C. § 1055 as well, generally treating a former spouse similarly to a surviving spouse. See, e.g., 29 U.S.C. § 1056(d)(3)(F).
Therefore, separate and apart from the Judgment Entry, the Debtor's status as Osborne's spouse and his designee as beneficiary were independently sufficient to cause the Debtor to be a vested beneficiary of the Plan on the day she filed her voluntary petition commencing this chapter 7 case.
The Bankruptcy Code provides that "a restriction on the transfer of a beneficial interest of the debtor in a trust
The QDRO mechanism in ERISA is set forth in the many subparagraphs of 29 U.S.C. § 1056(d)(3). If an order qualifies as a QDRO, then the anti-alienation provision required by 29 U.S.C. § 1056(d)(1) would not prohibit the distribution of plan assets to an alternate payee who was either a divorcing spouse or surviving child. However, it is important to emphasize that the QDRO mechanism is an exception to the general anti-alienation rule.
In the Court's view, the rule of Patterson applies to this case as well. Patterson held that Section 541(c)(2)'s exclusion of trusts containing restrictions on transfers enforceable under applicable nonbankruptcy law from property of the estate extends to a debtor's interests as a plan participant in an ERISA-qualified retirement account. Patterson's reasoning, however, was not limited to plan participants, but rather extended to "any interest [held by a debtor] in a plan or trust that contains a transfer restriction enforceable under any relevant nonbankruptcy law." Patterson v. Shumate, 504 U.S. at 758, 112 S.Ct. 2242 (emphasis added). Indeed, the statute itself refers to "a beneficial interest of the debtor in a trust." 11 U.S.C. § 541(c)(2) (emphasis added).
Moreover, the line of cases from the Western District of Pennsylvania cited favorably by the Trustee support this conclusion. In re Dively held that the interest of a debtor, who had obtained a divorce decree dividing marital assets, in her spouse's pension plan was "conceivably outside the scope of `property of the estate.'" Dively, 522 B.R. at 786. The bankruptcy court in Dively did not make a final ruling on the exclusion or exemption of the debtor's interests in the pension assets from the estate, but denied the trustee's motion on the basis that the debtor might be entitled to such an exclusion or exemption:
Id. at 785. On appeal, the district court went further and held that the funds were indeed properly excluded from the bankruptcy estate. Walsh v. Dively, 551 B.R. 570, 576 (W.D. Pa. 2016).
Therefore, the Court concludes that the beneficial interest of the Debtor in Osborne's 403(b) Plan, established both by the State Court's Judgment Entry of January 8, 2015, as well as Osborne's designation of the Debtor as beneficiary and the self-executing spousal beneficiary designation provisions of the Plan as required by ERISA, is excluded from property of the bankruptcy estate pursuant to 11 U.S.C. § 541(c)(2), as interpreted by the U.S. Supreme Court in Patterson v. Shumate, 504 U.S. 753, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992).
The Trustee's initial argument in his Motion and Complaint is that the Debtor has no vested beneficial rights in the Plan that are excepted from the bankruptcy estate pursuant to Section 541(c)(2) because (1) the Debtor is not a Plan beneficiary while her now ex-husband remains living, (2) the Judgment Entry does not constitute a domestic relations order, or any order at all, and (3) even if the Judgment Entry were an order, it was incapable of granting the Debtor a vested beneficial interest in the Plan because it was not a QDRO. The Court has rejected those arguments in Section I, supra, and on that basis has concluded that the Debtor's beneficial interest in the Plan is excluded from the bankruptcy estate. This conclusion could, and perhaps should, end the Court's inquiry.
However, the Trustee's now rejected premise led to his argument that even though the Debtor had no vested beneficial right to assets in the Plan, she nevertheless had an equitable claim to a distribution of Plan assets, along with other marital assets, as a divorcing, but not yet divorced spouse. The Trustee asserts that this equitable claim is property of the bankruptcy estate notwithstanding Section 541(c)(2)'s exclusion of vested rights in an ERISA-qualified retirement plan. The Trustee further contends that this equitable claim to a distribution of marital assets is not exempt pursuant to 11 U.S.C. § 522. In order to address the Trustee's arguments comprehensively, the Court analyzes the Debtor's rights in the Plan assets as a divorcing spouse and the extent to which such rights are exempt under Section 522.
