Thomas P. Agresti, Judge United States Bankruptcy Court
Presently before the Court for determination, is the allocation of the marital property as between the Debtor, Rowena Wagner ("Wife"), and her husband Bernard Wagner ("Husband"), who is also a bankruptcy debtor in his own separate case filed at Case No. 10-19934-TPA. This Opinion will also address any remaining issues still pending in the adversary proceeding of Wagner v. Wagner, Adv. No. 19-1001-TPA as the two matters are inextricably intertwined and were tried together. Now that trial has concluded, all post trial filings are complete, the Parties have been granted a divorce, and the major asset held by the Parties has recently been liquidated, this matter is ripe for decision.
The Court finds that it has "related to" jurisdiction over this matter because the determination of the allocation of marital property will have a direct impact on the extent of the property of the estate in both Wife's and Husband's cases. See, 28 U.S.C. § 1334(a), In re Topfer, 587 B.R. 622, 628 (Bankr. M.D. Pa. 2018) (bankruptcy court had related to jurisdiction over equitable distribution matter because it could affect debtor's case by determining the extent of his property interests, citing In re Resorts International, Inc., 372 F.3d 154 (3rd Cir. 2004)).
As to whether the marital property allocation process constitutes a "core" proceeding, the answer to that is less clear.
The Parties were married on July 14, 1994, in Virginia.
The above-referenced deadline passed with no progress in Husband's Divorce Action, and a subsequent attempt at mediation having failed. In the meantime, Husband filed his own bankruptcy case on January 16, 2019. Eventually, in April of 2019, a trial on the marital property allocation matter was scheduled by the Court for April 24, 2019. A few days before the scheduled trial, Husband attempted to have Husband's Divorce Action dismissed in an obvious effort to thwart this Court's ability to make a marital property allocation, apparently based on the premise that the Court would be unable to do so if there was no divorce action pending in state court. Wife quickly countered by filing her own divorce action in state court on April 15, 2019. See, Wagner v. Wagner, No. FD 2019-1385 ("Wife's Divorce Action"). Husband was served with a copy of the complaint in that case on April 16, 2019.
Both Husband's Divorce Action and Wife's Divorce Action are open and pending. The Court was recently informed by way of a Status Report filed by Wife's attorney at Doc. No. 301 that both divorce cases pending in Crawford County, PA, were assigned to Senior Judge H. William White. On December 2, 2019, Judge White consolidated those cases, bifurcated them as between the divorce claims and the claims for equitable distribution, and entered a decree of divorce dissolving the marital relationship.
At the time of trial in this Court, it was learned that Wife holds a Masters Degree earned during the marriage and has been employed for about seven years as a teacher by the Crawford Central School District. She earns a gross salary of approximately $4,500 per month and a net, after payroll deductions, of approximately $3,200.
Husband is 75 years old, significantly older than Wife. He has been residing alone at the Farm since the date of separation. He receives Social Security income of $1,194 each month and also receives some income from a dog breeding business which has been ongoing for an extensive period of time, extending back before the date of separation. Husband had also been receiving rental income from some acreage of the Farm that he leased out beginning in 2017 and continuing through this year, as well as some gas royalties. The Farm was recently sold as part of the bankruptcy cases and no further such rent or royalties will be forthcoming. Husband continues to reside at the Farm following the sale, the buyer having agreed to carve out the actual residence itself and some surrounding acreage to lease back to Husband for 20 years on what obviously involves extremely favorable terms.
Additional details concerning the Parties will be discussed as necessary in the remainder of this Opinion.
Since what the Court will be doing here is tantamount to the equitable distribution process under the law of divorce, the Court will look to the applicable law of Pennsylvania in that regard for guidance in fashioning a fair allocation of the marital property of the Parties.
In an action for divorce or annulment, the Court must first determine what is marital property, and then apply the relevant factors for equitable distribution. Smith v. Smith 749 A.2d 921 (Pa Super 2000). "Marital property" is defined generally in 23 Pa.C.S.A. § 3501(a) as all property acquired by either party during the marriage, and the increase in value during the marriage of certain non-marital property, with a number of exceptions. All real and personal property acquired by either party during the marriage is presumed to be marital property, regardless whether the title is held individually or by the parties in some form of co-ownership. 23 Pa.C.S.A. § 3501(b).
