Farrey v. Sanderfoot

• Decision Date: 23 May 1991
• Docket Number: No. 90-350,90-350
• Citation: 111 S.Ct. 1825,114 L.Ed.2d 337,500 U.S. 291
• Parties: Jeanne FARREY, fka Jeanne Sanderfoot, Petitioner, v. Gerald J. SANDERFOOT
• Court: U.S. Supreme Court

500 U.S. 291

111 S.Ct. 1825

114 L.Ed.2d 337

Jeanne FARREY, fka Jeanne Sanderfoot, Petitioner,

v Gerald J. SANDERFOOT.

No. 90-350.

Argued March 25, 1991.

Decided May 23, 1991.

Syllabus

When petitioner Farrey and respondent Sanderfoot divorced, a Wisconsin court awarded each one-half of their marital estate. Among other things, the decree awarded Farrey's interest in the family home and real estate to Sanderfoot and ordered him to make payments to Farrey to equalize their net marital assets. To secure the award, the court granted Farrey a lien against Sanderfoot's real property. Sanderfoot did not pay Farrey and subsequently filed for bankruptcy, listing the marital home and real estate as exempt homestead property. The Bankruptcy Court denied his motion to avoid Farrey's lien under 11 U.S.C. § 522(f)(1)—which provides, inter alia, that a debtor "may avoid the fixing of a [judicial] lien on an interest of the debtor in property"—finding that the lien could not be avoided because it protected Farrey's pre-existing interest in the marital property. The District Court reversed, and the Court of Appeals affirmed.

Held:

1. Section 522(f)(1) requires a debtor to have possessed an interest to which a lien attached, before it attached, to avoid the fixing of a lien on that interest. The statute does not permit avoidance of any lien on a property, but instead expressly permits avoidance of "the fixing of a lien on an interest of the debtor." A fixing that takes place before the debtor acquires an interest, by definition, is not on the debtor's interest. This reading fully comports with § 522(f)'s purpose, which is to protect the debtor's exempt property, and its legislative history, which suggests that Congress primarily intended § 522(f)(1) as a device to thwart creditors who, sensing an impending bankruptcy, rush to court to obtain a judgment to defeat the debtor's exemptions. To permit lien avoidance where the debtor at no point possessed the interest without the judicial lien would allow judicial lienholders to be defrauded through the conveyance of an encumbered interest to a prospective debtor. Pp. 295-299.

2. Farrey's lien cannot be avoided under § 522(f)(1). The parties agree that, under state law, the divorce decree extinguished their joint tenancy, in which each had an undivided one-half interest, and created new interests in place of the old. Thus, her lien fixed not on Sanderfoot's pre-existing interest, but rather on the fee simple interest that he was awarded in the decree that simultaneously granted Farrey her lien. The result is the same even if the decree merely reordered the couple's pre-existing interests, since the lien would have fastened only to what had been Farrey's pre-existing interest, an interest that Sanderfoot would never have possessed without the lien already having fixed. To permit Sanderfoot to use the Bankruptcy Code to deprive Farrey of protection for her own pre-existing homestead interest would neither follow the statute's language nor serve its main goal. Pp. 299-301.

899 F.2d 598 (CA7 1990), reversed and remanded.

WHITE, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and MARSHALL, BLACKMUN, STEVENS, O'CONNOR, KENNEDY, and SOUTER, JJ., joined, and in all but the penultimate paragraph of Part III of which SCALIA, J., joined. KENNEDY, J., filed a concurring opinion, in which SOUTER, J., joined.

Brady C. Williamson, Madison, Wis., for petitioner.

Harvey G. Samson, Appleton, Wis., for respondent.

Justice WHITE delivered the opinion of the Court.

In this case we consider whether § 522(f) of the Bankruptcy Code allows a debtor to avoid the fixing of a lien on a homestead, where the lien is granted to the debtor's former spouse under a divorce decree that extinguishes all previous interests the parties had in the property, and in no event secures more than the value of the non-debtor spouse's former interest. We hold that it does not.

I

Petitioner Jeanne Farrey and respondent Gerald Sanderfoot were married on August 12, 1966. The couple eventually built a home on 27 acres of land in Hortonville, Wisconsin, where they raised their three children. On September 12, 1986, the Wisconsin Court for Outagamie County entered a bench decision granting a judgment of divorce and property division that resolved all contested issues and terminated the marriage. See Wis.Stat. § 767.37(3) (1989-1990). A written decree followed on February 5, 1987.

