In re Brewer, Case No. 14–30709–can7
| Decision Date | 22 December 2015 |
| Docket Number | Case No. 14–30709–can7 |
| Citation | 544 B.R. 177 |
| Parties | In re: Ronald Allen Brewer and Teresa Ann Brewer, Debtors. |
| Court | U.S. Bankruptcy Court — Western District of Missouri |
Darryl K. Garner, Joplin, MO, for Debtors.
When a husband and wife own a Missouri home as exempt "tenancy by the entirety" property, but transfer the home into a spousal trust that expressly allows either spouse to unilaterally partition and sell the trust assets, does the transfer sever the tenancy and defeat the exemption? Under the circumstances of this case, the answer is yes.
The Court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 1334(a), 157(a), and 157(b)(1). Because this is a dispute to determine exemptions from the bankruptcy estate, it is a core proceeding. 28 U.S.C. § 157(b)(2)(B) ; 11 U.S.C. § 522.
This matter was submitted to the Court based on exhibits, briefs, and argument. The parties do not dispute the pertinent facts.
Ronald and Teresa Brewer are married, Missouri residents. They filed their joint Chapter 7 bankruptcy petition on December 5, 2014. Norman E. Rouse was duly appointed as Chapter 7 Trustee.
On their Schedule A, the Brewers listed ownership in a home, valued at $220,000, in Carl Junction, Missouri. They claimed the entire value of their home exempt on their Schedule C under the doctrine of tenancy by the entireties ("TBE").1 The home is encumbered by a first deed of trust in the amount of $185,531, leaving $34,469 of equity in the home. The Brewers' schedules reflect numerous creditors, the majority of which are debts owed by either Mr. or Mrs. Brewer individually. The Brewers listed one joint creditor, Freeman Hospital, in the amount of $1,567.39. The Trustee timely objected to the TBE exemption in the Brewers' Missouri home, arguing that the Brewers severed the TBE protection when they conveyed the home into a revocable trust before filing bankruptcy.
The facts regarding the trust are undisputed. Three months before filing bankruptcy, the Brewers created the BREWER TRUST DATED SEPTEMBER 10, 2014 ("BREWER TRUST"). The BREWER TRUST designates the Brewers as settlors, co-trustees, and primary beneficiaries. The same day the BREWER TRUST was created, the Brewers transferred title to their home from themselves as TBE to themselves as co-trustees of the BREWER TRUST by special warranty deed. Before the transfer, the home was undeniably TBE property under Missouri law. There was no evidence presented about why the Brewers created the BREWER TRUST or chose to transfer their home into it.2
It is also undisputed that the Brewers were attempting to avail themselves of a Missouri statute establishing a "qualified spousal trust," or QST. RSMo § 456.950. Under the version of § 456.950 in effect when the BREWER TRUST was created, TBE property transferred into a valid QST is deemed to remain TBE property, under certain conditions.3 The express terms of the BREWER TRUST will be discussed in more detail below. But the BREWER TRUST in particular contains some of the features of a QST under RSMo § 456.950. For example, the BREWER TRUST provides that either or both of the Brewers may exercise dominion and control over any and all of the trust assets, and that the trust assets pass to the survivor upon death.
Notably, however, the trust agreement also provides that each spouse "shall have the right to partition, enabling each grantor to restrict, transfer, or withdraw one-half of the assets in this trust." It is this provision that the Chapter 7 Trustee relies on in arguing that the Brewers severed the TBE when they transferred their home into the BREWER TRUST, such that he should be able to liquidate the nonexempt equity for the benefit of all the creditors of the estate, not just the single joint creditor.
The Trustee argues that the Brewers severed the TBE when they transferred their home to the BREWER TRUST because the BREWER TRUST is not a valid QST. Specifically, the Trustee argues that retaining a right to partition and withdraw one-half of the trust assets renders the BREWER TRUST ineligible for QST protection. The Trustee also argues that even if the TBE was not severed upon its transfer into the BREWER TRUST, the Brewers' right to partition is property of the bankruptcy estate and thus a right he may exercise. The Brewers counter that the BREWER TRUST is a valid QST, such that the home retained its TBE exemption notwithstanding the transfer. The Brewers also argue that the Trustee waived his right to challenge the exemption, contending that the Trustee stipulated that the BREWER TRUST is a valid QST.
Addressing the waiver argument first.
The Brewers argue that the Trustee stipulated the BREWER TRUST is a valid QST, and is thus precluded from arguing otherwise. The Court disagrees.