Once the universe of marital property has been determined, the Court's task under Pennsylvania law is to "equitably divide, distribute or assign, in-kind or otherwise, the marital property between the parties without regard to marital misconduct in such percentages and in such manner as the court deems just after considering all relevant factors." 23 Pa. C.S.A. § 3502(a). The statute goes on to give a non-exclusive, non-exhaustive list of factors that may be considered. Before turning to a discussion of the marital property involved in this case and an allocation thereof, the Court will make a detour to
The two key witnesses at the trial of this matter were the Parties themselves. Their testimony agreed on many relevant points, but where they disagreed, and where there is no other documentary or testimonial evidence of record to help the Court determine what actually occurred, the Court is necessarily faced with making an assessment of the credibility of the Parties. In that regard, the Court will state bluntly that it found Wife to be generally a more credible witness than Husband. That conclusion is based not only on the trial testimony itself, but from the Court's observations of the Parties occurring throughout this particular proceeding, as well as in other matters involving the Parties in their ongoing bankruptcies. See, e.g., Liteky v. U.S., 510 U.S. 540, 551, 114 S.Ct. 1147, 127 L.Ed.2d 474 (1994) (judge's knowledge and the opinion it produced are properly and necessarily acquired in the course of proceedings, and are sometimes, as in a bench trial, necessary to the completion of the judge's task).
Of particular note in this respect is the striking difference in the demeanor of the Parties in matters that have come before the Court for resolution. Wife has for the most part been forthright and cooperative, whereas Husband has largely been evasive, obstructive, and anxious to cause delay. While some of this can no doubt be attributed in part to the personalities of the two individuals, the Court cannot help but conclude that much can also best be explained by Husband acting like someone with something to hide, someone with an obstructive attitude or like someone who does not believe the rules apply to him. Moreover, based on the actions and conduct of Husband, before this Court and as documented in the state court proceedings, his credibility regarding material events to which he testified in the matter currently at issue, must be viewed through the prism of the obvious animosity and bitterness he holds toward Wife and their marital separation. While it appears Wife took a somewhat restrained approach toward the proceedings taking place in state court, and in large part to the current matter, Husband's posture throughout has been extremely contentious, filled with acrimony and erecting roadblocks wherever possible to thwart Wife's attempts at obtaining a fair, reasonable and expeditious distribution of marital assets.
It will not be necessary here to exhaustively catalog all of the instances of conduct by Husband that have caused the Court to reach its opinion, but a sampling may be helpful. One incident involved a 2014 Cadillac Escalade motor vehicle owned jointly by the Parties, and on which Galaxy Federal Credit Union ("Galaxy") held a lien. Shortly after Wife's case was filed Galaxy moved for relief from stay in an effort to obtain authorization to repossess the vehicle. Wife, who had been the principal driver of the vehicle, did not oppose the requested relief, but Husband did.
Another notable example of Husband's disruptive behavior involved attempts to sell the Farm, which everyone understood to be the major asset of both Parties, and in which all interested Parties recognized would need to be sold in light of the Parties' marital breakup. Wife began that process on April 22, 2018, by filing a motion to employ an appraiser to conduct an appraisal of the Farm. That request was granted on May 2, 2018, but at a hearing held on May 30, 2018, Wife's attorney informed the Court that the appraiser had not yet been able to obtain Husband's consent to access the Farm for purposes of the appraisal.
At a July 25, 2018 hearing, Husband's attorney informed the Court that Husband would like to continue living in the house after a sale by subdividing that portion of the property from the rest of the Farm. The attorney informed the Court that she had advised Husband several times that he would need to initiate a subdivision process if that is what he wanted to do. At a continued hearing held on August 16, 2018, it was reiterated that Husband would like to subdivide the Farm, but nothing was presented to show that he had actually taken any steps to attempt to do so. The Court at that point gave the Parties a deadline to reach a settlement or the matter would be referred to mediation.
On October 17, 2018, Wife filed a Status Report which reported that an offer had been made on one piece of the Farm which was thought to be reasonable, but went on to note:
See, Doc. No. 129. Then, on November 15, 2018, Wife filed a motion seeking to have a status conference scheduled to discuss the difficulties with selling the Farm, including the fears of the realtors "which has paralyzed efforts to sell the property." See, Doc. No. 132. That motion was denied as moot because the Court issued an Order to Show Cause ("OTSC") against Husband on November 20, 2018, following a phone conference with all counsel on November 19th, noting that it was very disappointed with Husband's allegedly obstructive behavior related to attempts to sell the Farm. That OTSC was eventually vacated, but an Order was issued on December 13, 2018, directing the Farm to be immediately listed and directing Husband to cooperate in its sale, Doc. No. 139. There was thus a nearly 8-month delay in getting the Farm sale process started and implemented in earnest, for which the blame lies primarily with Husband. Of course, as with his alleged conduct related to the Cadillac Escalade, Husband vociferously denied he did anything to hamper the realtor's ability to sell the Farm or the surveyor's ability to complete a survey.