The decision awarded each party one-half of their $60,600.68 marital estate. This division reflected Wisconsin's statutory presumption that the marital estate "be divided equally between the parties." § 767.255. The decree granted Sanderfoot sole title to all the real estate and the family house, which was subject to a mortgage and which was valued at $104,000.00, and most of the personal property. For her share, Farrey received the remaining items of personal property and the proceeds from a court-ordered auction of the furniture from the home. The judgment also allocated the couple's liabilities. Under this preliminary calculation of assets and debts, Sanderfoot stood to receive a net award of $59,508.79, while Farrey's award would otherwise have been $1,091.90. To insure that the division of the estate was equal, the court ordered Sanderfoot to pay Farrey $29,208.44, half the difference in the value of their net assets. Sanderfoot was to pay this amount in two installments: half by January 10, 1987, and the remaining half by April 10, 1987. To secure this award, the decree provided that Farrey "shall have a lien against the real estate property of [Sanderfoot] for the total amount of money due her pursuant to this Order of the Court, i.e. $29,208.44, and the lien shall remain attached to the real estate property . . . until the total amount of money is paid in full." (App. to Pet. for Cert. 57a).

Sanderfoot never made the required payments nor complied with any other order of the state court. Instead, on May 4, 1987, he voluntarily filed for Chapter 7 bankruptcy. Sanderfoot listed the marital home and real estate on the schedule of assets with his bankruptcy petition and listed it as exempt homestead property. Exercising his option to invoke the state rather than the federal homestead exemption, 11 U.S.C. § 522(b)(2)(A), Sanderfoot claimed the property as exempt "to the amount of $40,000" under Wis.Stat § 815.20 (1989-1990).¹ He also filed a motion to avoid Farrey's lien under the provision in dispute, 11 U.S.C. § 522(f)(1), claiming that Farrey possessed a judicial lien that impaired his homestead exemption. Farrey objected to the motion, claiming that § 522(f)(1) could not divest her of her interest in the marital home.² The Bankruptcy Court denied Sanderfoot's motion, holding that the lien could not be avoided because it protected Farrey's pre-existing interest in the marital property. In re Sanderfoot, 83 B.R. 564 (ED Wis.1988). The District Court reversed, concluding that the lien was avoidable because it "is fixed on an interest of the debtor in the property." In re Sanderfoot, 92 B.R. 802 (ED Wis.1988).

A divided panel of the Court of Appeals affirmed. In re Sanderfoot, 899 F.2d 598 (CA7 1990). The court reasoned that the divorce proceeding dissolved any pre-existing interest Farrey had in the homestead and that her new interest, "created in the dissolution order and evidenced by her lien, attached to Mr. Sanderfoot's interest in the property." Id., at 602. Noting that the issue had caused a split among the Courts of Appeals, the court expressly relied on those decisions that it termed more "faithful to the plain language of section 522(f)." Ibid. (citing In re Pederson, 875 F.2d 781 (CA9 1989); Maus v. Maus, 837 F.2d 935 (CA10 1988); Boyd v. Robinson, 741 F.2d 1112, 1115 (CA8 1984) (Ross, J., dissenting)).

Judge Posner, in dissent, argued that to avoid a lien under § 522(f), a debtor must have an interest in the property at the time the court places the lien on that interest. Judge Posner concluded that because the same decree that gave the entire property to Sanderfoot simultaneously created the lien in favor of Farrey, the lien did not attach to a pre-existing interest of the husband. The dissent's conclusion followed the result, though not the rationale, of Boyd, supra, In re Borman, 886 F.2d 273 (CA10 1989), and In re Donahue, 862 F.2d 259 (CA10 1988).

We granted certiorari to resolve the conflict of authority. 495 U.S. ----, 111 S.Ct. 507, 112 L.Ed.2d 519 (1990). We now reverse the Court of Appeals' judgment and remand.

II

Section 522(f)(1) provides in relevant part:

"Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—

"(1) a judicial lien. . . ."

The provision establishes several conditions for a lien to be avoided, only one of which is at issue. See In re Hart, 50 B.R. 956, 960 (Bkrtcy Ct.Nev.1985). Farrey does not challenge the Court of Appeals' determination that her lien was a judicial lien, 899 F.2d, at 603-605, nor do we address that question here. The Court of Appeals also determined that Farrey had waived any challenge as to whether Sanderfoot was otherwise entitled to a homestead exemption under state law, id., at 603, and we agree. See Owen v. Owen, --- U.S. ----, 111 S.Ct. 1833, --- L.Ed.2d ---- (1991). The sole question presented in this case is whether § 522(f)(1) permits Sanderfoot to avoid the fixing of Farrey's lien on the property interest that he obtained in the divorce decree.

The key portion of § 522(f) states that "the debtor may avoid the fixing of a lien on an interest in . . . property." Sanderfoot, following several Courts of Appeals, suggests that this phrase means that a lien may be avoided so long as it is currently fixed on a debtor's interest....