In re Hope
| Decision Date | 03 March 1999 |
| Docket Number | Adversary No. 97-0033.,Bankruptcy No. 93-00252 |
| Parties | In re James L. HOPE, Debtor. Wendell W. Webster, Trustee, Plaintiff, v. Constance M. Hope, Defendant. |
| Court | United States Bankruptcy Courts. District of Columbia Circuit |
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Linda M. Correia, Washington, DC, for Plaintiff.
Leslie W. Lickstein, Goodman Gary & Lickstein, P.C., Vienna, VA, for Defendant.
Dennis Early, Office of U.S. Trustee, Alexandria, VA.
DECISION ON PLAINTIFFS MOTION FOR PARTIAL SUMMARY JUDGMENT AND DEFENDANT'S MOTION TO DISMISS
The debtor, James L. Hope, and the defendant, Constance M. Hope, owned as tenants by the entireties real property located at 1511 13th Street, N.W., Washington, D.C. After they divorced, Mr. Hope filed this bankruptcy case. This decision principally concludes (1) that in light of D.C.Code Ann. § 16-910, dealing with equitable distribution of entireties property upon a divorce, Mrs. Hope cannot be the target of a preference claim under 11 U.S.C. § 547(b)1 or an attack under 11 U.S.C. § 5442 with respect to her receipt of the 13th Street property for support obligations pursuant to separation agreements blessed by the divorce decree and (2) that the spouses' unrecorded 1987 Agreement that the wife would receive the equity in the 13th Street property was "made" in 1987 such as to be beyond the reach of 11 U.S.C. § 548(a).3
The court will deny the trustee's Motion for Partial Summary Judgment which seeks a declaratory judgment authorizing the sale of the 13th Street property pursuant to 11 U.S.C. § 363(h). The court will partially grant the defendant's Motion to Dismiss as it relates to the 13th Street property: the court will specifically dismiss (1) the preference claim under 11 U.S.C. § 547(b), (2) the claim under 11 U.S.C. § 544, and (3) the fraudulent conveyance claim under 11 U.S.C. § 548(a) regarding any transfer effected under the 1987 Agreement. This will leave any additional transfers of the 13th Street property made or ratified by a 1993 agreement between the Hopes subject to attack as a fraudulent conveyance under § 548(a). The court will deny the defendant's Motion to Dismiss as to certain personal property that may not have been within the reach of D.C.Code Ann. § 16-910.
On February 25, 1987, the debtor, Mr. Hope, and the defendant, Mrs. Hope, entered into an agreement ("the 1987 Agreement") to divide some of their marital property. According to that agreement, 1723 Riggs Place was to "become the sole property of the wife"; 1638 R Street was to "become the sole property of the husband"; and regarding 1511 13th Street, the property at issue here, the agreement directed that "the equity in the property shall become the sole property of the wife."
Six years later, on February 3, 1993, the parties entered into a Separation and Property Settlement Agreement ("the 1993 Agreement") with the intention of formalizing their separation and property arrangements. The 1993 Agreement stated that it incorporated the terms of the 1987 Agreement.
The 1993 Agreement explained:
There are arrearages in the child support payments that were previously agreed to in the February 25, 1987 Agreement in the amount of approximately Sixteen Thousand and Five Hundred Dollars ($16,500.00). In consideration for the Wife receiving the net proceeds of sale of the jointly-titled property located at 1511 13th Street, N.W., Washington, D.C., . . . the Wife agrees to forgive these arrearages.
The Agreement went on to explain how the 13th Street property was to be sold and that the proceeds, after fees and costs, were to be distributed to the wife.
On February 17, 1993,4 Mrs. Hope obtained a judgment of absolute divorce from Mr. Hope. The Findings of Fact, Conclusions of Law and Judgment of Absolute Divorce ("Divorce Judgment") recites in its findings of fact that the 1993 Agreement The Divorce Judgment quotes verbatim some of the provisions from the 1993 Agreement, including the provision quoted above regarding the child support arrearages and the property located at 1511 13th Street. However, the Divorce Judgment further states that the 1993 Agreement "shall not be merged nor incorporated herein."
