In re Kiley
| Decision Date | 04 December 2018 |
| Docket Number | Bankruptcy Number: 15-27838 |
| Parties | IN RE: Deborah Michelle KILEY |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Utah |
Matthew Wadsworth, Arnold, Wadsworth & Coggins, Ogden, UT, for Debtor.
Megan K. Baker, Mary Margaret Hunt, Michael F. Thomson, Dorsey & Whitney, LLP, for Salt Lake City, UT.
The matter before the Court is the Objection to Debtor's Amended Claim of Exemption (hereinafter the "Trustee's Objection") filed by the Chapter 7 Trustee assigned to the above-captioned bankruptcy case, Mary M. Hunt.1 The issues are: (1) what constitutes property of the estate when a divorce is filed pre-petition, but a divorce decree is entered post-petition; and (2) what portion, if any, of a divorce award in the value of the ex-spouse's ERISA-qualified retirement plan is excluded from property of the estate or is otherwise exempt? The events relevant to a determination of this matter illustrate the myriad factual permutations at the intersection of bankruptcy and divorce law and confirm that timing is everything when determining property of the estate. Both bankruptcy and divorce attorneys need to carefully consider these timing issues when advising clients.
Some years before filing for bankruptcy, Deborah Kiley (the "Debtor") sued for divorce. A day before her bankruptcy filing, the Debtor and her ex-husband stipulated in the divorce proceeding that the Debtor would receive 100% of the value of his retirement account. Shortly after the bankruptcy filing, the Utah divorce court memorialized the award and entered a Qualified Domestic Relations Order naming the Debtor as an "Alternate Payee" of the retirement account.2 The Debtor claims her interest in the retirement account is excluded from property of the estate under 11 U.S.C. § 541(c)(2),3 or in the alternative, that it is exempt under U.C.A. § 78B-5-505(1)(a)(xv).4 The Debtor also asserts that because approximately half of the award was for past-due alimony and child support, this amount is exempt under U.C.A. § 78B-5-505(1)(a)(vi) and (vii).
The Court held an evidentiary hearing on the Trustee's Objection on January 23, 2017 and permitted the parties to submit supplemental briefs no later than February 6, 2017. Thereafter, the Court took the matter under advisement.
On June 7, 2017, the Court entered an Order Certifying State Law Questions to Utah State Supreme Court.5 The Utah Supreme Court issued an order granting the certification on July 5, 2017.6 On August 14, 2018 the Utah Supreme Court entered an Opinion revoking certification and on September 24, 2018 entered a Remittitur.7
The Court held a status conference on October 2, 2018. Mary Margaret Hunt appeared in her capacity as Chapter 7 Trustee and Michael F. Thomson appeared as counsel for the Trustee. Olivia Rossi appeared on behalf of the Debtor. At the conclusion of the status conference, the Court took the matter under advisement.
The Court now issues this Memorandum Decision which constitutes the Court's findings of fact and conclusions of law under Federal Rule of Civil Procedure 52, made applicable to this proceeding by Fed. R. Bankr. P. 9014 and 7052.8
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. The matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). Venue is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409.