In Ohio divorce proceedings, "the court shall . . . determine what constitutes marital property and what constitutes separate property . . . [and] shall divide the marital and separate property equitably between the spouses." R.C. 3105.171(B). When undertaking this determination, "the court has jurisdiction over all property, excluding the social security benefits of a spouse. . . in which one or both spouses have an interest." Id. "Marital property" includes, inter alia, "[a]ll real and personal property that currently is owned by either or both of the spouses, including, but not limited to, the retirement benefits of the spouses,
Ohio bankruptcy courts have interpreted these statutes to mean that upon a spouse filing for divorce, each spouse acquires a contingent interest in all marital property of the marriage. In re Greer, 242 B.R. 389, 395-96 (Bankr N.D. Ohio 1999); In re Street, 395 B.R. 637, 643-44 (Bankr. S.D. Ohio 2008); see also In re Dzielak, 435 B.R. 538, 546 (Bankr. N.D. Ill. 2010) (applying Illinois law).
In re Greer, 242 B.R. at 396-97 (citations omitted).
The Trustee argues that the divorce complaint creates a mere equitable claim and thereby attempts to separate the divorcing debtor's rights from the nature of the underlying assets. This sleight of hand suggests that the divorcing debtor's rights are reduced to claims—essentially either choses in action or accounts receivable— assets that would require their own designation in an applicable exemption statutes in order to be exempt.
However, Ohio domestic relations law instead creates in both spouses a contingent interest in the underlying marital property itself. While this interest is contingent, it is not speculative; it is a present interest in each item of marital property. Greer and Street, with which this Court completely agrees, hold that the filing of a divorce proceeding in Ohio gives rise, pursuant to R.C. 3105.171(B), to a contingent interest in the marital property on the part of both spouses, not just a generalized equitable claim. Greer found that "it was the intention under Ohio law to confer upon a spouse an interest in any property that is or would qualify as `marital property,'
In this case, where the Debtor filed her bankruptcy petition after filing her divorce action, the Debtor had just such a present, contingent interest in the marital property, in particular the Plan assets, as of the commencement of this case.
An individual debtor may exempt certain interests in property from the estate. See 11 U.S.C. § 522. Initially, there are two alternative categories of exemptions that debtors may choose, the so-called "state" exemptions available to any debtor (bankrupt or not) by state law, or the "federal" exemptions set out in 11 U.S.C. § 522(d). However, as permitted by 11 U.S.C. § 522(b)(2), Ohio has specifically provided that Ohio-domiciled debtors are not eligible to claim the federal exemptions under 11 U.S.C. § 522(d). R.C. 2329.662. Therefore, the exemptions applicable to individual debtors in Ohio are uniformly those set forth in 11 U.S.C. § 522(b)(3), which incorporates Ohio's exemption statutes.
The contingent interest created by R.C. 3105.171(B) is the fatal flaw in the Trustee's argument that the Plan assets are property of the bankruptcy estate and are not exempt. The Trustee's central contention is that the Debtor did not have an interest in the Plan assets themselves, which the Trustee concedes would be exempt. (Docket No. 35 at 3.) Instead, the Trustee argues that the Debtor had a domestic relations law claim for equitable distribution of marital assets, which was at that point sufficiently undifferentiated and inchoate that it was not specifically an interest in the Plan assets. Thus, for instance, in the Trustee's reply (Docket No. 40), he argues that the United States mischaracterizes the claim asserted by the Trustee. The Trustee "seeks a determination that the equitable claim to a portion of Plan assets is property of the estate." (Docket No. 40 at 1.) "The Trustee is not seeking the funds, only Debtor's claim." Id. But the Trustee goes on to state, in his own further elaboration of his example, precisely the problem with this sophistry. "[T]he Trustee is not seeking this Court to assign Debtor's interest in the Plan assets. Only her claim to whatever portion of marital assets, which include the Plan assets, that the state court deems appropriate to award." Id. at 3. "Debtor's equitable claim could be for a boat, a certificate of deposit, or stock depending on what the assets of the marriage happened to be." Id. at 2. Indeed it could. But to the extent such unliquidated equitable claim for distribution ultimately is for exempt assets, it does not become a claim for nonexempt assets simply by virtue of the fact that the divorce had been filed as of the date of the petition, but no QDRO had yet been entered.
