Cowart v. White

• Decision Date: 22 June 1999
• Docket Number: No. 29S02-9906-CV-355,29S02-9906-CV-355
• Parties: William T. COWART, Appellant (Petitioner below), v. Cathy Jo (Cowart) WHITE, Appellee (Respondent below).
• Court: Indiana Supreme Court

711 N.E.2d 523

William T. COWART, Appellant (Petitioner below), v. Cathy Jo (Cowart) WHITE, Appellee (Respondent below).

No. 29S02-9906-CV-355

Supreme Court of Indiana.

June 22, 1999.

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Nancy G. Endsley, Indianapolis, Indiana, Attorney for Appellant.

Eric J. Benner, Noblesville, Indiana, Attorney for Appellee.

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ON PETITION TO TRANSFER

BOEHM, Justice.

Shortly after a dissolution decree was entered the husband filed a bankruptcy petition and was subsequently discharged. We hold that the dissolution court may enforce duties to sell and divide property imposed by the dissolution decree through contempt without violating the bankruptcy injunction. The court may also award damages based on actions taken after the husband's bankruptcy was converted to Chapter 7. Finally, some payments under the decree may be nondischargeable because they were "in the nature of maintenance or support." We remand to the trial court to determine when the contemptuous actions took place and whether certain amounts awarded in the decree were in the nature of maintenance or support.

Factual and Procedural Background

The marriage of William T. Cowart and Cathy Jo White was dissolved by decree on October 7, 1996 (the "1996 decree"). Cowart was given physical custody of the only child of the marriage and White was ordered to pay child support in the amount of $53 per week. The couple owned their marital residence and three other pieces of real estate. The 1996 decree awarded the marital residence to Cowart¹ and one of the three properties to White. The remaining two properties were ordered to be sold, with the first $35,000 of proceeds to be distributed to White and the balance divided 60% to White and 40% to Cowart. Cowart was ordered to pay past due property taxes and White's attorney fees and to reimburse White for real estate appraisal fees and the utilities and taxes she had paid during the dissolution proceeding. The 1996 decree provided that if Cowart failed to pay these amounts they would be reimbursed from his share of the proceeds of the sale of the two pieces of property.

Eight days after the 1996 decree was entered, Cowart filed in bankruptcy. His Chapter 13 petition was converted to Chapter 7 on November 5, 1996. Both White and her attorney were listed as creditors on Cowart's bankruptcy schedule but neither filed a complaint with the bankruptcy court. The record is silent on their reasoning in foregoing the opportunity to challenge Cowart's discharge of these debts. See, e.g., 11 U.S.C. § 523(a)(15) (1994 & Supp.1996). The bankruptcy court granted Cowart a discharge on February 14, 1997.

On April 9, 1997, White filed a petition in the dissolution court to modify the 1996 decree and also requested that the court find Cowart in contempt of the 1996 decree. Cowart responded with a request that the court find White in contempt. After a hearing, the trial court issued a written order (the "1997 order") denying White's motion to modify but finding Cowart in contempt "for failure to abide by the Orders of this Court and for willfully and recklessly causing the real estate in this case to fall into a state of disrepair resulting in severe economic hardship to White." To compensate White for Cowart's contempt, the court ordered that the marital residence be given to White and also entered judgment against Cowart for an additional $36,270, representing the sum of attorney fees for both the dissolution and the contempt proceeding, the unreimbursed appraisal fees from both proceedings, back taxes, and the loss in property value caused by Cowart's contemptuous acts to the extent that the loss was not compensated by transfer of the marital residence.

Cowart appealed, contending that: (1) the trial court lacked jurisdiction to modify the property settlement embodied in the 1996 decree; (2) the trial court violated the bankruptcy discharge injunction by finding Cowart in contempt for discharged obligations; (3) the trial court abused its discretion in finding Cowart in contempt; and (4) the trial court improperly awarded attorney fees. The Court of Appeals held that (1) the trial court impermissibly modified a final judgment in its contempt order; (2) Cowart's bankruptcy was effective to discharge the obligations found in the 1996 decree; and (3) the trial court improperly exercised its contempt power in attempting to enforce a money judgment. It remanded the issue of attorney fees for the contempt proceeding to the trial court. We now grant White's petition for transfer.

The trial court's sanctions for Cowart's failure to perform various obligations under the 1996 decree raise a number of different issues. If the obligation was imposed by the 1996 decree and was an obligation to pay a fixed sum of money, the first question is whether the obligation was discharged in bankruptcy. If so, that is the end of the issue. If the obligation was not discharged, as an obligation to pay money it is enforceable through execution, but not through contempt. If the obligation did not include a requirement to pay a fixed sum of money, it was a proper subject for contempt and the issues are whether contempt was supported by the facts and whether the trial court selected a proper remedy for contempt.