On March 12, 1993, Mr. Hope filed a petition under chapter 11 of the Bankruptcy Code. The case was later converted to chapter 7. The trustee initiated this adversary proceeding by filing a complaint against Mrs. Hope, seeking to recover and sell the 13th Street property, in addition to recovering certain personal property whose division was ratified by the 1993 Agreement. The trustee contends that the transfer by the debtor of the 13th Street property — if a transfer in fact occurred — was either a preference or a fraudulent transfer. The trustee contends that the transfers of the personal property were fraudulent transfers. Mrs. Hope claims that the 13th Street property, as well as the personal property, were transferred to her by the agreements recited above and were not preferences or fraudulent transfers.
The trustee has filed a Motion for Partial Summary Judgment with respect to Count II of his complaint (for declaratory judgment authorizing the sale of the 13th Street property). The defendant filed an opposition to the motion.5 The defendant has filed a Motion to Dismiss the complaint which is opposed by the trustee.
The trustee, in his Motion for Partial Summary Judgment, contends that despite the 1993 Agreement,6 no transfer of the 13th Street property occurred because no deed was executed as required by D.C.Code Ann. § 45-306(b) (1992)7 to effectuate the transfer to the defendant. The trustee claims that because the debtor never transferred his undivided ownership interest in the 13th Street property to Mrs. Hope, the trustee should be allowed to sell the property and apply one-half of the proceeds to satisfying the claims against the estate. The trustee believes that the issue of whether the debtor owned an undivided interest in the property is one of law which can be decided by the court on the motions.
The defendant moves to dismiss this proceeding, alleging that at the time Mr. Hope filed his bankruptcy petition, he had no equitable interest in the real or personal property. He had relinquished the property pursuant to the 1987 Agreement, six years earlier. Alternatively, even if the property had not been transferred in 1987, there was no preference or fraudulent transfer that could be avoided by a trustee.
Dismissal will be denied, for reasons set forth in the footnote below, as to the personal property which is not alleged to be tenancy by the entireties property.8 But the 13th Street property was held as tenancy by the entireties property until shortly before the commencement of the bankruptcy case, thus permitting partial dismissal of the claims regarding it for reasons set forth below.
The doctrine of tenancy by the entireties has long been established in the District of Columbia. See Travis v. Benson, 360 A.2d 506 (D.C.1976); Settle v. Settle, 8 F.2d 911 (D.C.Cir.1925). It rests on the common law concept of husband and wife as a single, indivisible unit. "The most significant incidents of this concurrent estate are the unilaterally indestructible right of survivorship; the inability of either spouse, acting alone, to alienate his interest in the property; and the broad immunity from the claims of separate creditors." Travis, 360 A.2d at 509. "Moreover, such an estate may be created in personalty as well as realty." Warman v. Strawberry, 587 F.Supp. 109, 111 (D.D.C. 1983) (citation omitted). A divorce judgment or an agreement between the parties can dissolve the tenancy by the entireties. See Hogan v. Hogan, 250 F.2d 412, 413 (D.C.Cir. 1957). The 13th Street property was held by Mr. and Mrs. Hope as tenants by the entireties, until the Divorce Judgment was entered on February 18, 1993.
Outside of bankruptcy, when a debt is owed by only one spouse, a creditor may not attach, levy upon or sell the property held in tenancy by the entireties. However, this changes once that spouse files a petition for bankruptcy. Under § 541 of the Bankruptcy Code, the bankruptcy estate comprises "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). Section 541 includes in the bankruptcy estate a debtor's interest in entireties property. Fairfield v. United States (In re Ballard), 65 F.3d 367, 371 (4th Cir.1995). Once it comes into the estate, a debtor may elect to exempt the entireties property under 11 U.S.C. § 522(b)(2)(B) from the reach of the sole creditors of the debtor.
However, a divorce decree releases property from the unique features of tenancy by the entireties, unless the divorcing spouses agree to preserve the tenancy by the entireties after the divorce. See Travis, 360 A.2d at 509; Finley v. Thomas, 691 A.2d 1163, 1166 n. 4 (D.C.1997) (dicta); Benson v. United States, 442 F.2d 1221, 1225 (D.C.Cir. 1971). Here the agreement cannot be viewed as preserving the tenancy by the entireties, at least as to the equitable interests in the property, because the proceeds of the 13th Street property are all earmarked for Mrs. Hope and there is thus no right of survivorship. If a bankruptcy petition is filed after a divorce, when the property is no longer held in tenancy by the entireties, the property is no longer entitled to the § 522(b)(2)(B) exemption. Cordova v. Mayer (In re Cordova), 73 F.3d 38, 41 (4th Cir. 1996).
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