In re Bennett

• Decision Date: 13 December 1994
• Docket Number: Bankruptcy No. 94-10039 DWS. Adv. No. 94-0269.
• Citation: 175 BR 181
• Parties: In re Howard W. BENNETT, Debtor. Nancy L. BENNETT, Plaintiff, v. Howard W. BENNETT, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

175 B.R. 181 (1994)

In re Howard W. BENNETT, Debtor.

Nancy L. BENNETT, Plaintiff, v. Howard W. BENNETT, Defendant.

Bankruptcy No. 94-10039 DWS. Adv. No. 94-0269.

United States Bankruptcy Court, E.D. Pennsylvania.

December 13, 1994.

Jeffrey A. Fournier, Bristol, PA, for debtor/defendant.

Michael P. Kelly, Langhorne, PA, for plaintiff.

Michael Kaliner, Chapter 7 Trustee, Fairless Hills, PA.

Joseph Minni, U.S. Trustee, Philadelphia, PA.

OPINION

DIANE WEISS SIGMUND, Bankruptcy Judge.

Before the Court is Nancy L. Bennett's (the "Plaintiff") Complaint to Determine Dischargeability of Debt Pursuant to 11 U.S.C. §§ 727(b) and 523(a)(5) (the "Complaint").¹ Plaintiff is the Debtor's estranged wife, having initiated a divorce proceeding in state court prior to the Debtor's bankruptcy filing. Plaintiff seeks a determination from this Court that her claim to the Debtor's pension is not dischargeable under (1) 11 U.S.C. § 727(b) because it is not a pre-petition debt or alternatively (2) 11 U.S.C. § 523(a)(5) because it is a debt in the nature of alimony to, maintenance for, or support of a spouse. We agree with Plaintiff that her interest in the Debtor's pension is not dischargeable but not for the reasons she has posited. Rather, we conclude that Plaintiff's marital interest in the Debtor's pension plan is not a claim against the Debtor and therefore not subject to discharge in bankruptcy.

BACKGROUND.

The Plaintiff and Debtor were married on October 7, 1961. Stipulation ¶ 1. Beginning on August 25, 1955, and throughout the marriage, Debtor was and remains employed by Hill Refrigeration, Inc. as a factory production worker. Stipulation ¶ 3. The Debtor is currently 57 years old. Stipulation ¶ 5. The Debtor has rights in and to a pension plan from his employer (the "Pension Plan"). Under the Pension Plan, Debtor is eligible to receive benefits when he retires at the normal age of 65 or anytime now if he elects early retirement. Exhibit H. Plaintiff was a homemaker and is employed part time by Trenton Window Cleaning. Plaintiff has no rights in or to a pension plan from Trenton Window Cleaning. Stipulation ¶¶ 4, 22.

Plaintiff and Debtor separated November 3, 1988 and have maintained separate households since that time. Stipulation ¶ 7. On November 29, 1989, Plaintiff filed a no-fault divorce complaint with the Court of Common Pleas of Bucks County, Pennsylvania (the "State Court"). Stipulation ¶ 8, Exhibit A. At that time and now, the Plaintiff and Debtor had no written agreement as to alimony, property division and other financial matters. Stipulation ¶ 9. On December 26, 1990, Plaintiff filed a complaint for support, alimony, costs, attorneys fees and other claims in State Court. Stipulation ¶ 10 and Exhibit B. By order dated July 2, 1993, the State Court approved the grounds for divorce and determined the divorce action "to be ready for the resolution of all pending claims for alimony, equitable distribution of property, counsel fees and expenses." Stipulation ¶ 11, Exhibit C. Pursuant to an order dated August 27, 1993, the State Court awarded Plaintiff alimony pendente lite in the amount of $93.50 per week effective May 22, 1993. Stipulation, Exhibit D. No final divorce decree or equitable distribution of property order has been entered by the State Court.

On January 3, 1994, the Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code listing Plaintiff in his schedules and statements as an unsecured creditor. The Debtor amended his schedules and statements to include the Pension Plan which he then claimed as exempt under § 522(d)(10). Stipulation ¶ 16. Other than a mobile home which Plaintiff and the Debtor agree has de minimis equity and which they both have abandoned, the Debtor's chapter 7 estate has no assets. Thus, the focus of their dispute is the Pension Plan.

DISCUSSION.

I.

Code § 727 provides for the debtor's Chapter 7 discharge of, with specified exceptions, all debts that arose pre-petition. Thus, before considering Plaintiff's contention that a specified exception (ie. § 523(a)(5)) or the post-petition nature of her claim controls the outcome of this litigation, we must ask whether the Plaintiff's equitable distribution right to the Pension Plan, which but for the bankruptcy would have resulted in the nondebtor obtaining sole title to some of the marital property, is a debt. The equitable distribution rights of the dependent nondebtor if determined not to be vested property could be treated as an unsecured property settlement claim in the bankruptcy. Sommer and McGarrity, Collier Family Law and the Bankruptcy Code ¶ 6.023 at 6-9 (1994).