We conclude that some of the obligations in the 1996 decree were discharged, some were not, and some require further determination by the trial court. We also conclude that the trial court was within its discretion in holding Cowart in contempt for post-bankruptcy actions. We affirm the trial court's award of attorney fees and appraisal fee for the contempt proceedings but remand for a calculation of the damages resulting from Cowart's contempt.

I. The Effect of the Bankruptcy Discharge

Cowart argues that the trial court's contempt order violates his bankruptcy discharge injunction because it is an attempt to enforce obligations that were previously discharged. A bankruptcy discharge voids any judgment based on the personal liability of the debtor and operates as an injunction against an action to recover any discharged debt. See 11 U.S.C. § 524(a) (1994 & Supp. 1996).²

A. The Obligation to Sell Two Properties

The trial court's division of property was not affected by Cowart's bankruptcy because Cowart's ongoing obligation to sell and divide the proceeds of the sale with White was not a "debt" as defined by the bankruptcy code. See In re Peterson, 133 B.R. 508, 511 (Bankr.W.D.Mo.1991) (obligation to sell property and remit half of net sale to former wife was not "debt" under bankruptcy code); In re Marriage of Seligman, 14 Cal.App.4th 300, 18 Cal.Rptr.2d 209, 214 (1993) (court ordered division of property requiring performance rather than payment is not a "claim" as defined by the bankruptcy code). Otherwise stated, the trial court's 1996 decree awarded White a property right in the proceeds that could not be disturbed by Cowart's bankruptcy. This is a corollary of the general proposition that a discharge in bankruptcy does not divest nondebtors of their property rights. HENRY J. SOMMER & MARGARET DEE McGARITY, COLLIER FAMILY LAW AND THE BANKRUPTCY CODE ¶ 6.023 (1998). Although other obligations found in the 1996 decree may constitute debts that were dischargeable in bankruptcy, the obligation to divide the sale proceeds was not a debt discharged by Cowart's bankruptcy.

B. Cowart's Remaining Obligations under the 1996 Decree

The Bankruptcy Code explicitly excepts some of a debtor's obligations from discharge. Section 523(a)(5) provides that no discharge applies to any debt "to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child in connection with a separation agreement, divorce decree or other order of a court of record...." 11 U.S.C. § 523(a)(5) (1994 & Supp.1996); see also 6 GOLDSTEIN ET AL., COLLIER ON BANKRUPTCY ¶ 727.011 (15th ed. 1996) & 4 GOLDSTEIN ET AL., COLLIER ON BANKRUPTCY ¶ 523.111 (15th ed.1996).

Federal law governs what constitutes a nondischargeable "maintenance or support" obligation. In re Hart, 130 B.R. 817, 835 (Bankr.N.D.Ind.1991); SOMMER & McGARITY, supra, at ¶ 6.032. State courts nonetheless have concurrent jurisdiction to make that determination. 4 GOLDSTEIN, supra, at ¶ 523.03. The trial court found that "the obligations of the Petitioner herein are not dischargeable in bankruptcy" because "all obligations owed to White are in the nature of support and maintenance."

To be nondischargeable an obligation must be payable to or on behalf of a former spouse and must also be "in the nature of alimony, maintenance or support." In re Scott, 194 B.R. 375, 378 (Bankr.D.S.C. 1995). Whether the obligation is in the nature of maintenance or support is determined by the underlying reason the debtor is required to make the payment. Id. at 379. As a general proposition, if the obligation was created to provide for the daily needs of the former spouse it is in the nature of alimony, maintenance or support. 4 GOLDSTEIN, supra, at ¶ 523.116b; see also In re Calhoun, 715 F.2d 1103 (6th Cir.1983). In contrast, if the payment obligation is directly linked to the sale of identifiable property, the obligation is more likely to be part of property division and therefore dischargeable. 4 GOLDSTEIN, supra, at ¶ 523.116c. Finally, an obligation to be paid in a lump sum or over a short period of time is more likely to be considered a property settlement. Id. at ¶ 523.116e.

The trial court reasoned that "all obligations" under the 1996 decree were in the nature of maintenance or support because Cowart's failure to pay his obligations under the decree in turn affected White's ability to pay child support back to Cowart. This ground is not a proper basis for concluding that the obligations are nondischargeable. The fact that the payment by the debtor may result in the former spouse's having funds...