In re Claussen

Decision Date23 March 2007
Docket NumberAdversary No. 06-4046.,Bankruptcy No. 05-41815.
PartiesIn re Patricia M. CLAUSSEN a/k/a Patricia M. Thorson, Debtor. John S. Lovald, Trustee, Plaintiff, v. Patricia M. Claussen and Ronald Claussen, Defendants.
CourtUnited States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of South Dakota

John S. Lovald, Pierre, SD, pro se.

Clair R. Gerry, A. Thomas Pokela, Sioux Falls, SD, for Defendants.

DECISION RE: AVOIDANCE OF TRANSFER RELATED TO DIVORCE

CHARLES L. NAIL, JR., Bankruptcy Judge.

The matter before the Court is Trustee John S. Lovald's complaint against Debtor Patricia M. Claussen and her former husband, Ronald Claussen, seeking an avoidance of the transfer of certain property interests during the Claussens' divorce. This is a core proceeding under 28 U.S.C. § 157(b)(2)(H). This Decision and accompanying Order shall constitute the Court's findings and conclusions under Fed. R.Bankr.P. 7052. As set forth below, Ronald Claussen and Debtor's temporary redistribution of equity in their marital home under their unrecorded, pre-petition divorce agreement and divorce decree is subordinate to Trustee Lovald's hypothetical lien under 11 U.S.C. § 544(a)(1).

I.

Ronald W. Claussen and Patricia M. Maher, each a single person, purchased a home in Brandon, South Dakota.1 The warranty deed from the grantors stated Ronald and Patricia were taking the property as joint tenants with right of survivorship. The warranty deed was recorded December 7, 1983.

Ronald Claussen and Patricia Maher married, and Patricia apparently changed her name to Patricia M. Claussen. Ronald was a successful, independent businessman. Although Patricia was sometimes employed outside the home, Ronald's earnings were always greater than hers. Patricia's health limited her ability to work some jobs. For several years, beginning around 2000, Ronald gave Patricia $200.00 or $300.00 per month to spend at her discretion.

Ronald sought a divorce from Patricia in late July 2004. At the time, Patricia had significant credit card debt. With the aid of counsel, including a bankruptcy attorney who had been retained to file a bankruptcy petition on Patricia's behalf, the parties negotiated a division of marital assets and liabilities (the "divorce agreement"), which was incorporated into their September 26, 2005 divorce decree.2 Pertinent provisions of the divorce agreement included:

(1) Ronald would pay Patricia's bankruptcy attorney $1,409.00. Each party would pay their own divorce attorney.

(2) Each party took certain personalty, including vehicles.

(3) Ronald took the entire interest in his businesses, Ag Media Resources, Inc. and Community Advertising and Marketing Associates, Inc., the business bank account, and any debt associated with the businesses.

(4) Patricia received an Edward Jones account (not valued in the divorce agreement), two SEPP IRAs with a total value of $26,869.56, and an annuity valued at $19,962.94.

(5) Each party took individual credit card debt, and Ronald also took the 2004 federal income tax liability.

(6) The parties agreed the marital home would remain in Patricia's possession. They further agreed:

[T]he marital home has net equity of $95,454.00. [Patricia] will be awarded 30% of the net equity and [Ronald] will be awarded 70% of the next equity. [Patricia] shall purchase [Ronald's] net equity [in the marital home] in the amount of $66,812.80 at any time, but no later than October 1, 2008. [Ronald] will then execute a Quitclaim Deed to [Patricia] for said marital home. The Quitclaim Deed will not be filed until any outstanding mortgage has been paid in full. If the marital home is sold, by agreement of the parties, prior to repayment in full of any existing mortgage, the proceeds of the sale shall first be applied to the balance of the mortgage.

