611 B.R. 219 (Bkrtcy.E.D.Pa. 2020), 18-11012-AMC, In re LaSpina

Docket Nº:Bankruptcy 18-11012-AMC
Citation:611 B.R. 219, 68 Bankr.Ct.Dec. 66
Opinion Judge:Ashely M. Chan, United States Bankruptcy
Party Name:IN RE Joseph L. LASPINA, Debtor
Attorney:Joseph F. Claffy, Joseph F. Claffy & Associates, P.C., West Chester, PA, for Debtor.
Case Date:January 03, 2020
Court:United States Bankruptcy Courts, Third Circuit

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611 B.R. 219 (Bkrtcy.E.D.Pa. 2020)

68 Bankr.Ct.Dec. 66

IN RE Joseph L. LASPINA, Debtor

Bankruptcy No. 18-11012-AMC

United States Bankruptcy Court, E.D. Pennsylvania

January 3, 2020

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Joseph F. Claffy, Joseph F. Claffy & Associates, P.C., West Chester, PA, for Debtor.

OPINION

Ashely M. Chan, United States Bankruptcy

I. INTRODUCTION

The debtor, Joseph L. LaSpina ("Debtor"), objects to the proof of claim ("Claim") filed by his ex-wife, Cynthia L. Stewart ("Ms. Stewart"), in the amount of $91,948.18 as a priority unsecured claim pursuant to 11 U.S.C. § 507(a)(1)(A) based upon an award that Ms. Stewart received in the parties’ divorce proceedings which she characterizes as a nondischargeable domestic support obligation. Debtor argues that the underlying award actually constitutes an equitable distribution award and, therefore, the Claim should be reclassified as a general unsecured claim subject to discharge.

After consideration of the special master’s intent in fashioning the underlying award in the parties’ divorce proceedings, the Court finds that two-thirds of the Claim should be reclassified as a general unsecured claim subject to discharge, because the special master intended most of the award to serve as an equitable distribution of the parties’ marital property. However, one-third of the Claim is properly characterized as a nondischargeable, priority claim, because the special master intended part of the award to serve as a domestic support obligation. Accordingly, the Court will sustain the Debtor’s objection to the Claim, in part, and overrule it in part.

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II. FACTUAL/PROCEDURAL BACKGROUND

After the birth of their son in April 1992, the Debtor and Ms. Stewart married on July 29, 1994. Ex. C-1 p. 2 ¶¶ 1, 4. During their marriage, the Debtor owned and operated his own business, Hairworks Unlimited d/b/a LaSpina Salon and Spa ("LaSpina Salon"), which he had established prior to the marriage. Id. at p. 3 ¶ 7, p. 4 ¶ 8, p. 16 ¶ 14. For most of their marriage, Ms. Stewart worked lull-time as a licensed practical nurse ("LPN") while serving as the primary caregiver for their son, allowing the Debtor to work six days per week. Id. at p. 9 ¶ 4; Hrg. Tr. 15:17-16:13, 17:8-13, June 4, 2019 ("June 4 Tr.").

In September 2004, the Debtor moved one of the locations of LaSpina Salon to a larger facility. Ex. C-1 p. 4 ¶ 9. The Debtor invested $160,000, consisting of a $50,000 line of credit and $110,000 of marital assets and income, into renovating the new location. Id. at p. 4 ¶ 9, p. 10 n.7.

On April 6, 2005, Ms. Stewart, represented by counsel, filed a complaint in divorce in the Chester County Court of Common Pleas ("State Court") against the Debtor. Id. at p. 1, p. 2 ¶ 5. She did not file a request for alimony pendente lite1 or spousal support. June 4 Tr. 22:20-22; Hrg. Tr. 29:19-24, July 23, 2019 ("July 23 Tr."). That same month, the Debtor moved out of the parties’ five-bedroom marital residence located at 605 Dilworth Road, Downingtown, Pennsylvania ("Marital Residence"). Ex. C-1 p. 2 ¶ 2, p. 4 ¶¶ 10-11. Upon Ms. Stewart’s request, a special master, Lynn A. Snyder ("Special Master"), was appointed on May 23, 2006. Id. at p. 1.

Although the Debtor and Ms. Stewart had agreed that the Debtor would receive credit towards child support payments for every mortgage payment that he made related to the Marital Residence, the Debtor stopped paying "support" in the form of mortgage payments at some point. Id. at p. 4 ¶ 11; July 23 Tr. 13:16-18, 55:24-56:9. As a result, Ms. Stewart could not afford the mortgage payments on her own and, in August 2006, Ms. Stewart moved out of the Marital Residence. Ex. C-1 p. 4 ¶ 11. At the time that Ms. Stewart moved out, the Debtor "had support arrearages in excess of $17,000." Id. at p. 10 ¶ 7. These support arrearages most likely refer to child support, as Ms. Stewart never sought spousal support and the Debtor was only ordered

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to pay child support. July 23 Tr. 20:22-21:2, 29:19-24, 56:4-6, 59:5-6, 68:2-23.

