In re Evert

• Decision Date: 06 August 2003
• Docket Number: No. 02-50411.,02-50411.
• Citation: 342 F.3d 358
• Parties: In the Matter of: Elizabeth Ann EVERT, Debtor. Marsha G. Milligan, Trustee; C. Daniel Roberts & Associates P.C., Appellants, v. Elizabeth Ann Evert, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

342 F.3d 358

In the Matter of: Elizabeth Ann EVERT, Debtor Marsha G. Milligan, Trustee; C. Daniel Roberts & Associates P.C., Appellants, v. Elizabeth Ann Evert, Appellee.

No. 02-50411.

United States Court of Appeals, Fifth Circuit.

August 6, 2003.

COPYRIGHT MATERIAL OMITTED

Kevin Evont Bowens, C. Daniel Roberts (argued), C. Daniel Roberts & Associates, Austin, TX, for Appellants.

Marlow R. Preston (argued), Law Office of Marlow Preston, Austin, TX, for Appellee.

Appeal from the United States District Court for the Western District of Texas.

Before GARWOOD, SMITH and BARKSDALE, Circuit Judges.

GARWOOD, Circuit Judge:

After Elizabeth Ann Evert (Evert) filed for bankruptcy under Chapter 7 of the Bankruptcy Code, Appellant Marsha G. Milligan, Trustee, (Milligan) was appointed trustee. Milligan objected to Evert's attempt to claim as exempt property under 11 U.S.C. § 522(d)(10)(D) a $65,000 promissory note payable to her and executed by her former husband which she had received pursuant to their divorce. The bankruptcy court found that the promissory note constituted "alimony, support, or separate maintenance" and therefore could be shielded from Evert's creditors under section 522(d)(10)(D). The district court affirmed. We reverse.

Proceedings Below

Evert filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on March 26, 2001, and filed her amended Schedules B & C on June 4, 2001. The Chapter 7 Trustee timely filed an objection to the Debtor's amended schedules. On June 5, 2001, Evert moved the bankruptcy court to convert her case to a Chapter 13 bankruptcy. The Chapter 13 Trustee timely filed a notice of intent to prosecute the Chapter 7 Trustee's objection. After conducting a hearing and reviewing the record, the bankruptcy court entered an Order on October 31, 2001, denying the Trustee's Objection to Debtor's Amended Exemptions, as well as a Memorandum Opinion. After the Trustee timely filed a notice of appeal, the district court on April 2, 2002, affirmed the bankruptcy court. Milligan timely filed a notice of appeal to this court.

Facts

On April 15, 1999, Evert and her then husband Keith Colvin were divorced pursuant to a judgment of divorce signed and entered that day by the 345th Judicial District Court of Travis County, Texas. The judgment is also signed "Agreed and Approved as to Form And Substance" by Evert and Colvin, is entitled "Agreed Final Decree of Divorce," and includes the recitation that "[t]he parties have agreed to the terms of this Decree and further stipulate that the provisions for division of assets and liabilities are contractual." The decree is divided into sections.

In the section entitled "Child Support" Colvin is ordered to pay Evert $1,000 a month for the support of their two minor children (born in 1986 and 1988) until they become 18 (or die or marry), with provision for reduction to $800 a month when there is only one eligible child. The child support payments are ordered "made through the Travis County Domestic Relations Office ... and then remitted by that agency to" Evert "for support of the children." Colvin is also ordered to provide and pay for health insurance covering the children.

A subsequent section of the decree divides the assets and liabilities of the parties. This section begins by stating:

"THE COURT finds the following provisions regarding the parties' assets and liabilities are contractual and enforceable as a contract. IT IS ORDERED AND DECREED that the estate of the parties, including both separate and community property, be divided as follows:

Petitioner [Evert] is awarded the following as Petitioner's sole and separate property, and Respondent [Colvin] is hereby divested of all right, title and interest, in and to such property."

Thereafter nine separately numbered paragraphs describe the various assets awarded Evert including cemetery lots, the couple's former house, furniture and fixtures, and one of their automobiles. The last item in this list is the $65,000 note in question, described in the list's numbered paragraph 9 as follows:

"A promissory note executed by Respondent, payable to Petitioner in the original principal sum of $65,000.00 bearing interest at 8% per annum and payable in sixty (60) equal monthly installments of $1,317.97 each, including interest, with the first installment due and payable on May 1, 1999, and a like installment of $1,317.97 due on the 1st day of each succeeding thereafter until the note is paid in full."