On February 7, 2012, the Debtor, Deborah Michelle Marrott (n/k/a Kiley), filed a petition for divorce against Jarod R. Marrott in the Third Judicial Court for Salt Lake County, State of Utah (the "Divorce Court").10 The divorce proceeding was later bifurcated pending a resolution of issues related in part to the distribution of marital property.11 At the time of the divorce filing, Mr. Marrott had a retirement plan through his employer (the "Retirement Plan").12
Pursuant to previous orders in the divorce proceeding, Mr. Marrott was required to pay the Debtor support payments of $7,199 per month ($4,273 in child support and $2,926 in alimony).13 Mr. Marrott became delinquent on both alimony and child support payments.14 The Divorce Court issued an Order to Show Cause and set a "Mediated Settlement Conference" for August 20, 2015.15
On August 20, 2015, the settlement conference was held, and a divorce court commissioner approved a stipulation between the Debtor and Mr. Marrott (the "Mediated Stipulation").16 The Divorce Court minute entry states that Mr. Marrott "will pay $225,000.00 from his retirement fund to [Ms. Kiley] for a full and total satisfaction of past arrears and owing's [sic] through August 21, 2015."17
On August 21, 2015, the day following the divorce settlement conference, the Debtor filed this Chapter 7 petition for relief.18 On the petition date, Mr. Marrott was living, and the funds remained in the Retirement Plan.19 At all relevant times through the petition date, the Debtor was the primary, survivor beneficiary of Mr. Marrott's Retirement Plan.20
On September 23, 2015, approximately one month after the petition date, the Divorce Court entered Findings of Fact and Conclusions of Law ("Findings & Conclusions")21 and a Decree of Divorce ("Divorce Decree").22 The Findings & Conclusions, under the heading "Division of Assets and Liabilities," awarded the Debtor the following (the "Divorce Award"):
401 K, Pension, Retirement Plans. The Respondent [Jarod Marrott] has acquired certain retirement accounts. He represents that the accounts total of $225,142. The Petitioner [Debtor] is awarded all of the value in any and all of the Respondent's retirement accounts .... The Respondent shall pay for any costs associated with the preparation of a QDRO (no more than $500) or transfer of the retirement funds into Petitioner's possession. If the plan administrator(s) will not release the total amount of the retirement account due to the loans, the Respondent shall pay to the Petitioner $200 per month until the loan amounts are paid in full.23
On October 7, 2015, the Trustee conducted the first meeting of creditors under 11 U.S.C. § 341 where she directed the Debtor to produce a "copy of ruling for debtor's claim to ex-husband's 401k" and to amend her bankruptcy schedules to "disclose claim to ex-husband's 401k."24
On December 4, 2015, the Divorce Court entered a Qualified Domestic Relations Order (the "QDRO").25 The QDRO designated the Debtor as the Alternate Payee of the Retirement Plan and Mr. Marrott as the Participant.26 With respect to the "Time and Manner of Payment" the QDRO provides:
A week later, the Retirement Plan administrator certified that the QDRO complied with ERISA and did not violate the Retirement Plan's anti-alienation provisions.28
The Debtor's original bankruptcy schedules did not list the pending divorce proceedings.29 The Debtor amended Schedules B and C several times, and ultimately disclosed an interest in a "Retirement: 401K" in the amount of $225,142.00.30 The Debtor also claimed an exemption in the amount of $225,142.00 in the "Retirement 401K" pursuant to U.C.A. § 78B-5-505(1)(a)(xv), which references the interest of alternate payees under a QDRO.31
The Debtor's amended Schedule B also lists an interest in "Child Support arrears as of date of filing the petition: $60,478.07" and "Alimony arrears as of the date of filing the petition: $53,299.71."32 On amended Schedule C, the Debtor claimed an exemption in these amounts under U.C.A. § 78B-5-505(1)(a)(vi) and (vii).33 The Trustee and the Debtor stipulated on the record at the January 23, 2017 hearing that $113,777.78 of the $225,142.00 claimed on Schedule B as the "Retirement: 401K" is attributable to past due child support and alimony.34 However, the Trustee has objected to the Debtor's exemption in alimony because U.C.A. § 78B-5-505(vii) only allows an exemption "to the extent reasonably necessary for the support of the individual and the individual's dependents."35 The Trustee asserts she will need to conduct additional discovery as to what amounts are reasonable under the Debtor's circumstances.
In the broadest terms, the issue is what, if any, portion of the Divorce Award is property of the bankruptcy estate that must be turned over to the Trustee for distribution to creditors. The answer to this question involves the following discrete issues;
Property of the estate includes "all legal or equitable interests of the debtor in property as of the commencement of the case."36 A debtor's property interests ...
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