(7) Ronald would pay Patricia alimony of $3,00.00 per month for 48 months. Thereafter, his alimony payments to her would decrease to $1,500.00 and would be paid until Ronald turned age 67, one party died, or Patricia remarried or co-habitated with a male who was not a family member. From each monthly alimony payment, Ronald would pay $800.00 directly to the bank holding the mortgage on the marital home and the balance to Patricia. Ronald would also pay Patricia $5,000.00 within ten days of the entry of the divorce decree;

Neither the divorce decree nor the divorce agreement created a specific lien to secure one party's obligation to the other under the divorce agreement. A difficult to decipher "default" provision was set forth in paragraph number 16 of the divorce agreement.

The temporary adjustment of Patricia Claussen's and Ronald Claussen's relative interests in the marital home3 was specifically calculated to keep Patricia Claussen's share under the $30,000.00 homestead exemption permitted by state law. No quit claim or other type of deed was recorded acknowledging the temporary redistribution of the parties' equity interests. No mortgage or other encumbrance was recorded on Ronald Claussen's behalf. The divorce decree was docketed by the county clerk of court.

The home's value in the divorce agreement was based on the assessed value by the county less 7% liquidation costs. The appraised value of the marital home as of October 3, 2005 was $142,000.00.4

Patricia Claussen ("Debtor") filed a chapter 7 petition in bankruptcy on October 3, 2005. She scheduled a home (not described) worth $132,000.00 with secured claims against it totaling $106,000.00. Debtor listed Wells Fargo Home Mortgage as holding the first mortgage for $39,000.00 and her former husband Ronald Claussen as holding a second mortgage for $67,000.00. Debtor stated she intended to reaffirm both mortgage debts. No reaffirmation agreements were ever filed. Debtor's scheduled personal property included household furnishings and clothes, a small amount of cash, an annuity valued at $19,962.94, some IRAs valued at $40,369.56, and one vehicle. She declared all her assets exempt. Her scheduled unsecured debt totaled $50,670.00.

On her schedule I, Debtor stated her only income was $2,179.00 in support payments. She did not list any dependents. Her expenses on schedule J essentially equaled her income.

Chapter 7 Trustee John S. Lovald objected to Debtor's claimed exemptions in the IRAs and the annuity in particular and the homestead in general. While he did not dispute Debtor could declare a homestead exemption, he stated he intended to file an adversary proceeding to have the mortgage held by Ronald Claussen set aside. He argued the parties' divorce agreement served only to hinder Patricia's bankruptcy creditors from realizing on the equity in the marital home. If he were successful, Trustee Lovald wanted to preserve for the bankruptcy estate any equity in the homestead above Debtor's allowed homestead exemption.

Debtor filed a response disputing the trustee's legal conclusions. She essentially acknowledged she had sought a division of marital debts in the divorce so as to maximize her available exemptions in her subsequent bankruptcy. Contrary to her schedules, she stated she had not given her former husband a mortgage on the marital home.5 Instead, she said the divorce agreement divided the net equity between the parties and included a provision allowing her to purchase Ronald Claussen's share anytime before October 1, 2008. Debtor also said she would be able to obtain a mortgage and buy Ronald Claussen's interest after she had consistently received alimony for two years. She stated she needed the IRAs and annuity to supplement her Social Security income.

Several days after filing her response, Debtor amended her Statement of Financial Affairs and certain schedules. In those amendments, she stated she owned 30% of the marital home and Ronald Claussen owned 70%. She valued her interest at $26,000.00 and her ex-husband's interest at $67,000.00. She stated "[o]wnership of the property is by deed and decree of divorce." She also stated Ronald Claussen did not hold a second mortgage. She described him as a co-debtor on the home's first mortgage. Debtor's Statement of Financial Affairs, question 10, was amended to disclose her divorce on September 26, 2005. Trustee Lovald's objection to Debtor's claimed exemptions was put on hold pending resolution of the adversary proceeding he planned to file.