Another example of Husband's disruptive conduct relates to efforts to mediate the Parties' dispute. The Court issued an Order on January 8, 2019, referring the matter to mediation and naming a well-respected local attorney as mediator. A subsequent conflict check by the attorney revealed that another member of the prospective mediator's firm had briefly represented Husband in an unrelated matter. The Court did not believe this would rise to the level of an actual or impermissible conflict, and was prepared to allow the mediation to proceed under the direction of the designated attorney however Husband objected (though, ironically, not Wife, who one may have assumed would be the party with the stronger basis to object), and as a result a different mediator had to be located, delaying the process by several weeks.
In addition to the above, other incidents of apparent attempts to frustrate court process could be mentioned including Husband's attempt to withdraw his pending state court divorce action on the eve of trial in an effort to derail the property distribution evidentiary hearing (discussed previously in this Opinion), and his penchant for refusing to cooperate with his own attorneys and not taking their advice, resulting in multiple instances of attorneys seeking, and obtaining, leave to withdraw from representing him (see, e.g., Doc. No. 217).
The Court cannot simply ignore all of Husband's behavior in this regard. It definitely has had a negative impact on the Court's perception of Husband's overall credibility when it comes to disputed issues of fact.
There are six categories of assets that make up the marital property of the Parties in this matter:
With the exception of the Wife's pension, there are disputes of various sorts related to each of these categories of assets that need resolved. As for the Wife's pension, there was no dispute that it is marital property, and that its value for purposes of an allocation is $84,238.
The first dispute to be resolved affects the assets identified in categories (1), (4), and (5) in the above list, i.e., the Farm itself, farm equipment and animals, and income related to the Farm. These three categories need to be considered together because they all relate to the farming operation that was conducted on the Farm following its purchase by Husband and Wife on March 9, 2006 as tenants by the entireties.
Husband testified that the Parties had entered an agreement prior to either of the bankruptcy filings pursuant to which the Farm was being operated as a partnership, with Husband a 90% partner and Wife a 10% partner. Based on this purported agreement, Husband contends that the allocation of all marital property related to the farming operation should be made based on this 90/10 split. Husband did not produce any written partnership agreement to that effect, but did point to filed tax returns that reflected such a partnership arrangement. Husband's Exhibit 3 is a 2006 federal tax form 1065, "U.S. Return of Partnership Income," for an entity identified as "Wagner Acres," with a principal business activity of "farming" and an address shown as 179 North Franklin St., Cochranton, PA, the address of the Farm. That return indicates that the business started on March 10, 2006, the day after the Farm was purchased by the Parties. An attached Schedule K-1 does indeed show Husband as a 90% partner and Wife as a 10% partner.
Wife denied knowing anything about the purported partnership arrangement and testified that she did not carefully review tax documents for herself before signing them, relying instead on Husband and the person who was hired to prepare the forms. The tax preparer, Linda Dailey, testified at trial that she did prepare partnership returns for the Farm for the years 2006 through 2016 and all were with the same arrangement as shown in the 2006 form. When the Parties separated she told them she could no longer prepare the tax returns. She thought that Wife was aware of the partnership arrangement, but she acknowledged that she never saw a partnership agreement supporting the arrangement. She also acknowledged that the 2006 return admitted as Exhibit 3 (the only one admitted as an Exhibit at trial) was not signed by the Parties, which indicated to her that she would have prepared the form and then given such unsigned return to the Parties for them to sign later and file on their own.
Husband strenuously argued the existence of the alleged partnership agreement, but he has not explained why the existence of such a partnership agreement would result in the exclusion of the Farm and the related assets from being considered marital property for purposes of an equitable allocation, or why it would dictate the terms of a property allocation. It is, after all, well recognized that the partnership
While Husband has not advanced a legal argument as to why the alleged partnership should affect the character of the assets in question, the Court itself has considered whether any of the exceptions to the broad marital property definition set forth in 23 Pa. C.S.A. § 3501(a) might apply here.