The Court finds as a factual matter that the Trustee did not stipulate4 that the BREWER TRUST is a valid QST. The Trustee's objection to the exemption squarely challenged whether the BREWER TRUST was a QST, and the Brewers' response to the objection acknowledges as much. At the hearing, it is true that the Trustee at one point appeared to concede that the BREWER TRUST was a QST, but later he stated he wanted to brief the issue. The Brewers did not object at that time and argue that briefing was unnecessary due to a stipulation. Rather, the record is devoid of any mention of the words agreement or stipulation, except with respect to admitting the Trustee's exhibits and agreeing to present the matter without testimony. The record, in sum, belies the Brewers' argument that the Trustee stipulated to the BREWER TRUST's validity and thus waived his ability to pursue the objection.
In any event, even if the Trustee had stipulated that the BREWER TRUST is a QST, the stipulation would not be binding on this Court. The issue of whether the BREWER TRUST meets the statutory requirements of the Missouri QST statute, RSMo § 456.950, is not a question of fact, but a question of law. Courts are bound by stipulations of the parties regarding questions of fact. Gander v. Livoti, 250 F.3d 606, 609 (8th Cir.2001) (citing Burstein v. United States, 232 F.2d 19, 23 (8th Cir.1956) ). But stipulations of law are not binding on the Court. Gander, 250 F.3d at 609 (citing Sanford's Estate v. Comm'r of IR , 308 U.S. 39, 51, 60 S.Ct. 51, 84 L.Ed. 20 (1939) ). Thus, the Court is not precluded from considering the status of the BREWER TRUST.See, e.g., Kempton v. Dugan , 224 S.W.3d 83, 86 (Mo.Ct.App.2007) (); Lehr v. Collier , 909 S.W.2d 717, 723 (Mo.Ct.App.1995) (same) (citations omitted from both).
Turning to the merits: The parties agree that Missouri residents may claim TBE property as exempt in bankruptcy cases,5 and that the burden of proof is on the Trustee. Fed. R. Bankr.P. 4003(c) ; Peoples' State Bank of Wells v. Stenzel (In re Stenzel), 301 F.3d 945, 947 (8th Cir.2002). The parties further agree about the essential nature of TBE property, which is a form of marital property ownership originally created by common law, not by statute. In re Bellingroehr, 403 B.R. 818, 820 (Bankr.W.D.Mo.2009). If the Brewers' home is exempt as TBE property, then the Chapter 7 Trustee may invade the equity only to the extent necessary to satisfy any joint creditors. In re Haines, 528 B.R. 912, 919–920 (Bankr.W.D.Mo.2015), aff'd, Strauss v. Haines, 2015 WL 5136367 (W.D.Mo. Sept. 1, 2015).
TBE is based upon the "ancient common law principal that, upon marriage, each spouse loses his or her individual identity, and the two people become one entity." Bellingroehr, 403 B.R. at 820. To create a TBE estate, the four unities—unities of interest, title, time and possession—must be present. Once created, TBE tenants have but one estate, which they hold "per my et per tout —by the moiety or half and by the whole." In re Gerling's Estate, 303 S.W.2d 915, 917 (Mo.1957) (emphasis added). Since the estate is held both by the half and the whole, neither spouse may unilaterally convey or burden the property. In re King's Estate, 572 S.W.2d 200, 211 (Mo.Ct.App.1978).
A TBE interest may, however, be severed by agreement, actual or implied, or by any conduct or course of dealing sufficient to indicate that all parties have mutually treated their interests as belonging to them in common. In re Bellingroehr, 403 B.R. at 821. When a TBE estate is severed, the result is a tenancy in common. In re Stanke, 234 B.R. 439, 442 n. 6 (Bankr.W.D.Mo.1999) (cites omitted). The effect of severance in this case would be to render the equity nonexempt, such that the Trustee could liquidate the property for the benefit of the estate.
Several bankruptcy cases have dealt with the issue of when conveyance of TBE property into a revocable trust results in a severance. In the Stanke case, Judge Venters held that the husband and wife debtors severed their TBE estate when they transferred the TBE property into two separate trusts; each trust included specific language evidencing the debtors' intent to convert their TBE property into property held as tenants in common. Stanke, 234 B.R. at 446.
By contrast, Judge Federman concluded in Bellingroehr that that transfer of TBE property into a revocable trust did not sever the TBE, when the trust provided that neither spouse could revoke the trust or transfer any assets without the consent of the other. 403 B.R. at 821. The particular trust in Bellingroehr possessed "the essential restrictions against severability and transferability as entireties property possesses," Judge Federman reasoned. Id. at 822. Judge Federman also noted that, "for all intents and purposes, the Bellingroehers are restricted in transferring their...
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...became a plaintiff.16 Mahen v. Ruhr, 240 S.W. at 166.17 Mahen v. Ruhr, 293 Mo. 500, 240 S.W. 164, 166 (Mo. 1922).18 In re Brewer, 544 B.R. 177, 181 (Bankr. W.D. Mo. 2015) (interest, title, time, and possession).19 Smith v. Thompson, 169 Mo. 553, 69 S.W. 1040, 1042 (Mo. 1902) (emphasis added......