Hogg v. Hogg

• Decision Date: 24 January 2003
• Citation: 816 A.2d 314
• Parties: David HOGG, Deceased, v. Pranee HOGG. Appeal of William Hogg and Mary Hogg, Substituting for David Hogg, Deceased Appellants.
• Court: Pennsylvania Superior Court

816 A.2d 314

David HOGG, Deceased, v. Pranee HOGG.

Appeal of William Hogg and Mary Hogg, Substituting for David Hogg, Deceased Appellants.

Superior Court of Pennsylvania.

Submitted October 7, 2002.

Filed January 24, 2003.

Gunnar L. Armstrong, Lititz, for appellants.

Kenneth R. Jewell, Lancaster, for appellee.

Before: STEVENS, LALLY-GREEN and BECK, JJ.

OPINION BY BECK, J.:

¶ 1 This case prompts us to consider the interplay of state domestic relations law and federal bankruptcy law in the context of postnuptial agreements. We hold that where a non-debtor spouse does not pursue her rights in the bankruptcy court, the state court distributing the marital estate may not reaffirm the debtor spouse's obligations set out in the couple's settlement agreement after those obligations have been discharged by the bankruptcy court.

¶ 2 Husband and Wife were married in 1972 and separated in 1995. After appearing before a Master, the couple entered into a property settlement agreement ("Agreement") in October of 1997.¹ In its opinion the trial court described the Agreement and the complex and lengthy events that followed its execution:

The [A]greement addressed division between the parties of the major portion of the tangible assets and other personal property of the marital estate, and allocated responsibility for unpaid income tax obligations incurred during the marriage, as well as certain commercial debts. The Agreement further provided that the marital residence and a few remaining items of personal property would be sold and that the proceeds, together with the value attributed to the previously divided marital personal property, be collectively distributed between the parties by Mr. Hogg receiving 47% of the net marital estate and Mrs. Hogg receiving the remainder [53%].

Specifically regarding the marital real estate, the postnuptial agreement provided that the property would be listed for sale, but if not under an agreement of sale by September 1, 1998, would be sold at public auction by a mutually selected auctioneer. However, as of the spring of 2001, the property had not been sold by either method and neither party, until their petitions to enforce the Agreement, filed respectively in May and June of 2001, had resorted to court involvement to obtain compliance with the Agreement. Each party blamed the other for the delay in selling the house by either method.

The complicating circumstance is that in February of 1998, Mr. Hogg filed for and on August 20, 1998 was granted, a Chapter 7 personal bankruptcy, discharging him, inter alia, from those marital obligations, including pre-separation tax liens and undisclosed, post-separation credit card debt on a joint account, as well as the contractual obligation to Pranee Hogg [Wife] created by his postnuptial Agreement just months prior to the bankruptcy filing.

After hearings the court issued orders of September 28 and October 19, 2001, establishing procedures to accomplish the sale of the former marital residence by public sale in accordance with the postnuptial agreement and addressing peripheral claims by Mr. Hogg of alleged waste committed by and rental credit owed by Pranee Hogg as well as the question of interpretation of the Agreement's language. Pursuant to the directive of those orders, the property was sold at public auction on December 8, 2001 and settlement, delayed due to Mr. Hogg's untimely death (on January 3, 2002), was held on February 1, 2002.

At settlement, the settlement agent properly collected from the selling parties' proceeds of sale, any unpaid debts which had the effect of encumbrance on the title to the real estate, as well as unpaid tax liens from income tax obligations incurred prior to separation, including portions of such joint encumbrances for which Mr. Hogg had first agreed to be responsible under the postnuptial agreement and then had discharged in bankruptcy as to himself, with the resulting legal effect that the entire amounts remain due to the lienholders by Pranee Hogg as a joint obligor as only Mr. Hogg's responsibility for, rather than the amount of any such obligation, was what the bankruptcy discharged.

Trial Court Opinion, dated 6/4/02, at 1-3.²

¶ 3 We begin by noting that the certified record before us includes few bankruptcy documents other than the order providing that Husband has been granted a discharge. We observe however that both parties and the trial court agree that Husband's debts set out in the Agreement were discharged by the Bankruptcy Court and there is no claim that anything other than the Agreement itself forms the basis for Husband's obligation to pay those debts.

¶ 4 At issue here is the proper distribution of $30,771.76, the net cash proceeds from the sale of the marital residence (the proceeds). The record establishes that most assets of the estate have been distributed pursuant to the Agreement, but that this amount, which became accessible only after the sale of the property, remains in escrow pending distribution.