As of January 2007, foreclosure proceedings on the Marital Residence had commenced. Ex. C-1 p. 5 ¶ 11. Subsequently, Ms. Stewart’s boyfriend, Michael Bruno ("Mr. Bruno"), who was an accountant, made an offer to purchase the Marital Residence for $360,000, which the Debtor accepted. Id. at p. 5 ¶ 12, p. 8 ¶ 3. The Debtor and Ms. Stewart realized no net proceeds from the sale. Id. at p. 5 ¶ 12. Ms. Stewart moved back into the Marital Residence one week after Mr. Bruno closed on the purchase. Id.

On September 16, 2008, the Special Master held a trial with Ms. Stewart, the Debtor, and their counsel ("Trial"). Id. at p. 1. The Trial concluded on October 2, 2008. Id. Subsequently, on December 29, 2008, the Special Master submitted a report of her findings and recommendations to the State Court ("Report"). See id.

In the section of the Report entitled "Merits of Related Claims," the Special Master noted that, at the time of the Trial, Ms. Stewart was living with Mr. Bruno, who was then her fiance, and retained primary custody of the parties’ minor son.2 Id. at p. 7 ¶¶ 27-28. Ms. Stewart was employed in two part-time nursing positions and typically worked over forty hours per week making approximately $42,000 per year.3 Id. at p. 3 ¶ 6. However, at the time of Trial, she was on temporary medical leave from one of her positions due to a diagnosis of Lyme’s Disease, but anticipated returning to work "in the not to [sic] distant future." Id. at p. 3 ¶¶ 4, 6, p. 8 ¶ 3.

The Report also reflected that the Debtor was in "good health" at the time of Trial, still owned and operated LaSpina Salon, and was residing with his own fiance. Id. at p. 3 ¶¶ 5, 7, p. 4 ¶ 9, p. 7 ¶ 28. The parties had stipulated that the Debtor earned $160,000 per year from LaSpina Salon. Id. at p. 8 ¶ 3. The Special Master also discussed the circumstances surrounding the sale of the Marital Residence in this section of the Report, as well as the fact that post-separation, Ms. Stewart had incurred approximately $35,000 in credit card debt and, separately, $120,000 in counsel fees which largely resulted from the Debtor’s refusal to produce documentation relating to secret accounts solely within his possession and control, forcing Ms. Stewart to file numerous motions to compel, requests for sanctions, and subpoenas, mostly to no avail. Id. at p. 4 ¶ 11, p. 5 ¶ 12, p. 6 ¶¶ 15, 18, 19, 22-24, 26, p. 11-12, p. 28.

Under the section of the Report entitled "Alimony," the Special Master explained "[w]ife’s request for alimony was not pursued as she is cohabiting with her fiancé . Her claim for alimony is therefore denied and dismissed." Id. at p. 28. Because Ms. Stewart chose not to pursue alimony, she did not provide the Special Master with any information about her personal expenses. Id. at p. 8 ¶ 3.

In the section of the Report entitled "Division of Property - Marital Property

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and Equitable Distribution," the Special Master weighed factors deemed relevant by 23 Pa.C.S.A. § 3502(a)4 to equitably dividing marital property, including the length of the parties’ marriage, their employment histories, Ms. Stewart’s role as the primary caregiver of their son, the parties’ earning capacities, the contribution of marital property into LaSpina Salon, Debtor’s dissipation of the value of the Marital Residence by failing to make mortgage/child support payments, Ms. Stewart’s post-separation debt, and the parties’ income disparity. See id. at p. 7-11.

In weighing these factors, the Special Master recognized that the Debtor was in a "far superior position given his income, after consideration of taxes actually paid, is over four times greater than Wife’s income." Id. at p. 9 ¶ 5. She also recognized that the "[w]ife has incurred debt of approximately $150,000 post-separation in the form of credit card debt and attorney fees. Husband is in a superior position as he retains the business which has a significant non-marital component." Id. at p. 10 ¶ 8. Furthermore, the Special Master concluded that "given the proximity of the parties’ separation to the opening of the salon, it is Husband who reaps the benefits, particularly as it appears that marital funds were used to fund the new salon." Id. at p. 10 ¶ 7.

Accordingly, under the section of the Report entitled "Division of Marital Property - Summary and Equitable Distribution of Marital Property," the Special Master determined: [t]his is a ten year [sic] marriage wherein Husband out-earns Wife by more than four times over. Husband came into the marriage with an existing business, which was significantly enhanced shortly before separation. The testimony revealed that approximately $160,000 went...

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