Perhaps it could be argued that the alleged partnership agreement was a "valid agreement" that the Parties made during their marriage that falls within the scope of this exception. The problem with that argument, however, is that Husband only contended that the partnership agreement related to an allocation of profits from the farming operation during the Parties' marriage. He did not claim that part of the agreement was also to exclude the property used in the farming property from being considered marital property in the event of a divorce, or that it established a distribution allocation of the property upon the Parties' divorce. Therefore, even assuming the existence of a partnership agreement as alleged by Husband, that does not mean the assets related to the farming operation would be excluded from marital property under Section 3501(a)(2), or removed from an equitable allocation upon the termination of the marriage.
The only other exception identified in Section 3501(a) that could conceivably apply here appears to be the one providing that marital property does not include "(1) Property acquired prior to marriage or property acquired in exchange for property acquired prior to the marriage." 23 Pa. C.S.A. § 3501(a)(1).
The value of the Farm itself is best set by the sale thereof for $330,000 during this bankruptcy. The Chapter 12 Trustee in Husband's case, who handled the sale, filed a Report of Sale, Doc. No. 266, indicating that the net proceeds of this sale, which she is holding in escrow pending further order of Court, are $307,907.55 subject to the liens of secured creditors — totaling $138,742 — which were transferred to the sale proceeds. After those secured creditors, anticipated capital gains tax and Trustee fees are paid (approximately $13,385 based on 5% of applicable distributions), the net liquidated value of the real property will be approximately $155,330.
The value of the animals and equipment used in the farming operation is more difficult to determine. At the time of separation the animals consisted of two "show cows," nine or ten heifers, and two horses.
As can be seen, the evidence as to valuation of the farm animals, and the amount of proceeds that Husband has received for their sale, is far from ideal. The Court blames the failure of good evidence primarily on the Husband, who had exclusive possession of the animals following separation and apparently sold all or almost all of them, but who either could not or would not tell the Court how much he had received for them.
Based on the record before it, the Court will credit Wife's testimony as to the value of the two show cows and heifers and assign a value to them of $5,000 for one and $2,500 for the other, for a total of $7,500. As noted, no evidence was presented by either side as to the value of the heifers or the horses. As such, the Court has no basis to assign any value as to them, though clearly Husband sold some of them and received some amount for them. For purposes of the marital property valuation, the value of the farm animals is therefore set at $7,500.
The evidence presented as to farm equipment centered around three items that Husband sold following the separation and a tractor that he still retains. Wife testified that she saw Husband sell the three items and that she never received any of the sale proceeds. Husband acknowledged that such a sale had taken place and he produced a receipt showing the price he had received was $1,200. He also testified to having sold an International tractor for $3,500 following the date of separation. As for the tractor still in his possession, a Mahindra model, Husband initially testified that he did not know how much it was worth, but later on cross examination he said it had a value of about $30,000. Approximately $10,000 is still owed on the tractor. As such, the Court finds the tractor has a marital property value of $20,000. The total value of farm equipment found to be marital property is therefore $24,700.
The last item for consideration in this group of assets is income Husband has received related to the Farm and farming operations since the date of separation. One form of income is rent received for a portion of the Farm for the years 2017, 2018 and 2019. This rental income was, respectively, $8,250, $9,075, and $9,982, for a total of $27,307.
A third potential item of income related to the Farm is for "puppy sales." Wife testified that between the time they bought the Farm in 2006 and when she departed in 2016 the Parties sold about 60 puppies per year, at a charge of between $700 to 800 per puppy. Such sales would result in a gross income of approximately $45,000 per year related to puppy sales. No evidence was provided as to support any expenses incurred in connection with the puppy sales. Wife did provide evidence to show that Husband continued to regularly advertise puppies for sale following the separation. Furthermore, she suspects he has sold numerous puppies since the separation but admits she does not know how many or how much he may have received for them. Husband admitted he has sold "dogs" since the separation, but did not know how many he has sold, or how much he has received, aside from saying that the individual sale prices for the puppies were anywhere between $50 and $700.
The Court is reluctant to accept Husband's account of the value issue in light of the credibility issues previously mentioned. However, Wife's inability to provide any credible testimony beyond the foregoing as to any monies received on the puppy sales requires the Court to find in favor of Husband regarding this aspect of property distribution between the Parties.