¶ 5 Husband brought an action to enforce the Agreement and sought to receive his share of the proceeds pursuant to the Agreement, that is, an amount that would reflect his acquisition of 47% of the marital estate.³ Husband asserts this amount to be $19,558.84. He reaches this sum by calculating the marital estate's value in the following manner. He adds the amount of the estate Wife already received, less the debts she assumed pursuant to the Agreement, to the amount he already received. He does not subtract from that number the debts he assumed in the Agreement but which the Bankruptcy Court discharged.

¶ 6 The trial court, on the other hand, did consider those debts, although discharged in bankruptcy, that Husband was obligated to pay pursuant to the Agreement. The court granted Wife a credit for those debts (since she remained obligated to pay them and did so in order to facilitate the sale of the marital residence) and deducted the debts from Husband's share (since he had promised to pay them, but failed to do so). As a result, the trial court found that Husband was entitled only to $7,057.35.

¶ 7 The trial court held Husband responsible for his Agreement debts, notwithstanding the bankruptcy court's discharge of those debts, under the authority of 23 Pa.C.S.A. § 3323(f), the equity power of the court.⁴ Without citation to cases in support of such an application of § 3323, the trial court relied primarily on the fact that Husband himself sought to enforce the Agreement, thereby somehow reaffirming it. The court reasoned:

It is of pivotal significance that the actions bringing this matter before the court are not limited to [Wife] Pranee Hogg's petition to enforce against Mr. Hogg an obligation which had been discharged in bankruptcy, but also David Hogg's own petition to collect entitlements established for him under the parties' postnuptial agreement. His petition requesting Ms. Hogg to comply with the Agreement included not merely completion of the sale of the marital residence, but also specific performance of virtually all other obligations of Ms. Hogg under the Agreement which benefited him. Essentially, Mr. Hogg's position is that while all of his obligations under the Agreement have been discharged in bankruptcy, all of Ms. Hogg's obligations to him, even though accepted by her in consideration for those discharged reciprocal obligations, must be performed for his benefit.... Mr. Hogg's own petition to enforce the postnuptial agreement had the effect of reaffirming the entirety of the very agreement which he, in defense against Ms. Hogg's petition, sought to avoid having enforced against himself. He may not equitably request to enforce a contract, but simultaneously deny that it remains a viable agreement.

Id. at 6-7.

¶ 8 On appeal, husband complains that the trial court had no authority to "reaffirm" Husband's debts set out in the Agreement. He argues that because the debts were discharged in bankruptcy and because he did not waive bankruptcy protection, two facts explicitly acknowledged by the trial court, the federal court discharge is controlling on the state court. After a careful review of the applicable law, we conclude that Husband is correct.⁵

¶ 9 The relationship between federal bankruptcy laws that seek to protect a debtor by granting him a "fresh start" and state domestic relations laws that seek to effectuate economic justice in the division of marital property has been the subject of much criticism. See e.g., Rebecca M. Burns, Killing Them With Kindness: How Congress Imperils Women and Children in Bankruptcy Under the Façade of Protection, 76 Am Bankr. L.J. 203 (Spring 2002); Alyson F. Finkelstein, A Tug of War: State Divorce Courts Versus Federal Bankruptcy Courts Regarding Debts Resulting From Divorce, 18 Bankr. Dev. J. 169 (2001); Jeffrey Margolin, Taming the Pernicious Creature That Is § 523(A)(15) of the United States Bankruptcy Code, 8 Cardozo Women's L.J. 45 (2001).

¶ 10 Traditionally, the Bankruptcy Code has protected non-debtor spouses and children by precluding discharge of a debtor spouse's alimony and support obligations. 11 U.S.C. § 523(a)(5); Buccino v. Buccino, 397 Pa.Super. 241, 580 A.2d 13 (1990). However, obligations of a debtor spouse that emanated from provisions of property settlement agreements not directed at support or alimony were discharged as a matter of course. Margolin, supra, at 47. But in 1994, the Bankruptcy Code was amended and a new subsection was added to address those marital obligations that were not for alimony or support, i.e., debts incurred as a result of a property settlement agreement. The new provision deemed such debts non-dischargeable unless 1) the debtor could not afford to pay them or 2) discharging the debt would result in a benefit to the debtor that outweighed the detrimental consequences to the non-debtor spouse. 11 U.S.C. § 523(a)(15).

¶ 11 Although § 523(a)(15) is viewed as weak protection...