The structure of 11 U.S.C. § 522(b)(3) is highly revealing of Congress' policy with respect to the paramount importance of retirement funds not coming into bankruptcy estates: Sections 522(b)(3)(A) and (b)(3)(C) stand at the same level. In other words, even if a state were to (a) require individual debtors to use the § 522(b)(3) exemptions, as Ohio does, and (b) did not include in its own state statutes an exemption for retirement funds held in tax-exempt accounts pursuant to the applicable Internal Revenue Code sections, the Bankruptcy Code would nevertheless exempt such assets. Moreover, since retirement funds exempt under I.R.C. 401, 403, 408, 408A, 414, 457, or 501(a) are also included in the so-called federal exemptions applicable in some states at the election of the debtor, see 11 U.S.C. § 522(d)(12), the ultimate lesson of the Bankruptcy Code exemption scheme is that no matter what laws a state might enact and no matter what decision a debtor might make in states where debtors may decide between state and federal exemptions, retirement funds governed by those provisions of the Internal Revenue Code will be exempt.
Therefore, even if the contingent interest created by Ohio domestic relations law exists separate and apart from the Debtor's excluded beneficial interest in the Plan account as a result of the Debtor's marital status, her designation as a beneficiary, or
The Trustee cites two cases, both from the Western District of Pennsylvania and from the same line of caselaw, in support of his position. The foundational case of the Trustee's argument is In re Burgeson, 504 B.R. 800 (Bankr. W.D. Pa. 2014). In Burgeson, many facts were similar to the facts here: a divorce proceeding had been filed but no qualified domestic relations order had been entered therein when the spouse, who was not a participant in the pension plan at issue, filed bankruptcy. The same facts also presented themselves in Urmann v. Walsh, 523 B.R. 472 (W.D. Pa. 2014). Both cases arose from a trustee's objection to exemptions claimed by debtors in ERISA plan assets. In Burgeson, the exact type of pension plan at issue was not specified, but the strong implication is that it was a traditional defined benefit pension plan. In Urmann, the plan at issue was a 401(k) plan. Urmann, 2014 WL 1491328 at *1.
Pennsylvania domestic relations law also appears to follow the same rule as Ohio's with respect to the interests that arise in marital property when a divorce is filed. See In re McCulley, 150 B.R. 358, 361 (Bankr. M.D. Pa. 1993) ("the date of entitlement to a spouse with regard to marital property is on the date the divorce is filed").
In both Burgeson and Urmann, the court held, as the Trustee would have this Court hold, that the debtor had only a claim for equitable contribution under the state's domestic relations law and that such claim was not actually an interest in pension plan assets subject to ERISA anti-alienation protections that the Bankruptcy Code would respect via 11 U.S.C. § 541(c)(2), and more important, not subject to bankruptcy exemptions available under 11 U.S.C. § 522(d)(10) or (d)(12). (Pennsylvania allows debtors to utilize the federal exemptions, and the debtors in both Burgeson and Urmann did so.)
There is one potentially notable distinction between these Pennsylvania cases and this one: in both Burgeson and Urmann, the debtor was not a beneficiary under the plan at issue.
Id. at 805. The Urmann court expressly followed the logic of Burgeson. See Urmann, 523 B.R. at 479.
In the instant case, the parties have stipulated that the Debtor in this case is the designated beneficiary of Osborne's interest in his Plan account. As such, even before the entry of a qualified domestic relations order, the Debtor here had a beneficial interest in the Plan assets as of the petition date. Moreover, such a beneficial interest was created by a domestic relations order (even if it was not a
The Court is also unconvinced by the reasoning of Burgeson and Urmann. While Burgeson and Urmann found their respective debtor's lack of beneficiary status to be an essential issue, Greer and Street did not turn on the beneficiary status of the nonparticipant spouse. They concluded, instead, that the present, contingent interests in marital assets obtained by operation of domestic relations law upon filing a divorce complaint were sufficient to be considered for exemption under applicable statutes based on the nature of each specific marital asset, not an abstract claim for distribution. The Court adopts the analysis of the two Ohio bankruptcy courts instead of that of the courts from the Western District of Pennsylvania. Even if the Debtor in this case had not already been a beneficiary of the Summa Plan, she would have nevertheless gained a contingent interest in the Plan account assets upon the filing of the divorce action, an interest this Court has already concluded is exempt under 11 U.S.C. § 522(b)(3)(C) and R.C. 2329.66(A)(10).