On May 15, 2006, Trustee Lovald commenced an adversary proceeding against Debtor and Ronald Claussen. Trustee Lovald stated there had been sufficient nonexempt equity in Debtor's homestead before the divorce agreement to allow her to pay $50,000.00 in unsecured debt. He argued Debtor's transfer of her share of equity in the marital home to Ronald Claussen in their divorce in exchange for exemptible interests in IRAs and an annuity should be avoided under 11 U.S.C. § 548. He also argued the equity transfer was not properly perfected and should be avoided under 11 U.S.C. § 544.

In her answer, Debtor again acknowledged she bargained for a division of marital property so as to maximize her allowed exemptions and in light of her limited earning capacity. Debtor stated the division of marital assets and liabilities had been negotiated at arms' length. She also argued the division of marital assets under the divorce decree did not constitute a "transfer of property." Ronald Claussen answered the trustee's complaint with some general denials and admissions.

Each party filed a pre-trial brief. A trial was held January 3, 2007. Testimony was received from each defendant and their respective divorce counsel. At the close of testimony, Trustee Lovald clarified he was seeking relief under either § 544(a)(1) or § 548(a)(1)(B).6

II.

Judicial lien creditor status. In this adversary proceeding, the question presented is the impact, if any, of 11 U.S.C. § 544(a)(1) on the temporary redistribution of equity Ronald Claussen and Debtor agreed to as part of their divorce. Under 544(a)(1), the trustee steps into the...

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5 cases
  • Doeling v. O'Neill (In re O'Neill)
    • United States
    • U.S. Bankruptcy Court — District of North Dakota
    • April 19, 2016
    ...proceeding does not immunize the transfer from a section 548 attack by the bankruptcy trustee. E.g., Lovald v. Claussen (In re Claussen), 387 B.R. 249, 257 (Bankr.D.S.D.2007) (citations omitted); Goldstein v. Lange (In re Lange), 35 B.R. 579, 583 (Bankr.E.D.Mo.1983) ; see also Gordon v. Lov......
  • Leonard v. Murphy (In re Leonard)
    • United States
    • U.S. Bankruptcy Court — District of Nebraska
    • April 8, 2016
    ...of the bankruptcy estate "and is superior to any other interest that is unperfected on the petition date." Lovald v. Claussen (In re Claussen), 387 B.R. 249, 255 (Bankr. D.S.D. 2007). The trustee receives this superior interest even if he was aware of the prior unperfected interest. § 544(a......
  • Pettie v. Brannon (In re Brannon), CASE NO. 16–54770–WLH
    • United States
    • U.S. Bankruptcy Court — Northern District of Georgia
    • April 5, 2018
    ...unrecorded equitable interest in marital property was superseded by the trustee under section 544(a) ); Lovald v. Claussen (In re Claussen), 387 B.R. 249, 256 (Bankr. D.S.D. 2007) (construing South Dakota law and finding, while it may have been enforceable between the debtor and her ex-husb......
  • Manchester v. Neundorf (In re Neundorf)
    • United States
    • U.S. Bankruptcy Court — Western District of Oklahoma
    • January 13, 2022
    ... ... powers as a bona fide purchaser for value verses the ... rights of an ex-husband claiming equitable interests created ... by a divorce decree or quit claim deed not filed of record ... have found in favor of the trustee. See e.g. In re ... Claussen , 387 B.R. 249 (Bankr. D. S.D. 2007) (holding ... that the ex-husband and debtor's redistribution of equity ... in the marital home under an unrecorded, pre-petition divorce ... agreement and divorce decree is subordinate to a ... trustee's hypothetical lien powers under § ... ...
  • Request a trial to view additional results
1 books & journal articles
  • Titling of Assets & Family Law
    • United States
    • James Publishing Practical Law Books Private Placement Life Insurance & Other Advanced Asset Protection Strategies - with Forms & Diagrams Part II. Other advanced asset protection strategies
    • April 28, 2022
    ...and void).] It will also be invalid against creditors and for bankruptcy purposes if the transfer was fraudulent. [ In re Claussen , 387 B.R. 249, (Bankr. D.SD 2007) (trustee steps into the shoes of a judicial lien holder and may avoid any transfer that is voidable); Webster v. Hope (In re ......

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