Immediately thereafter, the decree states:

"Respondent [Colvin] is awarded the following as Respondent's sole and separate property, and Petitioner [Evert] is hereby divested of all right, title, interest, and claim in and to such property."

There then follow seven numbered paragraphs describing the property awarded Colvin, including a described automobile and "[a]ny and all interest in and to the business known as Colvin Automotive, Inc." The decree next provides that, "as a part of the division of the estate of the parties," Evert shall pay and hold Colvin harmless from certain described debts, including the first and second liens on their house awarded to Evert, and Colvin shall pay and hold Evert harmless from certain described debts including "[a]ny and all charges, debts, liens or other obligations arising from or secured by property awarded to Respondent [Colvin] herein."

A still later section of the decree, entitled "Post-Divorce Spousal Support (Alimony) Agreement," provides in relevant part as follows:

"Post-Divorce Spousal Support (Alimony) Agreement

1. Purpose and Intent of Agreement. It is the mutual desire of the parties that ... COLVIN ("Husband") provide a continuing measure of support for [EVERT] (`Wife') after divorce. These support payments are intended to qualify as alimony as that term is defined in Section 71 of the Internal Revenue Code of 1954 (`the Code'), as amended, and are intended to be included in the gross income of Wife under Section 71 of the Code as amended, and deductible by Husband under Section 215 of the Code as amended. It shall include such payments in her gross income for federal and state income tax reporting purposes, and Husband shall deduct said payments from his gross income for federal and state income tax reporting purposes.

2. Amount of Alimony. Husband shall pay to Wife monthly payments of alimony in the amount of $1,350.00 per month, with the first payment in the amount of $1,350.00 being due and payable on May 1, 1999, and with like payment in the amount of $1,350.00 being due and payable on the same day of each month thereafter, until April 1, 2004, with the last payment being due and payable on said date, or on the date Wife dies, whichever date is earlier in time.

3. Contractual Obligations. This support obligation undertaken by Husband is contractual in nature and is not an obligation imposed by order or decree of the Court.

4. Termination. The amount of monthly alimony not yet accrued and then payable under this article shall terminate with the April 1, 2004, payment, or on the date Wife, dies, whichever date is earlier in time. There is no liability for Husband to make any payments accruing after the death of Wife, and there is no liability for Husband to make any payment in cash or property as a substitute for such payments accruing after the death of Wife.

...

6. Nontransferability. Neither the agreement to pay alimony nor the right to receive alimony under this Article is assignable or transferable."

Colvin executed and delivered the $65,000 note to Evert and thereafter made the monthly payments called for thereby.

Evert declared bankruptcy on March 26, 2001. Milligan argued that the $65,000 promissory note should be part of the debtor's estate while Evert maintained the note is "support" exempt under 11 U.S.C. § 522(d)(10)(D).

Standard of Review

Findings of fact are reviewed under the "clearly erroneous" standard; conclusions of law are subject to de novo review. Matter of Midland Indus. Service Corp., 35 F.3d 164, 165 (5th Cir.1994).

Discussion

By virtue of 11 U.S.C. § 522(d)(10)(D) a debtor may exempt from his or her bankruptcy estate "(10) the debtor's right to receive ... (D) alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor."¹ The dispute in this case solely involves whether the $65,000 note represents "alimony, support, or separate maintenance," and does not involve whether at the time of Evert's bankruptcy the note payments were reasonably necessary for the support of Evert and her dependents.

Because there is little precedent concerning what qualifies as "alimony, support, or separate maintenance" under 11 U.S.C. § 522(d)(10)(D), the bankruptcy court and district court relied on precedent interpreting 11 U.S.C. § 523(a)(5). While section 522 governs exemptions of various assets and rights to income of the debtor from the debtor's bankruptcy estate, section 523 (entitled "Exceptions to discharge") governs what debts of the debtor may be discharged in bankruptcy. 11 U.S.C. § 523(a) provides in relevant part that:

"A discharge ... does not discharge an individual debtor from any debt —

(1) ...

...

(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that —

(A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise (other than debts assigned pursuant to Section 408(a)(3) of the Social Security Act [42 USCS § 608(a)(3)], or any such debt which has been assigned to the Federal Government or to a State or any political subdivision of such State); or

(B) such debt includes...