In re Hambright

Citation762 N.E.2d 98
Decision Date31 January 2002
Docket NumberNo. 02S04-0104-CV-212.,02S04-0104-CV-212.
PartiesIn re the Matter of Dorothy J. HAMBRIGHT. Mark A. Warsco, Trustee, Appellant (Intervenor Below), v. Dorothy J. Hambright, Appellee (Petitioner below), Robert Edwards, Jr., Appellee (Respondent below).
CourtSupreme Court of Indiana

Theodore T. Storer, Fort Wayne, IN, Attorney for Appellant.

Karen M. Freeman-Wilson, Attorney General of Indiana, Jon Laramore, Deputy Attorney General, Indianapolis, IN, Attorneys for Appellee.

ON PETITION TO TRANSFER

BOEHM, Justice.

We granted transfer in this case to address whether child support arrearages owed to a custodial parent are assets of the parent's bankruptcy estate. We hold that they are not. Rather, like current and future support obligations, they constitute property held in trust for the benefit of the children.

This is an appeal in an action commenced in 1984 when Dorothy Hambright brought a paternity action against Robert Edwards, Jr. In 1985, Hambright was granted custody of her three children and awarded child support. Edwards fell behind in support and the total arrearage exceeded $19,000 when Hambright assigned her rights to the State in 1994.

On February 16, 1999, Hambright filed a Chapter 7 bankruptcy. On June 29, Mark A. Warsco, the trustee of her bankruptcy estate, sought to intervene in the paternity action claiming "an interest relating to a property ... which is the subject of the action" under Trial Rule 24(A)(2). After argument, the trial court denied the petition to intervene: "The Court finds that said relief would be contrary to public policy concerning child support, and therefore, denies said Motion to Intervene and Receive Payments for Child Support Arrearage." Warsco filed a motion to correct error, which also was denied:

The Court finds that when a non-custodial parent fails to timely pay child support, the child sustains a loss in the form of a reduced standard of living; and child support arrearages are funds owed the custodial parent, to be collected, held, and expended as fiduciary for the benefit of the child.

The trial court then certified the order denying intervention for interlocutory appeal. The Court of Appeals accepted jurisdiction and held that child support arrearages were an asset of the custodial parent and therefore Warsco could intervene as a matter of right. Warsco v. Hambright, 735 N.E.2d 844 (Ind.Ct.App. 2000). We granted transfer to address the nature of child support arrearages in Indiana.

I. Warsco's Rights and Duties as Bankruptcy Trustee

Under section 704 of the Bankruptcy Code, the trustee is to "collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest." 11 U.S.C. § 704 (1994). The trustee has an interest in any asset to the extent that the debtor has an interest in it and is required to include the property in the estate. Whether property is an asset of the debtor, and therefore an asset of the bankruptcy estate, is generally a matter of state law. Barnhill v. Johnson, 503 U.S. 393, 398, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992).

Warsco's right to intervene in Hambright's paternity action is controlled by Trial Rule 24(A). It states:

(A) Intervention of right. Upon timely motion anyone shall be permitted to intervene in an action:
(1) when a statute confers an unconditional right to intervene; or
(2) when the applicant claims an interest relating to a property, fund or transaction, which is the subject of the action and he is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect his interest in the property, fund or transaction, unless the applicant's interest is adequately represented by existing parties.1

Because no statute gives Warsco an unconditional right to intervene, he claims a right to intervene only under Trial Rule 24(A)(2) as the holder of "an interest relating to a property ... which is the subject of [this] action." Therefore, Warsco's ability to intervene, like his claim to the arrearages under the Bankruptcy Code, turns on whether Hambright has a property interest in the arrearages.

II. Hambright's Interest in Child Support Arrearages

It has long been held that "the right to support lies exclusively with the child, and that a parent holds the child support payments in trust for the child's benefit." Bussert v. Bussert, 677 N.E.2d 68, 71 (Ind.Ct.App.1997), trans. denied. The custodial parent acts as a trustee of the payments and is to use them for the benefit of the child. Straub v. B.M.T. by Todd, 645 N.E.2d 597, 599 (Ind.1994). As the constructive trustee, the custodial parent may not contract away the benefits of the constructive trust, and neither the parents nor the child may informally effect a modification or annulment of accrued benefits. Cf. Nill v. Martin, 686 N.E.2d 116, 118 (Ind.1997)

.

Warsco does not appear to contest the general proposition that parents hold current and future support as trustees for the children, but he argues that past child support arrearages are property of the custodial parent. He bases this contention on the premise that the custodial parent has already made up for the missed support by providing food, clothing, and other necessities from other sources during the period when child support was not paid. Under this view, the arrearages merely reimburse the custodial parent for his or her expenditures that should have come from the support payments in the first place.

Warsco's position is supported by In the Matter of Henady, 165 B.R. 887, 893 (Bankr.N.D.Ind.1994), which concluded that, under Indiana law, "the right to collect past due child support is a right to repayment which belongs to the debtor personally and not as trustee for the children." Thus, Henady allowed the bankruptcy trustee to collect the arrears as an asset of the bankruptcy estate. Id. However, we believe Henady does not reflect the current status of Indiana law.