While Husband apparently earned income from puppy sales since the separation, based on the record before it the Court cannot find such income to be marital property for purposes of the allocation. No evidence was presented to show such income was derived from operation of the Farm. Unlike the rental and royalty income discussed above which were directly related to the Farm itself, income from the puppy sales, whatever it may have been, again, based on the record before the Court, must be found to be predominantly attributable to the efforts of Husband rather than derived from marital property. Since no credible evidence was presented as to the value of any dogs being used for breeding — or even the timing of their acquisition — or the puppies themselves, no value can be included for purposes of finding such as marital property subject to distribution.
If some credible evidence addressing the circumstances of the dog breeding and sales as noted above, and of the value of the dogs that were allegedly marital property, was available to attribute to the "puppy sales," the Court would be in a position to at least consider classifying that income from such sales as being derived from the Farm and thus make it part of the marital property distribution. No credible evidence in this regard was presented. In the absence of such value any income so derived can only be attributable to Husband's efforts. Nothing in the record supports the value of the dogs/puppies pre-separation.
A final issue related to this group of assets is whether their value should be reduced to reflect expenses Husband has incurred in maintaining the Farm since the date of separation. The Court finds that they should not be so reduced for two main reasons. First, while Husband repeatedly contended at trial that he had put
The next group of assets to be considered is the non-farming personal property the Parties owned (other than jewelry). Wife left the marital residence with little more than a few bags of her clothing and was subsequently unable to recover any additional such personal property on the date set aside by the state court for her to return to the residence for that purpose because none of the items she had been permitted to take could be located by her except for two iPads. The Court can only assume that the bulk of the Parties' personal property remains at the residence and in Husband's possession. No evidence was presented by either side at trial as to inventory or value this personal property. Wife testified at trial that she would be satisfied to be awarded the minimal personal marital property currently in her possession, plus the refrigerator, stove, washer, dryer, side table dresser from her mother, and the dishes from her mother, with Husband being awarded all other personal property. Husband did not oppose this request, when given an opportunity to do so. Wife's request appears to be a very reasonable proposal to the Court under the circumstances.
The last category of marital assets to consider is jewelry — a subject on which there was a wide divergence in the testimony of the Parties. Husband testified that prior to and during the marriage he had purchased numerous expensive items of jewelry for Wife. He produced appraisals done in 2007 for four such items — 2 rings, a pendant, and a necklace — and testified without objection that in addition
Wife testified that the four specific items that were the subject of the 2007 appraisals were purchased for her by Husband, but she denied having any knowledge about any other expensive jewelry items having been purchased for her by him, testifying that the only other jewelry she ever had was of the "costume jewelry" variety. She acknowledged having had the two rings when she left the marital residence, but denied having possession of the pendant, necklace, or any other item of expensive jewelry, or knowing where they are. When asked why she had not taken those two items with her when she left Wife answered that she only wore them rarely and only took the rings because she wore them daily. Wife said she had not been aware of the 2007 appraisals until she learned of them in the divorce litigation. Shortly before the trial she obtained appraisals of the two rings in her possession, and those appraisals show a value of $1,639 for one and $1,890 for the other. See, Exhibits CR-101 and CR-102.
To begin with, the Court does not find Husband's testimony of an additional $50,000 in jewelry purchases during the course of the marriage to be credible. In addition to general overall credibility issues previously noted there are two specific reasons for this conclusion. First, Husband presented only his testimony on that point; he provided no documentary or photographic evidence or corroborative testimony of the existence of the purported additional items of jewelry.
Regardless of the number of items of jewelry and their respective values, there are several possible scenarios to explain
In the circumstances presented, the Court finds that the best way to address the jewelry question is to allow Wife to retain the two rings as part of her in-kind personal property allocation, while recognizing that if the other two missing items ever turn up, at the marital residence or elsewhere, they will be treated as the property of Husband. The Court notes that, although not determining a specific value as to these items, if the appraisals are to be believed, the value of the two rings is somewhere between $3,529 and $12,000, depending on which appraisals are accepted. Since Wife is only receiving minimal other personal property as a result of this allocation, it strikes the Court as fair and equitable to also allow her to retain the rings.
To sum up, the "universe" of marital property that is to be subject to allocation is $303,450 summarized as follows:
With the property subject to allocation now defined, the Court can turn to the actual process of allocation. As was discussed above, Pennsylvania law provides guidance in that regard and it provides a non-exclusive list of factors that the Court will consider. See, 23 Pa.C.S.A. § 3502(a). The overall goal in this process is to "effectuate economic justice between parties." Smith v. Smith, 439 Pa.Super. 283, 653 A.2d 1259, 1264 (1995). Set forth below is a list of the statutory factors, followed by the Court's comments and findings as to each and how it applies under the facts of this case.
