Colucci v. Colucci
| Decision Date | 28 March 1991 |
| Citation | 596 A.2d 1099,251 N.J.Super. 73 |
| Parties | Margaret COLUCCI, Plaintiff, v. Robert J. COLUCCI, Defendant. |
| Court | New Jersey Superior Court |
Michael K. Diamond for plaintiff (Diamond, Afflitto & Raimondi, Wayne, attorneys).
Robert C. Williams, West Orange, for defendant.
In this case, the judgment of divorce provided, among other things, for sale of the marital premises upon the wife's remarriage, with the net proceeds being divided equally between husband and wife. Sometime after the divorce, the husband conveyed his interest in the property to his wife in partial satisfaction of a bankruptcy obligation. Thereafter the wife remarried.
The novel issue raised by the wife's remarriage is whether the husband may now compel the sale of the marital premises pursuant to the divorce judgment and share in the proceeds of the sale even though he has already transferred his interest in the property to satisfy bankruptcy debts. I conclude that absent a specific exception in the deed, the conveyance of a spouse's interest in the marital home to the other spouse is a conveyance of the entire estate and extinguishes any rights and benefits the grantor may have to that property under a judgment of divorce.
The facts are as follows. Margaret and Robert Colucci were married in October 1969. About two years after their marriage the Coluccis purchased real estate known as 4 Fairmont Terrace in West Orange for $31,500. They lived together in the marital home until 1981 when, after 12 years of marriage, Robert Colucci left his wife. Margaret Colucci continued to reside in the marital home with the couple's two children. Sometime during this period Mr. Colucci was involved in a business venture which eventually failed. In June 1982, he filed a bankruptcy petition under Chapter 7 of the Bankruptcy Code. Jonathan Kohn was appointed trustee of the debtor's estate. Colucci was adjudicated a bankrupt and his debts were discharged in November 1982. In July 1983, Robert and Margaret Colucci ended their 14-year marriage in a divorce.
During the period of separation, which preceeded the divorce, the parties negotiated a property-settlement agreement. Paragraph seven of the agreement provided as follows:
The wife and children of the marriage shall remain in the marital premises until the youngest child has become emancipated, the Wife remarries or the Wife has an unrelated male permanently residing in the premises, whichever shall occur sooner at which such time the premises would then be sold with the net proceeds being divided equally between the Husband and Wife.
Until such time as the marital premises have been sold, Husband shall be responsible to pay in addition to the child support, the cost of the mortgage, tax and homeowners insurance premium on the marital premises.
The agreement acknowledged that the husband had filed a petition for personal bankruptcy. According to the husband, when the agreement was negotiated, he was under the impression that the marital home could not be used to satisfy his bankruptcy debts. It was with this understanding, he says, that he filed the bankruptcy petition and that he agreed to be responsible for mortgage, taxes and insurance payments on the property. This claim is made although Colucci listed the home as an asset in schedule B-1 of his bankruptcy petition and estimated the value of his interest in the home at $35,000. He also listed an open mortgage on the property with a balance of $25,500. In June 1983, a month prior to the divorce, Kohn filed a complaint against Robert Colucci to sell the marital premises including the interest of the debtor's spouse. The trustee's complaint indicated that the marital home had an appraised fair market value of $82,100.
In order to prevent the loss of the home and displacement of the couple's children, Margaret Colucci negotiated a purchase of Robert's interest in the home with the bankruptcy trustee. The credible evidence presented in support of the motion does not adequately establish whether the purchase price included a $7,500 waiver of the exemption to which the debtor spouse is entitled. 11 U.S.C.A. § 522(d)(1). Finally, in November 1984, Robert executed a deed conveying all his "rights, title and interest" in the property to Margaret for $100. At about the same time, Margaret paid the trustee $12,500 in exchange for the trustee's deed. In April 1990, Margaret Colucci remarried.
According to the Bankruptcy Code the estate of a debtor in bankruptcy is comprised of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C.A. § 541(a)(1). The scope of this section of the code is broad and includes all property of the debtor whether tangible or intangible. United States v. Whiting Pools, Inc., 462 U.S. 198, 205, 103 S.Ct. 2309, 2313, 76 L.Ed.2d 515 (1983). Real estate, whether wholly owned or in a tenancy by the entirety, is includable in the bankruptcy debtor's estate. Newman v. Chase, 70 N.J. 254, 262, 359 A.2d 474 (1976); Lee v. Lee, 180 N.J.Super. 90, 433 A.2d 824 (Ch.Div.1981); Napotnik v. Equibank & Parkvale Sav. Ass'n., 679 F.2d 316, 318 (3 Cir.1982); Chippenham Hosp. v. Bondurant, 716 F.2d 1057, 1058 (4 Cir.1983). Clearly, the husband's interest in the marital premises in this case was a part of the bankrupt's estate and subject to sale by the trustee to satisfy his debts.