A debt means a liability on a claim. Bankruptcy Code § 101(12). The Bankruptcy Code defines "claim" in § 101(5) to mean:

(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or

(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured;

11 U.S.C. § 101(5). Cases interpreting § 101(5) have uniformly held that the definition of "claim" is to be interpreted broadly. See, e.g., Torwico Electronics, Inc. v. State of New Jersey, Dept. of Env. Protection, 8 F.3d 146, 148 (3d Cir.1993). However broad, the definition of claim is not without limits.

In order to determine whether a Plaintiff holds a claim, we need to examine applicable state law to understand the nature and extent of Plaintiff's interest in the Pension Plan. See Grogan v. Garner, 498 U.S. 279, 283, 111 S.Ct. 654, 657, 112 L.Ed.2d 755 (1991); Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979). We begin with 23 Pa.C.S.A. § 3501(a) which defines what property constitutes marital property in the event of a divorce. "Marital property" shall mean "all property acquired by either party during the marriage," with certain exceptions which are not relevant here. Further, all real and personal property acquired by either party during a marriage is presumed to be marital property regardless of how title to the property is actually designated. 23 Pa.C.S.A. § 3501(b). DiFlorido v. DiFlorido, 459 Pa. 641, 331 A.2d 174 (1975).

Cases interpreting this general rule specifically hold that pension plans are marital property. See Berrington v. Berrington, 409 Pa.Super. 355, 598 A.2d 31 (1991), aff'd, 534 Pa. 393, 633 A.2d 589 (1993); Zollars v. Zollars, 397 Pa.Super. 204, 579 A.2d 1328 (1990), appeal denied, 527 Pa. 603, 589 A.2d 693 (1991); Flynn v. Flynn, 341 Pa.Super. 76, 491 A.2d 156 (1985). The Debtor conceded as much in his brief. Debtor's Brief at 8-9.

Also under Pennsylvania law, in an action for divorce, the court shall, upon the request of the parties, "equitably divide, distribute or assign" marital property. 23 Pa.S.C.A. § 3502. Here, the State Court determined, pursuant to its July 2, 1993 order, that the marital property was ready for equitable distribution. However, no order of distribution or agreement had been concluded at the time of the bankruptcy filing.

We do not believe that Plaintiff's right to seek equitable distribution of the Pension Plan gives her a claim. By initiating the divorce proceeding, Plaintiff did not obtain a right to monetary payments from the Debtor with respect to the Pension Plan. While she and Debtor could have entered into an agreement whereby Debtor would have agreed to make certain payment to her in satisfaction of her interest in the Pension Plan, that did not happen here. What Plaintiff has is the right to secure a court order determining the extent of her interest in the Pension Plan which when secured will under applicable law relating to pension plans be a basis to require the pension plan administrators of the Pension Plan to pay her directly. In Wisniewski v. Piasecki (In re Piasecki), 171 B.R. 49 (N.D.Ohio 1994), the court reasoned likewise in finding that an ex-spouse's independent ownership rights under her husband's pension plan had not created a debtor and creditor relationship between them. As stated by the court, "Without Defendant's election to pay Plaintiff in lieu of taking under the pension plan, there is no liability on a claim. The payment obligation is strictly between Plaintiff and the GMC pension plan administrator." Id. at 52.

The courts have been generally in agreement that equitable distribution rights in pension plans established by court order or agreement prior to bankruptcy are property interests of the non-debtor former spouse rather than claims dischargeable in bankruptcy. See, e.g., Bush v. Taylor, 912 F.2d 989, 993-94 (8th Cir.1990); Benich v. Benich (In re Benich), 811 F.2d 943 (5th Cir.1987); In re Chandler, 805 F.2d 555 (5th Cir.1986); Teichman v. Teichman (In re Teichman), 774 F.2d 1395, 1398 (9th Cir.1985); Resare v. Resare, 154 B.R. 399, 401 (D.R.I.1993);² Long v. Donahue (In re Long), 148 B.R. 904 (Bankr.W.D.Mo.1992); Adamo v. Ledvinka (In re Ledvinka), 144 B.R. 188, 191 (Bankr. M.D.Ga.1992); Seligman v. Seligman, 14 Cal.App. 4th 300, 18 Cal.Rptr.2d 209 (1993).

Several of these cases are particularly instructive. In Long, the parties' decree of dissolution which effected the divorce also divided the debtor's pensions between the parties. Because bankruptcy intervened before a qualified domestic relations order ("QDRO") was issued which would give the ex-spouse her enforceable interest in debtor's ERISA-qualified plan, the debtor contended that his ex-spouse's interest amounted to an unperfected judgment lien created by the divorce decree and was dischargeable as a debt arising from a property settlement. The court found otherwise, reasoning that the decree of dissolution gave the ex-spouse a right to obtain the QDRO and transfer legal...