The Parties were married in 1994 and separated in 2016. This length suggests that their financial lives had become substantially
The Husband was previously married for 28 years which resulted in three children. The record is not entirely clear whether that marriage ended in death or divorce, but either way it was so long ago as to be of little relevance here for purposes of the property allocation. There was no evidence of any prior marriage of Wife.
Husband is 75 years old and he reported no significant health issues. Husband's primary source of income is approximately $1200 per month from Social Security. Given his age, it is unlikely Husband will engage in any "outside" employment in the future. He does receive additional income from "puppy sales," though the amount is unclear, and he should be able to continue this income stream because he will continue to reside at the marital residence even though the Farm was recently sold. That is because Husband worked out an agreement with the buyer whereby he was able to remain in place following the closing by leasing a portion of the Farm from the buyer for a period of up to twenty years, with Husband also able to terminate that lease early at any time upon 30 days written notice. The portion subject to this lease includes the former marital home, a barn, and 2.5 acres of land. The monthly rent will be $300 during the entire term of the lease. Although no evidence as to the "value" of this lease was provided at trial (the lease had not yet been created), the Court concludes that it is a substantial benefit to Husband. The Court takes judicial notice that the most recent mortgage/rent housing expense figure for Crawford County, Pa. as published by the U.S. Department of Justice for bankruptcy means test purposes is $660. Husband has thus secured his housing needs for the next twenty years for a figure less than half that amount, and is protected against any inflationary increases.
Wife's age was not specifically provided at trial, but based on all the testimony clearly she is substantially younger than Husband. Wife reported no significant health issues. Her sole source of income is the salary from her teaching job, which is shown on her Schedules as being approximately $4,500 per month gross, with $3,200 take home after deductions.
There was some indication that Wife obtained a masters degree during the marriage that may have increased her earning power as a teacher, but there was no evidence as to whether or how Husband may have contributed in that regard so this factor does not apply.
Both Parties are in similar circumstances in that they have steady sources of income that should allow them to maintain a moderate standard of living. There was no evidence presented that would indicate
The Parties' sources of income were discussed above. Wife also testified that she receives $600 per month in Social Security benefits for each of the two minor children of the marriage who are in her custody. There was no explanation as to why these payments are being received, but the Court will presume that they are used for the benefit of the children and do not effectively add to Wife's income.
The Court also notes that Wife received an inheritance of property upon the death of her grandmother several years prior to the separation, consisting of a parcel of land in the Philippines with 3 small houses located on it. This inheritance is not marital property, but Husband argued that Wife would be able to receive an income for rental of the property. Wife countered by testifying that family members were residing in the houses, were not paying any rent, and that she had no intention of charging any rent. Based on some photographs that were admitted into evidence, the Court concludes that the houses are in very poor condition and likely of small value, if any. It therefore finds that any prospective income that Wife might derive from the houses is negligible.
Medical insurance was not raised at trial, but the Court presumes that Husband is covered by Medicare given his age, and that Wife has coverage through her employment.
There was no indication in the evidence presented that either Party "contributed" or "dissipated" with respect to the marital property to such a degree out of the ordinary that it should be recognized in an allocation of the property.
The Court finds that it makes sense to allocate the entirety of Wife's pension to Wife, and to account for that by adjusting the relative allocation of the remaining marital property. There are a couple of reasons for this approach. Most importantly, given the disparity in ages between the Parties, it is questionable how much value Husband would actually obtain by being assigned a portion of the pension, which will likely not begin making any payout for a number of years into the future. Secondarily, the Court also believes it will be easier to leave the pension "as is" rather than add the additional complication (including cost) of dividing a portion of it. The value of the pension as of the date of separation is exactly known, so setting it aside for Wife presents no difficult problem and fairly allocating Husband's share from other liquid assets is more practical without negatively impacting Husband.
The other marital property to be set apart for each party is the marital personal property. The Court is unable to place a value on it due to the lack of evidence, and in fact has no firm grasp on the overall scope of such personal property. In these circumstances it seems equitable to the
There was little, if any, direct evidence as to standard of living presented at trial. From what the Court was able to glean, the Parties do not appear to have lived an extravagant lifestyle above their means, notwithstanding that both are currently in bankruptcy. Husband will be able to continue residing in the same location on very favorable terms. The circumstances as to Wife's current residence is unknown other than that she reports a monthly rental or homeowner expense of $700 on her Schedules.