The court in Henady based its conclusion, in large part, on this Court's holding in Lizak v. Schultz, 496 N.E.2d 40, 42 (Ind.1986). In Lizak, this Court held that the representative of the estate of a deceased custodial parent was entitled to recover child support arrearages without proving the amount of money that had been spent on the children. In discussing the nature of child support, citing cases dating from 1865, we noted:

The description of the children's custodian as a trustee has distant origins in our law. Early cases seem to use this term to differentiate alimony, paid to the former spouse for her benefit, from child support, payable to the custodian of the child, regardless of whether the custodian is a parent or not. It has been used to describe the relationship between child and custodian and the obligation of the latter to seek enforcement of the support order. It has not been used to permit the non-paying parent to avoid the obligation of a support order.
Clearly, one who has present custodial responsibility can collect ongoing payments for the support of the child. Only he can be the trustee of the non-custodial parent's ongoing obligation to pay. Similarly, one who has had the obligation to care for a child and has advanced his own funds to do so is entitled to collect the arrears from the non-custodian.

Id. at 42 (citations omitted).

Warsco argues that because in Lizak this Court allowed the decedent's estate to recover the child support arrearages, the arrearages belong to the custodial parent and can be included in the bankruptcy estate of the custodial parent. Lizak rejected the delinquent parent's effort to avoid his child support obligation by forcing the custodian to reconstruct years of support. The practical effect of Lizak is that a custodian may not be forced to reconstruct years of a family's often poorly documented finances as a precondition to collection of support. It prevents the non-custodial parent from raising an alleged misapplication of the funds as a defense to payment. Indiana law allows the non-custodial parent to request an accounting demonstrating that child support funds were spent on the child. Ind.Code § 31-16-9-6 (1998). The accounting remedy is available if there is a serious dispute as to the proper application of the funds, but refusal to pay is not an option available to the non-custodial parent. All of this is consistent with the view that the children are the beneficiaries of the funds owed to the custodial parent as trustee. Indeed, in rejecting the claim that the representative needed to prove that the custodial parent had come up with the amount of arrearages from her own funds, Lizak described the obligation of the non-custodial parent as that of a "debtor to the mother trustee." 496 N.E.2d at 42 (quoting Corbridge v. Corbridge, 230 Ind. 201, 206, 102 N.E.2d 764, 767 (1952), and Grace v. Quigg, 150 Ind.App. 371, 378, 276 N.E.2d 594, 598 (1971) (citations omitted)). And Lizak refers to the custodial parent as "the trustee of the non-custodial parent's ongoing obligation to pay." 496 N.E.2d at 42.

The second case upon which Henady relied is Linton v. Linton, 166 Ind.App. 409, 336 N.E.2d 687 (1975). That case dealt with the enforceability of an agreement between the parents to discharge the father's delinquent support payments for less than the full amount due. The Court of Appeals held that although a custodial parent cannot make an enforceable agreement that future support payments need not be made, when an arrearage accrues the custodial parent may compromise or forgive the debt if "the children had indeed received all of the benefits intended in the original decree." Id. at 423, 336 N.E.2d at 695. The record in Linton did not reveal whether in fact the custodial parent had made up the shortfall. The court assumed that the trial court had so determined and upheld the custodial parent's release of the delinquent...

To continue reading

Request your trial
20 cases
  • In re Poffenbarger
    • United States
    • U.S. Bankruptcy Court — Southern District of Alabama
    • 25 March 2002
    ...126, 129 n. 11 (Bankr.M.D.Ala.1998); Anders, 151 B.R. at 545-46; In re Butler, 271 B.R. 867, 870 (Bankr.C.D.Cal.2002); In re Hambright, 762 N.E.2d 98, 100 (Ind.2002) (citing Barnhill v. Johnson, 503 U.S. 393, 398, 112 S.Ct. 1386, 118 L.Ed.2d 39 An examination of the Alabama law concerning t......
  • Thompson v. Thompson
    • United States
    • Indiana Appellate Court
    • 15 July 2004
    ...of the marriage to enjoy the same lifestyle as the child would have enjoyed had the marriage remained intact. In re the Marriage of Hambright, 762 N.E.2d 98, 104 (Ind.2002) (citing Ind. Child Support Guideline 1). We cannot conclude that M.T. would have been permitted to drive the same vehi......
  • Perkinson v. Perkinson
    • United States
    • Indiana Supreme Court
    • 25 June 2013
    ...the support payments in trust for the benefit of the child.” Sickels v. State, 982 N.E.2d 1010, 1013 (Ind.2013)citing In re Hambright, 762 N.E.2d 98, 101 (Ind.2002); Hicks v. Smith, 919 N.E.2d 1169, 1171 (Ind.Ct.App.2010), trans. denied. Custodial parents who receive child support funds act......
  • In re Krick
    • United States
    • U.S. Bankruptcy Court — Northern District of Indiana
    • 12 September 2007
    ...of a creditor's standing to intervene in a dissolution of marriage proceeding was addressed, with the sole exception of Warsco v. Hambright, 762 N.E.2d 98 (2002). In Warsco, the Indiana Supreme Court reversed decisions of the trial court and of the Indiana Court of Appeals which had allowed......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT