In re Debolt

Decision Date23 December 1994
Docket NumberBankruptcy No. 93-23768 JKF. Adv. No. 94-2002,93-2552.
Citation177 BR 31
PartiesIn re Hughey L. DEBOLT, Debtor. Hughey L. DEBOLT, Plaintiff, v. COMERICA BANK, Ford Motor Company Pension Fund, Defendants. Hughey L. DEBOLT, Plaintiff, v. Mary L. DEBOLT, Defendant.
CourtU.S. Bankruptcy Court — Western District of Pennsylvania

Edward A. Olds, Pittsburgh, PA, for Hughey L. Debolt.

Henry W. Kishman, Vermilion, OH, for Mary L. Debolt.

Eric A. Schaffer, Pittsburgh, PA, and Timothy R. Greiner, Morristown, NJ, for Comerica Bank and Ford Motor Co. Pension Fund.

MEMORANDUM OPINION

JUDITH K. FITZGERALD, Bankruptcy Judge.

In these consolidated adversary actions, Hughey L. Debolt, a chapter 13 debtor (hereafter "Debtor"), seeks a determination that certain obligations pursuant to orders of the Ohio state court in his divorce proceeding created debts dischargeable in this bankruptcy.

At Adversary 93-2552, Debtor contends that Mary L. Debolt, his ex-wife, possesses a dischargeable claim against his bankruptcy estate by virtue of qualified domestic relations orders entered pursuant to an Ohio state court divorce decree. Debtor seeks to avoid an alleged judgment lien created by the orders against his property interests. Mrs. Debolt moves for summary judgment on the basis that the portion of the pension awarded to her is not a claim against Debtor's property, but is her sole and separate property.

At Adversary 94-2002, Debtor seeks preliminary and permanent injunctive relief against the pension plan trustee and requests that all current and future pension benefits be relinquished to his estate. He also contends that Comerica Bank, the pension trustee, and Ford-UAW Retirement Plan,2 the plan administrator, (hereafter collectively "Pension Trustee") violated the automatic stay by continuing to distribute pension funds to Mrs. Debolt after the filing of the bankruptcy petition. Debtor seeks to hold the Pension Trustee in contempt with respect to the distributions to Mrs. Debolt. The Pension Trustee filed a motion to dismiss this adversary on the grounds that (1) its actions do not violate the stay and (2) Mrs. Debolt's interest does not constitute a claim against the bankruptcy estate but is her sole and separate property.

Debtor concedes that his support obligation is nondischargeable. He asserts, however, that payment of support from his interest in the pension plan violates the stay. He also contends that the award of an interest in the pension to Mrs. Debolt is a dischargeable property settlement.

Debtor filed a motion for summary judgment applicable in both adversaries relying on the terms of the orders of the Ohio state court and the pension plan.3

Three issues are before this court for decision: (1) whether Ohio or Pennsylvania state property law determines Mrs. Debolt's pension interest, (2) whether the approximate 50 percent pension interest awarded to Mrs. Debolt by the state court constitutes her sole and separate property or a claim against Debtor's property, and (3) whether payment of support to Mrs. Debolt from Debtor's portion of the pension is in violation of the automatic stay.4

On April 7, 1956, Hughey and Mary Debolt were married in Pennsylvania. The couple resided in Loraine, Ohio, where Debtor was employed by Ford Motor Company and participated in the company's Retirement Plan. The plan is governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq.

The couple was divorced pursuant to a decree entered on March 30, 1993, by the Erie County, Ohio, Court of Common Pleas. The decree included a division of property and a support award. Both items were memorialized in two Qualified Domestic Relations Orders (hereafter "QDROs"). Pursuant to the first QDRO, Mrs. Debolt was awarded approximately a 50 percent interest in Debtor's pension. The order identified Debtor as a primary participant with a vested interest in the Retirement Plan and Mrs. Debolt as an alternative recipient.

The portion of the divorce judgment pertaining to spousal support awarded Mrs. Debolt support in weekly installments of decreasing amounts over a period of approximately nine years. The second QDRO, filed with the state court on July 14, 1993,5 provided for deduction from Debtor's income of support amounts.6 Debtor was employed at the time of the divorce. He took early retirement, apparently voluntarily reducing his income, two months after the divorce judgment was entered.7

According to the affidavit of Kimberly Jenison, a legal assistant in the office of the general counsel for Ford Motor Company, the total monthly benefit under the retirement plan was $1,751.95 as of June 1, 1993, Debtor's retirement date, and $1,810.34 as of October 1, 1993. See Affidavit of Ford Motor Company in Support of Defendants' Motion to Dismiss Adversary Complaint, Brief on Behalf of Defendants in Support of Motion to Dismiss Adversary Complaint, Docket Entry 9, Adversary 93-2002.

Once Mrs. Debolt's 50 percent pension interest was deducted from Debtor's monthly allowance of $1,751.95, only $892.79 per month (the equivalent of $206.03 per week) was available to satisfy the required $306 per week in spousal support. Thus, the order for support could not be satisfied from this pension. Nevertheless, Debtor retired as of June 1, 1993, two months after entry of the divorce judgment. The first retirement benefit check was issued on July 15, 1993. The first payment to Mrs. Debolt on her one-half interest was made on or about August 1, 1993. The first payment of support to Mrs. Debolt pursuant to the QDRO was made on or about September 1, 1993. Thereafter, Debtor moved to Pennsylvania and filed this chapter 13 on October 27, 1993.8 Debtor avers that he falls into arrears of about $400 monthly on this support obligation because his pension is insufficient to pay the entire award. Debtor's Brief in Support of His Motion for Summary Judgment at 6. Debtor makes no other payments because, he alleges, he has no other income, although why that is so is not evidence of record.

The Pension Trustee and Mrs. Debolt contend that the automatic stay does not preclude distribution of the 50 percent pension interest to Mrs. Debolt inasmuch as the divorce decree awarded it as Mrs. Debolt's sole and separate property, not as a claim on Debtor's interest. Therefore, it is argued, the award constitutes neither a debt that can be discharged nor a lien that can be avoided. Instead, Pension Trustee asserts that it is not in violation of the stay in distributing Mrs. Debolt's half interest, and that it has a legal obligation to remit the support payments as a result of the Ohio state court orders which were issued pursuant to Ohio's domestic relations laws and ERISA.

In this case, we have reached three conclusions. First, with respect to the property interest issue, Ohio law applies rather than Pennsylvania law due to the significant relationship between Ohio and the parties and Ohio's corresponding strong governmental interest in the outcome. Second, under Ohio law, the divorce decree transformed the marital property of the pension into new and separate interests. Therefore, the interest in the pension awarded to Mrs. Debolt is her sole and separate property and not subject to Debtor's reach through the bankruptcy process. Third, the support payments are made from Debtor's interest in the pension fund which constitutes estate property under 11 U.S.C. § 541 and § 1306. Because relief from stay has not been sought or granted, the support payments are being made in violation of the stay, notwithstanding the fact that Debtor's obligation to pay support, as Debtor acknowledges, is nondischargeable.

Discussion
I. Ohio Law Applies

Property rights are determined by reference to state law. Butner v. U.S. 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). The question here is whether Pennsylvania or Ohio law governs. Debtor now is domiciled in Pennsylvania and filed a chapter 13 in the Bankruptcy Court for the Western District of Pennsylvania. Debtor's employment endured in Ohio for over 30 years during which time he and Mrs. Debolt resided and owned real estate there. The court that decided the divorce action and entered the divorce decree and orders now at issue is an Ohio court and the orders were entered pursuant to and based on Ohio law and in accordance with ERISA. Mrs. Debolt continues to live in Ohio and receives support payments from the Pension Trustee through the Erie County, Ohio, Child Support Enforcement Agency.9 Thus, Ohio law appropriately will define the ex-spouses' property interests.

II. Pension Interest Awarded in Divorce Decree

Section 541(c)(2) of the Bankruptcy Code provides

A restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title.

11 U.S.C. § 541(c)(2). Patterson v. Shumate, ___ U.S. ___, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992), held that ERISA is "applicable nonbankruptcy law". ERISA's anti-alienation restrictions can be abrogated by QDROs. See 29 U.S.C. § 1056; 26 U.S.C. § 401. It is clear that federal statutes governing pensions contemplate awards of pensions to non-employee spouses as separate property. The question in this case, however, is whether separate property interests were created. It is not disputed that Debtor's retirement plan is ERISA qualified. The plan restricts alienation, sale, transfer, assignment, pledge, or other encumbrance of the benefit. See Benefit Plans and Agreements ° UAW and the Ford Motor Company ° Volume II Retirement Plan Insurance Program Dated October 7, 1990, Exhibit 7 to Debtor's Motion for Summary Judgment (hereafter "Benefit Plan"). In order to be qualified for tax-deferred treatment under federal law, pension plans must contain anti-alienation provisions. 29 U.S.C. § 1056(d)(1); 26 U.S.C. § 401(a)(13)(A). An exception is provided for Qualified...

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