This has already been discussed in connection with some of the other factors noted above.
The Chapter 12 Trustee reports that there will be significant tax liability associated with the recent sale of the Farm. She was provided with an estimate of $60,000 for such taxes, and that has already been factored into the anticipated net amount of $155,330 that will be available to the Parties from the sale proceeds. Once the Parties separated and began the divorce process, it was almost inevitable that the Farm would need to be sold because neither party, individually, appears to have the wherewithal to retain it. It is unfortunate that this large tax liability had to be incurred, but the Court does not find that this factor tips the equities of an allocation in either direction.
The only expense of this nature was with respect to the Farm that was recently sold. That expense has already been incurred, shared equally and is factored into the net value of the sale proceeds.
This factor tilts in favor of Wife in that she is the custodian of two minor children born of the marriage. The two children, both sons, were shown as being 12 and 16 years old when Wife's bankruptcy was filed, which means they are now 14 and 18. It will thus be at least several more years before both are likely gone and on their own.
Having reviewed and considered the statutory factors, the Court must now decide on an equitable allocation of the marital property. There are no "bright line" rules to direct the Court in this determination. Instead, as one court recently explained:
Hess v. Hess, 212 A.3d 520, 523-24 (Pa. Super 2019) (citations omitted).
After summing all of the relevant factors up, the Court concludes that, while there is a fairly close balance, there should be a slight advantage given to Wife in the allocation of the marital property. There are three principal reasons for this conclusion.
First, no evidence was presented as to custody being an issue. Furthermore, the fact that Wife has custody of the two children imposes an extra burden on her. In the recent state court divorce proceedings as reflected in the Status Report referenced on p. 5 supra, Judge White refers to a custody issue but says he does not address
Husband's Social Security income is assured, and the 20-year lease on the former marital residence has virtually guaranteed his future housing needs. While Wife currently has a teaching job, that job is not assured and if she were to lose the job it is unclear what prospects she would have to secure another teaching position within a reasonable distance. Third, the disparity in age between the Parties is such that Wife can reasonably be expected to live longer than Husband. The Court therefore finds that the marital property (aside from personal property) will be allocated 55% to Wife and 45% to Husband.
As previously determined, the total value of the marital property to be thus allocated is $303,450, which means Wife is to receive $166,898 and Husband to receive $136,552. Wife will fully retain her pension. When that value ($84,238) is deducted, it reduces Wife's share of the remaining liquid assets to $82,660.
That is not the end of the matter, however, since several more adjustments need to be made to the final distribution of liquid assets. The value of the farm animals ($7,500) must come off Husband's share since he sold them and retained the proceeds. Similarly, the $4,700 in sale proceeds for the farm equipment that Husband received must be credited against his share of the liquid assets. Husband will retain the Mahindra tractor, so the value of that item ($20,000) will also come off his share. When those adjustments are made, it means Husband is to receive $110,584 of the remaining assets. The rent and royalty income from the real property since the date of separation must also be accounted for. Husband has already received the 2017 rent ($8,250), the 2018 rent ($9,075), and the net gas royalties ($4,375), so the total of those ($21,700) must also be credited against his share of the remaining liquid assets, reducing it to $82,652.
Finally, the 2019 rent of $9,982 was paid to Attorney Gary Skiba, former attorney of Husband. Of that amount, the Court previously directed the release of $1,200 to be paid to the mediator on behalf of Wife with respect to the failed mediation. The remaining $8,782 in 2019 rent is still being held by Attorney Skiba. The $1,200 amount must be credited against Wife's share, reducing it to $81,460.
As identified previously, the only liquid assets to be distributed are the approximately $155,330 in Farm sale proceeds being held by the Chapter 12 Trustee and the remaining $8,782 in 2019 rent proceeds being held by Attorney Skiba. The Court will direct Attorney Skiba to pay the remaining rent proceeds he holds in escrow in that amount to the Chapter 12 Trustee
An appropriate Order follows.
Attachment
Preliminary Distribution of Farm Sale Proceeds
Gross Proceeds $332,664.76
LESS: Closing Costs $24,757.21
PNC Lien $31,208.44
Trustee Fees (5% of $276,700) $13,835 (est.)
Capital Gains Tax $60,000 (est.)
