Donahue, In re, 86-2308

CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)
Citation862 F.2d 259
Docket NumberNo. 86-2308,86-2308
Parties, 18 Bankr.Ct.Dec. 980 In re Gary Raymond DONAHUE, Debtor. Linda K. (Donahue) PARKER, Appellant, v. Gary Raymond DONAHUE, Appellee, James T. Wiglesworth, Amicus Curiae.
Decision Date01 December 1988

Page 259

862 F.2d 259
57 USLW 2375, 18 Bankr.Ct.Dec. 980
In re Gary Raymond DONAHUE, Debtor.
Linda K. (Donahue) PARKER, Appellant,
v.
Gary Raymond DONAHUE, Appellee,
James T. Wiglesworth, Amicus Curiae.
No. 86-2308.
United States Court of Appeals,
Tenth Circuit.
Dec. 1, 1988.

Page 260

F. Stannard Lentz, F. Stannard Lentz, P.A., Mission, Kan., for appellant.

Joseph N. Vader, Law Offices of Joseph N. Vader, Olathe, Kan., for appellee.

Melinda Swanson Whitman, Blackwell Sanders Matheny Weary & Lombardi, Overland Park, Kan., on the briefs for amicus curiae, James T. Wiglesworth.

Before ANDERSON, BALDOCK and EBEL, Circuit Judges.

STEPHEN H. ANDERSON, Circuit Judge.

Linda Parker appeals from a district court order affirming a bankruptcy court ruling that Parker, the former spouse of debtor/appellee Gary R. Donahue, was an unsecured creditor of Donahue and that her unsecured claim was properly discharged. 62 B.R. 607. The dispute in this case centers around the terms of a divorce decree pursuant to which Donahue was awarded a certain piece of property of their marriage, but "subject to" a monetary judgment awarded to Parker. Subsequent to the divorce Donahue filed bankruptcy and sought to discharge his obligation to Parker under the terms of the divorce decree. We must determine whether Parker is an unsecured creditor whose claim was properly discharged. For the reasons set forth below we reverse the judgment of the district court and hold that Parker was a secured creditor whose claim on the marital asset in question could not be discharged.

BACKGROUND

The parties do not dispute the basic facts of this case, which we essentially adopt from the district court opinion. Parker and Donahue were divorced on August 11, 1982 in Johnson County, Kansas. The divorce decree provided in pertinent part as follows:

"E. Judgment against the defendant [Donahue] in the amount of $43,650, payable on February 15, 1983, or upon the remarriage of the defendant, the sale of the property, or a conveyance or mortgage of the property, whichever should occur first; judgment shall bear interest at the judgment rate of interest when the same is due and subject to execution."

R.Vol. I at Tab 2. It further awarded to Donahue:

"A. Real property [the 'Property'] legally described as follows, subject to any indebtedness thereon and to the judgment to plaintiff [Parker] in the amount of $43,650:

The Southwest 1/4 of Section 27, Township 17, Range 25, Miami County, Kansas."

Id. The decree also specifically stated, "The plaintiff [Parker] has earned sufficient income to support herself and voluntarily waives her right to alimony." Id. Parker did nothing further with the divorce decree prior to Donahue's bankruptcy petition was filed. More specifically, she did not attempt to file an attested copy of the decree in Miami County, where the Property is located, until after Donahue filed for bankruptcy. 1

Parker testified before the bankruptcy court that she had made "numerous" requests for payment from Donahue of the amount due her under the divorce decree. R.Vol. III at 12. She then testified as follows:

Page 261

"Q. Did you ever seek an order from the Johnson County District Court to allow you to foreclose or execute on that?

"A. [by Parker] Yes.

"Q. And what happened as a result of that?

"A. He filed bankruptcy."

Id.

Donahue's voluntary Chapter 7 bankruptcy petition was filed on November 7, 1984. He claimed the Property was exempt under the Kansas homestead laws. Parker was listed as an unsecured creditor in the amount of $48,243.21. James T. Wiglesworth, Parker's attorney in the divorce proceeding, was also listed as an unsecured creditor in the amount of $500.00, representing attorney's fees Donahue was obligated to pay pursuant to the divorce decree. 2 The parties do not contest on appeal the status of the $500.00 claim for attorney's fees. The only other creditor listed in Donahue's petition was Estol Keltner, described in the petition as a holder of a "contract for deed" on the Property.

Parker filed a proof of claim in Donahue's bankruptcy proceeding, asserting that she was a secured creditor in the amount of $43,650.00 by virtue of the divorce decree, and an unsecured creditor in the amount of $500 because of Wiglesworth's attorney's fees which she had paid. Donahue subsequently filed a motion to determine the status of her claim, asking the court to either find Parker's claim unsecured or, upon a finding that her claim was secured, permit him to file an application to avoid a lien under 11 U.S.C. Sec. 522(f), (g) and (h). After two hearings before the bankruptcy court on the matter, the bankruptcy court held that Parker's claim was unsecured at the time of Donahue's bankruptcy petition because she "failed to perfect the lien interest in the Miami County real property as required by K.S.A. 60-2202." R.Vol. I at Tab 2. 3 The district court affirmed, relying on K.S.A. 60-2202, stating:

"The ... statute is clear. Appellant has failed to comply with the terms of the statute in that the Johnson County journal entry was never recorded in Miami County prior to appellee's filing of a petition in bankruptcy. Therefore the lien cannot be imposed on the real estate in that county."

