In re Brackett

• Decision Date: 06 March 2001
• Docket Number: No. 98-09497-3P7.,98-09497-3P7.
• Citation: 259 BR 768
• Parties: In re Barbara Jean BRACKETT, Debtor.
• Court: U.S. Bankruptcy Court — Middle District of Florida

259 B.R. 768 (2001)

In re Barbara Jean BRACKETT, Debtor.

No. 98-09497-3P7.

United States Bankruptcy Court, M.D. Florida, Jacksonville Division.

March 6, 2001.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Robert Altman, Palatka, FL, for trustee.

Aaron R. Wolfe, Daytona Beach, FL, for debtor.

FINDINGS OF FACT AND CONCLUSIONS OF LAW ON TRUSTEE'S OBJECTIONS TO DEBTOR'S AMENDED CLAIM OF EXEMPTIONS

GEORGE L. PROCTOR, Bankruptcy Judge.

This case is before the Court upon the Trustee's Motion to Compel Debtor to Turnover Property of the Estate and the Trustee's Objection to Debtor's Amended Claim of Exemptions for two IRA Accounts and monthly payments of $200 received by Debtor from her ex-spouse. On November 1, 2000, the Court held a hearing at which the parties presented testimonial evidence. The Court provided the parties with the opportunity to tender briefs in support of their arguments. Upon the evidence presented and the parties' submissions, the Court enters the following Findings of Fact and Conclusions of Law.

FINDINGS OF FACT

1. On November 5, 1998, Barbara Jean Brackett ("Debtor") filed a voluntary petition under Chapter 7 of the Bankruptcy Code.

2. Prior to Debtor's bankruptcy filing, Debtor and her former husband ("Morgan") filed for divorce in Orange County, Florida.

3. On June 19, 2000, Debtor and Morgan entered into a divorce agreement ("Divorce Agreement") which resulted in the entry of a Final Judgment of Dissolution of Marriage ("Final Judgment") on August 15, 2000.

4. The Divorce Agreement, which was incorporated into the Final Judgment, requires that Morgan transfer his interests in the Mutual Beacon Fund

IRA and the Gabelli Fund IRA (the "IRA Accounts") containing approximately $25,050 to Debtor. (Tr.'s Ex. 1.)

5. Additionally, the Divorce Agreement entities Debtor to collect monthly payments of $200 (the "Payments") from Morgan "to cover educational and retraining costs to continue indefinitely for life in lieu of one lump settlement at present time and to satisfy debt incurred during marriage." (Tr.'s Ex. 1.)

6. The Divorce Agreement also includes provisions which provide Debtor with medical coverage and payments for any medical expenses not covered by insurance. (Tr.'s Ex. 1.)

7. At the hearing held on November 1, 2000, Debtor testified that she received $1800 a month from Morgan and that she is not employed and needs additional support for medical purposes, personal debts, and college loan repayments.

8. The Trustee argues that the IRA Accounts and the Payments are assets of the Chapter 7 bankruptcy estate and are subject to the Trustee's turnover power under 11 U.S.C. § 542. Debtor contends that the IRA Accounts are exempt pursuant to Fla.Stat. chs. 222.201 and 222.21 and 11 U.S.C. § 522(d)(10) and that the Payments are also exempt pursuant to Fla.Stat. ch. 222.201 and 11 U.S.C. § 522(d)(10).

CONCLUSIONS OF LAW

The commencement of a bankruptcy case creates an estate which is comprised of "all legal or equitable interests of the debtor in property." 11 U.S.C. § 541(a)(1) (West 2001). Determination of whether a debtor's interest in property constitutes property of the estate is a question of federal law. "However, unless there is a strong countervailing federal interest, the actual existence of a debtor's right in property, including its nature and scope, is determined by looking at state law." In re Greer, 242 B.R. 389, 394 (Bankr.N.D.Ohio 1999) (quoting Butner v. United States, 440 U.S. 48, 54-55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979)). The parties do not dispute that the IRA Accounts and the Payments are property of the estate. See Fla.Stat. ch. 61.075(5)(a) (2000).

A debtor may seek to exempt property of the estate through federal or state law. 11 U.S.C. § 522(b) (West 2001). "An exemption is an interest that is withdrawn from the estate (and hence from the creditors) for the benefit of the debtor." Owen v. Owen, 500 U.S. 305, 308, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991). Section 522 allows debtors to elect either federal or state exemptions. However, where a state "opts out" and prohibits the availability of federal exemptions, a debtor is limited to only those exemptions available under state law. § 522(b). Florida has "opted out" of the exemption scheme provided by the Bankruptcy Code and has established its own set of exemptions that are available to debtors domiciled in Florida. Fla. Stat. ch. 222.20 (2000). In so doing, Florida has enhanced the exemption privileges ordinarily offered to debtors by the Bankruptcy Code. Consequently, a Florida debtor may exempt property that is qualified under § 522(d)(10) as well as any "pension money and retirement or profit-sharing benefits." Fla.Stat. ch. 222.21(2)(a) (2000). Debtor has claimed the IRA Accounts and the Payments as exempt pursuant to this authority.

A. Trustee's Objection to Debtor's Exemption for the IRA Accounts

The Trustee objects to Debtor's claim of exemption for the IRA Accounts and argues that the Final Judgment issued by the state court is not a qualified domestic relations order ("QDRO")¹ thereby preventing Debtor from claiming them as exempt. Where a party objects to a debtor's claim of exemption, the burden rests upon the objecting party to prove that the exemption is not properly claimed. Fed. R.Bankr.P. 4003(c). "This burden is satisfied where the objecting party introduces evidence which rebuts the prima facie effect of the claim of exemption. Such a rebuttal shifts the burden to the debtor to demonstrate that the exemption is proper." Lester v. Storey (In re Lester), 141 B.R. 157, 161 (S.D.Ohio 1991) (citations omitted).

The plain language of Fla.Stat. ch. 222.21 clearly provides that it can be used to exempt a plan qualified under §§ 401(a), 403(a), 403(b), 408 or 409 of the Internal Revenue Code. Fla.Stat. ch. 222.21(2)(a) (2000); In re Ewell, 104 B.R. 458, 460 (Bankr.M.D.Fla.1989). Where the plan belongs to an alternate payee, however, the property is exempt only if a QDRO has first been entered. Fla.Stat. ch. 222.21(2)(b) (2000). A review of the relevant case law indicates, however, that ch. 222.21(2)(b) requires a QDRO only where an ERISA-qualified plan is at issue.² In re Cason, 211 B.R. 72, 73 (Bankr. N.D.Fla.1997) ("Since this is not an ERISA-qualified plan, the entry of a QDRO . . . is unavailable, and unnecessary."); DeSantis v. DeSantis, 714 So.2d 637, 638 (Fla.Dist.Ct.App.1998) (concluding that a QDRO "related to a provision of child support, alimony, or marital property rights to a spouse, former spouse, child or other dependent of a participant in an ERISA plan.") (emphasis added); Bd. of Pension Trustees of the City Gen. Employees Pension Plan v. Vizcaino, 635 So.2d 1012, 1014 (Fla.Dist.Ct.App.1994) ("Section 222.21(2) provides merely that, while sums payable to a debtor from an ERISA-qualified plan are generally exempt from creditors' claims, they are `not exempt from the claims of an alternate payee under a qualified domestic relations order.'") (emphasis added).

It is unclear from the evidence and testimony presented whether the IRA Accounts are ERISA-qualified. Rule 4003(c) places the burden upon the Trustee to prove that the IRA Accounts are ERISA-qualified and mandate a QDRO in order for them to be exempt from the reach of creditors. "Under Bankruptcy Rule 4003(c), the burden of proof is on the party objecting to the exemption. . . . Where an issue is left in doubt by the proof so that the court would be required to speculate, the party upon whom the burden of proof ultimately rests must lose." Lester, 141 B.R. at 162 (quoting In re Blizard, 81 B.R. 431, 432 (Bankr. W.D.Ky.1988)). In the absence of any evidence presented by the Trustee that the IRA Accounts are ERISA-qualified, the Court finds that a QDRO is unnecessary. See Lester, 141 B.R. at 162 ("In the face of a reasonable claim and the absence of any evidence to the contrary, the burdened party must lose."). Accordingly, Debtor is allowed to claim the IRA Accounts as exempt.

B. Trustee's Objection to Debtor's Exemption for the Payments

11 U.S.C. § 522(d)(10)(D) provides an exemption for a debtor's right to receive "alimony, support or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor." 11 U.S.C. § 522(d)(10)(D) (West 2001). However, where a property settlement is at issue, "neither state law nor § 522(d)(10) provides authorization for the debtor to claim such property interest as exempt." In re Ellertson, 252 B.R. 831, 832 (Bankr. S.D.Fla.2000). The Trustee has raised an objection to Debtor's claim of exemption for the Payments arguing that Debtor has not shown that the money is necessary for her support. The Trustee contends that the Payments are therefore a property settlement and belong to Debtor's bankruptcy estate.

Debtor, however, asserts that the Payments are exempt under § 522(d)(10)(D) and Fla.Stat. ch. 222.201. She claims that the characterization of the Payments as "Direct Financial Support" rather than as "Division of Assets" in the Divorce Agreement leads to the conclusion that the award is alimony. The labels used in a contract are not dispositive of the nature of the obligation and courts are not bound by the terminology of the parties to the agreement. Freeman v. Freeman (In re Freeman), 165 B.R. 307, 312 (Bankr. S.D.Fla.1994) (quoting In re Froman, 43 B.R. 609 (Bankr.S.D.Fla.1984)). Rather, courts must examine the true substance of the obligation. Accordingly, despite the agreement of the parties, the Court must independently determine whether the Payments constitute alimony or a property settlement. Tarbox v. Tarbox (In re Tarbox), 234 B.R. 832, 836 (Bankr.S.D.Fla. 1999); Freeman, 165 B.R. at 312.

This Court has held that when determining whether an award constitutes alimony or a property settlement under § 522(d)(10)(D), the facts must be "examined in accordance with § 523(a)(5) dischargeability principles." In re...