Galaxy FCU Lien $47,533.58
Net Proceeds to Debtors $155,3301 (est.)
Marital Property Summary (other than in-kind personal property)
Farm Sale $155,330 (est.)
Wife's Pension $84,238
Farm Animals $7,500
Farm Equipment $24,700
Rent & Royalties from Farm $22,900
Remaining Rent to be Applied $8,782
Total Monies for Distribution $303,450 (est.).)
Marital Property Distribution other than in-kind Personal Property (before atty. fee deductions)
Wife Husband
Source Amount Source Amount
Farm Sale $81,460 Farm Sale $73,870
Pension $84,2382 Rent $8,782
Mediation fee advance Prior sale of farm
from Rental Proceeds equipment plus tractor $24,7002
$1,2002 Previously Rec'd
Rent and Royalties $21,7002
Farm Animals $7,5002
Total (55%) $166,898 Total (45%) $136,552
(1) Personal marital property unrelated to the farming operation is allocated inkind, with Wife to receive all such personal property currently in her possession (including two rings), plus the refrigerator, stove, washer, dryer, side table dresser and dishes from her mother, and Husband to receive all other such personal property.
(2) If not already done, Atty. Gary Sldba shall immediately pay over to the Chapter 12 Trustee the balance of rental payments in his possession, i.e., $8,782.
(3) The remaining marital property, with a value estimated to be $303,450, is allocated 55% to Wife and 45% to Husband, meaning Wife's share of the remaining marital property is valued at $166,898 and Husband's share at $136,552.
(4) The allocation of the remaining marital property under Paragraph 3, reflecting the adjustments as noted in the Memorandum Opinion, shall be accomplished in the following manner;
(5) The Court has attempted to set forth specific payments to be made to the Parties from the funds being held by the Trustee based on the best information available to it, but realizes the possibility of an error in the figures used due to possible transfers and payments made since filing of the Trustee's Report of Sale at Doc. No. 266. Therefore, with respect to the figures set forth in Paragraph 4(d),
(6) The Parties and their attorneys, as well as the Chapter 12 Trustee and Attorney Skiba, shall act promptly and in good faith to effect the transfers as provided in this Order, and in particular Husband shall act reasonably to allow Wife or her designee to have access to the Farm property for the purpose of retrieving the personal property that belongs to her pursuant to Paragraph 1 of this Order.
(7) The Chapter 12 Trustee shall file a
(8) The award herein is without prejudice to either Party filing a suitable petition for attorneys fees
(9) The Court retains jurisdiction over this matter to resolve any dispute that may arise in carrying out the terms of this Order.
Case Administrator to serve:
Kenneth Steinberg, Esq.
John Nagurney, Esq.
Debtors
Gary Skiba, Esq
Tina Fryling, Esq.
Michael Antkowiak, Esq.
1149 Liberty Street, Suite 3
Franklin, PA 16323
Senior Judge H. William White
Court of Common Pleas
Crawford County Judicial Center
359 E. Center Street
Meadville, PA 16335
If the Court were to adopt these positions, however, it would be contrary to the finding that the Farm is purely marital property and should be treated as such despite the alleged partnership agreement favoring Husband on a 90-10 basis. The Court would thus be obligated to revisit that ruling, which could negatively impact Wife in various ways. For instance, as to the real estate tax issue, if the Court were to hold Husband solely responsible for post-separation amounts of those taxes it would also have to reconsider its rejection of Husband's argument that he should be entitled to sole credit for expenses incurred for the maintenance of the Farm since the separation. It is also questionable whether the evidentiary record establishes a "pre" versus "post" separation allocation with sufficient precision to even allow such an approach.
As to the capital gains tax issue, Wife was certainly aware at the time of trial that the Farm was being held in a partnership form, that it was going to be sold as part of the bankruptcy process, and that there would be some tax consequence as the result of such sale. She did not provide any evidence at trial to show that such tax consequence would be worse for her than if the Farm were being held in a tenancy by the entireties, nor has she cited any legal authority to that effect in any of her post-trial filings. All she has offered in that regard is speculation and concern that she might be negatively impacted because Husband chose to hold the Farm as a partnership. Such unsupported speculation is not a sufficient basis for this Court to consider capital gains tax implications as a factor in the property allocation. Unfortunately, as has been noted elsewhere in this Opinion, this is not an isolated instance within the case. The Court is disappointed in both sides for failing to provide a more thorough record either through stipulation or actual evidence via testimony or otherwise at the trial.