The Trustee appears to be aware of the difficulty posed by the exemption issue. Perhaps this is why his Complaint and his legal argument in support of his Motion make an additional extraordinary demand: that the Court enter an order "authorizing and empowering the trustee to execute a QDRO directing distribution of such funds to the estate and compelling the defendant, Todd Osborne, to join in such Qualified Domestic Relations Order." (Compl. ¶ 12.) In later briefing, the Trustee argues that this will defeat the debtor's exemption rights: "The United States argues that Debtor's exemption rights will defeat any claim the Trustee may have to a portion of the Pension Plan. However. . . the issuance of a QDRO to the Trustee avoids this issue." (Docket No. 35 at 6.) "The Trustee is asserting his interest in Debtor's equitable claim to a portion of marital assets. If successful, the Trustee will seek to liquidate this claim by having the state court issue a QDRO directly to the Trustee. Debtor will never have any interest in the Plan to which an exemption can attach." (Docket No. 40 at 5.)
Bankruptcy courts generally avoid invasions into family law matters out of consideration of court economy, judicial restraint, and deference to our state court colleagues and their established expertise in such matters. In re White, 851 F.2d 170, 173 (6th Cir. 1988) (quoting In re Mac Donald, 755 F.2d 715, 717 (9th Cir. 1985)). However, in addition to general doctrinal reasons for not intruding upon the domestic relations court process, ERISA does not authorize a QDRO to a creditor or a creditor's representative.
The Court's equitable powers end where express statutory limits begin. Under ERISA, a QDRO can only create or recognize the right of an "alternate payee." 29 U.S.C. § 1056(d)(3)(B)(i)(I). "Alternate payee" is a defined term in the same statute. "The term `alternate payee' means any spouse, former spouse, child, or other dependent
The Trustee argues that his status a trustee gives him the ability to "stand in the shoes" of the Debtor to obtain a QDRO pursuant to 11 U.S.C. § 541 and In re Dively. (Docket No. 35 at 4.) Dively determined that "the fact that a bankruptcy trustee is not specifically identified as an `alternate payee' or `beneficiary' under ERISA is of no moment," 522 B.R. at 784, because of 11 U.S.C. § 105(a) (empowering bankruptcy courts to issue any "order, process, or judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code]") and 29 U.S.C. § 1144(d), which provides that "[n]othing in [ERISA] shall be construed to alter, amend, modify, invalidate, impair, or supersede any law of the United States." Dively proceeded to hold that court authorization for the trustee to seek a QDRO was an "order, process, or judgment" under Section 105, and that ERISA did not preclude it. Id. at 784.
The Court does not find Dively persuasive on this issue. It is true that 29 U.S.C. § 1144(d) does not limit the application of 11 U.S.C. § 105(a). But that truism ignores a more fundamental point: the Court's equitable powers under Section 105(a) are inherently limited. "While endowing the court with general equitable powers, section 105 does not authorize relief inconsistent with more specific law." In re Rohnert Park Auto Parts, Inc., 113 B.R. 610, 615 (9th Cir. BAP 1990); see also In re Dues, 98 B.R. 434, 437 (Bankr N.D. Ind. 1989) ("Section 105 . . . may only be used as a basis for the court's action where other applicable law does not address the situation."). The Court cannot use its equitable powers to add a new category of persons eligible to be alternate payees under ERISA when that list is already set forth in federal statute.
The Debtor's interest in the Summa 403(b) Plan account and the assets therein by virtue of her status as a beneficiary under the Plan were excluded from property of the bankruptcy estate, by operation of 11 U.S.C. § 541(c)(2). In addition, the Debtor's contingent interest in the Plan account assets that arose by virtue of her divorce filing in Ohio state court was subject to exemption pursuant to 11 U.S.C. § 522(b)(3)(C) and R.C. 2329.66(a)(10).
The Court will enter a separate form of judgment granting summary judgment in favor of the United States and the Debtor consistent with this Memorandum Decision, granting their respective motions for summary judgment, and denying the Trustee's Motion. This decision resolves all claims asserted by the Plaintiff Trustee against Defendants the Debtor, the United States/IRS, and Osborne. The crossclaim asserted by the Debtor against Osborne is not resolved by this decision and remains pending. The Court finds that there is no just reason for delay, pursuant to Fed. R. Civ. P. 54(b) and Fed. R. Bankr. P. 7054, to enter final judgment on the Trustee's claim while the Debtor's crossclaim remains pending. Judgment on the Trustee's claims in this adversary proceeding will not be deemed entered until the separate form of judgment has been docketed by the Clerk.