R.Vol. I at Tab 11. Parker appeals that ruling.

She argues that the divorce decree created a lien in her favor against the Property, and that such a lien is distinguishable from a judicial lien contemplated by section 60-2202. 4 The filing of the divorce decree in Miami County would only have served the purpose of perfecting "her already acquired lien interest and would have protected that interest from the claims of third parties ... [but it] was unnecessary to protect Parker's interest as against Donahue."

Page 262

Brief of Appellant at 5. Wiglesworth also characterizes Parker's interest in the Property as an "equitable lien." Reply Brief of Amicus Curiae at 6. 5

Donahue argues that his debt to Parker "is clearly a money judgment ... dischargeable in bankruptcy" and that Parker was correctly deemed an unsecured creditor by virtue of her failure to perfect her judgment lien by filing it in Miami County pursuant to section 60-2202.

DISCUSSION

Under 11 U.S.C. Sec. 522(c)(1), a debtor's homestead property is "not liable ... for any debt of the debtor" except for those debts specified in certain sections, including section 523(a)(5). That section excepts from discharge 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 property settlement agreement...." 11 U.S.C. Sec. 523(a)(5). "Significantly, property settlements are not included in the section 523(a) exceptions to discharge, and courts generally have held that unsecured debts representing property settlements are dischargeable in bankruptcy." Maus v. Maus, 837 F.2d 935, 938 (10th Cir.1988); see also Hoivik-Olson v. Hoivik (In re Hoivik), 79 B.R. 401, 404 (Bankr.W.D.Wis.1987); Williams v. Williams (In re Williams), 38 B.R. 224, 225-26 (Bankr.N.D.Okla.1984). The central issue in this case, as in many others, is whether the $43,650 obligation to Parker is simply an "unsecured debt[ ] representing [a] property settlement[ ]" or whether it is a secured debt which is not dischargeable in bankruptcy.

We note at the outset, as have others before us, that courts have some difficulty in defining precisely the interest of an ex-spouse arising out of a property settlement made during a divorce proceeding. See generally Maus, 837 F.2d at 939 ("Many courts have struggled to find theories under which a lien to enforce a property settlement survives bankruptcy."); In re Sanderfoot, 83 B.R. 564 (Bankr.E.D.Wis.1988) (surveying the various theories courts employ and the somewhat inconsistent results). Typically, this issue arises, as in Maus, in the context of a motion to avoid a lien arguably created in a divorce proceeding. While we do not reach, in this case, the question of avoidability of any lien, the initial analysis undertaken by courts in lien avoidance cases to determine what kind of "lien" or interest is created by a divorce decree is relevant to our case.

A number of theories and variations thereon are employed. See, e.g., Maus, 837 F.2d at 938 (if a lien was created by award

Page 263

of money judgment in a divorce decree, it was an avoidable "judicial lien as defined in 11 U.S.C. Sec. 101(27)."); Pederson v. Stedman (In re Pederson), 78 B.R. 264, 266-67 (Bankr. 9th Cir.1987) (divorce decree created "a valid equitable lien under Washington law" which was an avoidable "judicial lien" under 11 U.S.C. Sec. 522(f)(1)); Boyd v. Robinson (In re Boyd), 741 F.2d 1112, 1113-14 (8th Cir.1984) (lien created in divorce proceeding was not avoidable because it did not attach to an interest of the debtor spouse "but rather protects a pre-existing interest of ... [the creditor spouse] in the homestead that was created under Minnesota law prior to the marriage dissolution."); Duncan v. Sczepanski (In re Duncan), 85 B.R. 80 (W.D.Wis.1988) (lien created in a divorce decree was an avoidable "judicial lien" under 11 U.S.C. Sec. 522(f)(1)); In re Sanderfoot, 83 B.R. at 568 ("The lien did not attach to the debtor's interest, and it is accordingly not avoidable."); In re Shands, 57 B.R. 49 (Bankr.D.S.C.1985) (lien arising from divorce decree was essentially a nonavoidable security interest, not a judicial lien); Hart v. Hart (In re Hart), 50 B.R. 956, 961 (Bankr.D.Nev.1985) (property settlement and divorce decree created an equitable lien "more in the nature of a purchase money obligation" which was not avoidable); Wicks v. Wicks (In re Wicks), 26 B.R. 769, 771-72 (Bankr.D.Minn.1982) (lien arising out of divorce decree was "the result of a consensual voluntary transfer ... [and] is a security interest as defined under 11 U.S.C. Section 101(37)" and cannot be avoided), aff'd. on...

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