Robert Colucci's primary argument is that the conveyance of his interest in the marital home was for an amount well below the market value and was done in order to provide continuing shelter for his children. He claims that under the separation agreement, his obligation to pay the cost of the mortgage, tax and insurance was to terminate when the property was sold. The fact that he continued to pay these items after he transferred his interest in the property is evidence that the parties intended for him to retain an interest in the property. Thus, he now seeks enforcement of that portion of the agreement which entitles him to a forced sale of the premises and an equal division of the net proceeds.
In the first instance, the husband's contention that his interest in marital property was conveyed for less than the market value is not compelling. He asserts that his interest was estimated at about $35,000 but was sold for only $12,500. However, a spouse's interest in marital real estate subject to bankruptcy has considerably less value than the same property interest would have on the open market. When the husband filed his petition for bankruptcy, title to his share of the marital home vested in the trustee. 11 U.S.C.A. § 541(a). Under the Bankruptcy Code, the trustee has a responsibility to realize the maximum profit for the debtor's estate for distribution to creditors. Commercial Credit Corp. v. Skutt, 341 F.2d 177, 181 (8 Cir.1965); De Pinto v. United States, 407 F.Supp. 5, 7 (D.Ariz.1976). However, in regard to a marital residence, "there is a consistent philosophy that flows through the Bankruptcy Code that looks to preserve the marital home and the familial benefits of dependent children." Matter of Hursa, 87 B.R. 313, 321 (Bankr.D.N.J.1988).
Thus, before a trustee sells marital property, the debtor's spouse has a right to "purchase such property at the price at which such sale is to be consummated." 11 U.S.C.A. § 363(i). Additionally, in New Jersey, there may be no partition with respect to real estate held by spouses as tenants by the entirety. Freda v. Commercial Trust Co., 118 N.J. 36, 570 A.2d 409 (1990); Newman v. Chase, supra, 70 N.J. at 260, 359 A.2d 474; Dvorken v. Barrett, 100 N.J.Super. 306, 309, 241 A.2d 841 (App.Div.1968), aff'd 53 N.J. 20, 247 A.2d 674 (1968). After a divorce a tenancy by the entirety is converted to a tenancy in common, which is subject to partition. Freda v. Commercial Trust Co., supra, 118 N.J. at 45, 570 A.2d 409; Sisco v. New Jersey Bank, 151 N.J.Super. 363, 367, 376 A.2d 1287 (Law Div.1977). However, it is within the equitable discretion of the court to deny partition or levy upon a marital residence held by tenants in common which would result in dispossessing the spouse and children of their home. Newman v. Chase, supra 70 N.J. at 266, 359 A.2d 474. This is particularly true where a spouse's interest in the marital property was fairly allocated in accordance with equitable distribution guidelines. Daeschler v. Daeschler, 214 N.J.Super. 545, 556, 520 A.2d 777 (App.Div.1986); Matter of Hursa, supra, 87 B.R. at 321.
In effect, what a creditor or purchaser acquires in marital real estate at an execution sale or from a trustee in bankruptcy is no more than the debtor spouse's life interest in the marital home. The purchaser then becomes a tenant in common with the remaining spouse for the joint lives of husband and wife. Newman v. Chase, supra 70 N.J. at 261, 359 A.2d 474; King v. Greene, 30 N.J. 395, 412, 153 A.2d 49 (1959); Silver Bay Homes v. Herrmann, 128 N.J.Super. 114, 319 A.2d 243 (App.Div.1974); Lee v. Lee, supra, 180 N.J.Super. at 94, 433 A.2d 824. After a sale, King v. Greene, supra 30 N.J. at 414, 153 A.2d 49.
The court's reasoning in the case of Lee v. Lee, supra 180 N.J.Super. at 94, 433 A.2d 824, is pertinent here. Had someone other than Margaret Colucci purchased Robert's interest, that person would have been a tenant in common with the wife and would have acquired the husband's right of survivorship in the home. In that case, clearly Robert Colucci would have been divested of all his ownership interest in the marital home and he could not later claim a right to compel a sale and share in the proceeds. There is no reason to apply a different result here simply because the...
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