In re Haines

• Decision Date: 14 April 2015
• Docket Number: Case No. 12–50882–can7
• Parties: In re: Randi Kathleen Haines, Debtor.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Kansas

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In re: Randi Kathleen Haines, Debtor.

Case No. 12–50882–can7

United States Bankruptcy Court, W.D. Missouri, at Kansas City .

Signed April 14, 2015

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Donald E. Bucher, Kansas City, MO, for Debtor.

MEMORANDUM OPINION AND ORDER OVERRULING TRUSTEE'S OBJECTION TO EXEMPTIONS

Cynthia A. Norton, UNITED STATES BANKRUPTCY JUDGE

When a husband and wife open an account together, Missouri law generally¹ presumes they own the account as “tenants by the entirety,” or “TBE.” The presumption is rebuttable, but only by particularly strong evidence, such as “to leave no doubt in the judge's mind.” If a couple has the choice of checking the “tenants by the entirety” box on an account application, but fails to do so, is that failure sufficiently strong evidence to overcome the presumption when a bankruptcy trustee objects to the debtor's exemption of that account as TBE property? This

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Court concludes not under the circumstances of this case.

I. Jurisdiction

There is no dispute and the Court finds that it has jurisdiction over this matter. 28 U.S.C. § 1334. This matter is also a core proceeding over which the court has authority to enter a final order. 28 U.S.C. § 157(b)(2)(B).

II. Facts

The Court makes the following findings of fact.

Debtor Randi Kathleen Haines is a married resident of Missouri. She filed a Chapter 7 bankruptcy after a business co-owned with her daughter failed. Her only unsecured creditor is a bank to whom she had personally guaranteed the business loan. Ms. Haines owes the bank approximately $165,000; her husband was not obligated on the business loan or guaranty.

Bruce E. Strauss was duly appointed the Debtor's Chapter 7 Trustee. Nearly a year after her bankruptcy filing,² the Debtor amended her schedule B to include an interest in a UBS brokerage account, valued at almost $200,000, described as being owned “jointly with her nonfiling spouse.” She claimed this account as exempt TBE property under applicable Missouri law.

The Trustee timely objected to the exemption, arguing that Mr. and Mrs. Haines had failed to open the UBS account as a TBE account, and that since the box “joint tenants with right of survivorship” or “JTWROS” was checked, the account documents controlled. Mrs. Haines responded that the checking of the JTWROS box on the account application—and the concomitant failure to check the TBE box—was as a matter of law insufficient to defeat Missouri law's presumption of TBE ownership.

The Court conducted an evidentiary hearing on the Trustee's objection, at which both Mr. and Mrs. Haines testified; the Court finds their testimony generally to be credible, except where noted below.

Mrs. Haines testified that she and Mr. Haines had been married 22 years, and had not maintained separate finances during their marriage. Specifically, Mrs. Haines and her husband had two joint checking accounts, and a retirement account, in addition to the UBS account. She testified that she and her husband had always considered and treated their various accounts as being jointly owned. She testified that both contributed funds to their accounts and both made withdrawals or wrote checks from their various accounts.

With respect to the UBS account in particular, Mrs. Haines testified that she and Mr. Haines had had a brokerage account for a number of years, as recommended by their financial advisor, one Mike Hamilton, and had owned the UBS account for about ten years. The Haineses opened the UBS account when Mr. Hamilton switched brokerage firms and moved to UBS.

Mrs. Haines testified to a discussion that the brokerage account should be owned in the same form as the previous account (implying that the previous account was a

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TBE account); the Court, however, finds that testimony to be self-serving, for several reasons. First, as the Trustee pointed out, there was no evidence that the previous brokerage account was a TBE account. More importantly, Mrs. Haines could not explain the differences between a TBE and JTWROS account in response to the Trustee's questions on cross-examination.

In light of her otherwise uncontroverted evidence that she signed the account application at her husband's office; that the application had already been completed when she arrived to sign it; and that she admitted on cross-examination that she likely only glanced at it; the Court believes that Mrs. Haines had no specific intent in creating the UBS account other than that it was some type of joint account that she and her husband both owned and could use. For the same reason, the Court places no weight on the hand-written note on Mrs. Haines' financial statement, submitted to the Bank in 2010 [Exhibit C], that “all assets are owned jointly with my husband in [TBE] and therefore not subject to enforcement by creditors, except creditors of both husband and wife.”

Mr. Haines also testified, and his testimony largely mirrored that of his wife's. He agreed that all the household finances were held jointly and that he also had relied on the broker to fill out the paperwork correctly (again, implying without direct testimony that the UBS account was supposed to have been set up as a TBE account). He, too, did not know the difference between JTWROS and TBE accounts; the Court likewise believes that Mr. Haines had no specific intent to establish a TBE account but instead intended that the account be a joint marital account.

In addition to their testimony, Mrs. Haines admitted as an exhibit the UBS brokerage account application she and her husband had signed when opening the account. The application provided joint account owners with five options for how their accounts could be held: community property, tenants by entirety, joint tenants with rights of survivorship, tenants in common, and joint community funds. The box next to “Joint Tenants with Rights of Survivorship” is checked, presumably by the financial advisor. The application did not contain any explanation of the various species of joint ownership, but instructed those completing the application to “Please read the joint account section of the New Account booklet carefully.” The parties did not provide the court with the joint account section of the New Account booklet or any testimony about whether Mr. or Mrs. Haines consulted it. The application contains a paragraph entitled “Account Agreement”; however, the provisions in the agreement relate to client management, trading on margin, and disclosure issues, and do not address ownership of the account. Neither party called the UBS representative who prepared the paperwork to testify.

III. Summary of the Arguments

Both parties agree that the Court should apply Missouri law to determine the nature of Mrs. Haines' ownership interest in the brokerage account. The parties also agree that the burden of proof is on the Trustee to provide evidence that the exemption is not proper, at which point the burden shifts to the debtor to show she is entitled to the exemption. 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 ultimate burden of persuasion rests on the Trustee. Id.

Additionally, the parties agree that generally there is a presumption under

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Missouri law that property held by husband and wife is held as tenancy by the entireties. The parties disagree as to whether the presumption arises here. The Trustee argues that the presumption does not arise because the plain and unambiguous language in the brokerage application, identifying the account as held in joint tenancy with right of survivorship, controls. The Trustee also contends that the parol evidence rule prevents Mr. and Mrs. Haines from testifying about their intent in contravention of the plain language of the application. Mrs. Haines in turn argues that the presumption does arise, and that the box checked joint tenancy with rights of survivorship is insufficient to rebut the presumption in light of the additional evidence provided to the Court.³

IV. Discussion

Nature of TBE Property Under Missouri Law

Commencement of a bankruptcy case creates an estate, consisting of “all legal or equitable interests of the debtor in property as of the commencement of the case ... [.]” 11 U.S.C. § 541(a). A debtor may exempt certain property from property of the estate under 11 U.S.C. § 522(b). Missouri has opted out of the federal exemption scheme in § 522, thus “restricting Missouri residents to the exemptions available under Missouri law and under federal statutes other than 11 U.S.C. § 522(d).” In re Benn, 491 F.3d 811, 813 (8th Cir.2007). The parties do not dispute that § 522(b)(3)(B) authorizes the exemption of TBE property to the extent the interest is exempt from process under applicable nonbankruptcy law, and that applicable Missouri law so provides.

TBE is a form of marital property ownership...