In re Lawrence

• Decision Date: 04 August 1999
• Docket Number: Bankruptcy No. 96-32386. Adversary No. 96-3340.
• Citation: 237 BR 61
• Parties: In re Herbert F. LAWRENCE, Debtor. Herbert F. Lawrence, Plaintiff, v. Michelle Lawrence, National State Bank, its assignees and/or successors in interest, Corestates/New Jersey National Bank, United States of America, Internal Revenue Service, State of New Jersey, Division of Taxation, Township of Holmdel, David Mermelstein, and Provident Savings Bank, Defendants.
• Court: U.S. Bankruptcy Court — District of New Jersey

237 B.R. 61 (1999)

In re Herbert F. LAWRENCE, Debtor Herbert F. Lawrence, Plaintiff, v. Michelle Lawrence, National State Bank, its assignees and/or successors in interest, Corestates/New Jersey National Bank, United States of America, Internal Revenue Service, State of New Jersey, Division of Taxation, Township of Holmdel, David Mermelstein, and Provident Savings Bank, Defendants.

Bankruptcy No. 96-32386. Adversary No. 96-3340.

United States Bankruptcy Court, D. New Jersey.

August 4, 1999.

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Timothy P. Neumann, Broege, Neumann, Fischer & Shaver, Manasquan, N.J., for debtor.

Roberta DeAngelis, Magdalena Schardt, Fox, Rothschild, O'Brien & Frankel, L.L.P., Lawrenceville, N.J., for Michelle Lawrence.

MEMORANDUM OPINION

STEPHEN A. STRIPP, Bankruptcy Judge.

This is the court's decision on the counterclaim of Michelle Lawrence, the debtor's spouse, seeking a claim against her estranged husband's bankruptcy estate for equitable distribution or alternatively for a constructive trust based on unjust enrichment, an order that the claim for equitable distribution is nondischargeable, and an award of attorney's and accountant's fees. The court reserved decision on February 4, 1999. The court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b), 151 and 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B) and (I) and (O). The following shall constitute the court's findings of fact and conclusions of law.

FINDINGS OF FACT

a. The divorce case

At the commencement of this bankruptcy case, an action for divorce was pending in the Superior Court of New Jersey, Chancery Division, Family Part. Michelle Lawrence ("Ms. Lawrence") filed a complaint for divorce in the superior court on April 6, 1993 against Herbert F. Lawrence ("the debtor" or "Mr. Lawrence"), who is an attorney. No final judgment of divorce, permanent alimony award or equitable distribution order has been entered. The superior court entered a pendente lite order, however, on November 29, 1993 in which the court ordered the debtor to pay spousal support in weekly installments of $100.00, pay all expenses related to the marital home, maintain medical and life insurance for Ms. Lawrence and pay her car payment, car insurance and medical expenses. Moreover, the order prohibited the sale or other transfer of any assets, excluding the joint savings account for limited purposes, until further hearing. Thereafter, the debtor was ordered to pay support in weekly installments of $175.00 pursuant to the superior court's order dated June 23, 1994.

Beginning in December, 1995, the debtor violated the November, 1993 superior court order by failing to pay car payments, mortgage payments and other expenses related to the marital home. Ms. Lawrence moved for enforcement of the debtor's pendente lite obligations in superior court in December, 1996. Pursuant to an order dated January 27, 1997, the superior court ordered the debtor to make monthly payments of $500.00 to Ms. Lawrence on account of the arrears. The order excepted the mortgage from the arrearage payment, however, because of the superior court's mistaken belief that the debtor's bankruptcy filing suspended his obligation to make postpetition mortgage payments as a form of support for Ms. Lawrence.

At the time of trial in this case, a motion was pending in superior court for modification and enforcement of the pendente lite order for support under which Ms. Lawrence is seeking nearly $100,000. for expenses related to her current residence as well as attorney's fees and arrearages. It is this court's understanding that the superior court is awaiting the outcome of this adversary proceeding before making that court's decision on alimony and other matters.

b. Procedural history of this case

Mr. Lawrence filed a petition for relief under chapter 11 of title 11, United States Code (the "Bankruptcy Code" or "Code") on March 25, 1996 and he remains a debtor-in-possession. No plan has been filed because the parties have been waiting for the outcome of this adversary proceeding.

In August, 1996, the debtor commenced the instant adversary proceeding by filing a complaint seeking entry of an order compelling the sale of the marital home, including Ms. Lawrence's interest, free and clear of liens, and avoidance of all judicial liens on the property. Ms. Lawrence counterclaimed for a determination of the amount and character of the debtor's income, a determination that his obligations under the pendente lite order constitute nondischargeable support, a determination of her claim for equitable distribution, a finding that such claim is nondischargeable, and an award of compensatory and punitive damages. The debtor's complaint was resolved by the consensual sale of the marital residence in February, 1998. Proceeds of the sale were distributed in accordance with an escrow agreement entered into by the parties on February 13, 1998. Therefore, only Ms. Lawrence's counterclaims remain before the court.

In July, 1997, Ms. Lawrence filed a motion for partial summary judgment in this adversary proceeding seeking a determination that the debtor's support obligations under the pendente lite orders are nondischargeable under Code section 523(a)(5), the attorney's and accountant's fees incurred in connection with the divorce proceeding are nondischargeable and the unliquidated claim for equitable distribution is nondischargeable. The court issued a letter opinion dated November 21, 1997 in which the court held that principles of equitable distribution are not applicable to determine the extent of the bankruptcy estate's interest in jointly owned property and that the principles of In re Becker, 136 B.R. 113 (Bankr.D.N.J.1992), would be used to measure the parties' interests in the marital home. The court also found that the debtor's pendente lite obligations, including his obligation to pay the mortgage on the marital residence, were in the nature of support and were therefore nondischargeable under Code section 523(a)(5). The court denied Ms. Lawrence's motion for summary judgment regarding her entitlement to a claim for equitable distribution with respect to all assets other than the marital home and the nondischargeability of a claim for equitable distribution. Ms. Lawrence filed an amended counterclaim on December 4, 1997 seeking the additional remedy of a constructive trust on the marital assets.

The parties entered a stipulation of settlement dismissing count one of the counterclaim in which they agreed that income received by the debtor from his law firm for services rendered is not property of the estate, and that his income shall be determined by the superior court when it enters an award of alimony.

In count five, Ms. Lawrence is seeking a determination that the debtor's pre- and post-divorce complaint tortious conduct caused her damages which are nondischargeable under section 523(a)(6) of the Code. This court relinquished jurisdiction to the superior court to determine the extent of any injury suffered by Ms. Lawrence, after which this court will determine the nondischargeability of any judgment for such injury.

The following issues were presented at trial of the remaining counts in this court: (1) which assets comprised the marital estate at the commencement of the divorce proceeding and what was the total value of the marital estate; (2) whether Ms. Lawrence is entitled to a claim against the bankruptcy estate for equitable distribution and if so, in what amount; (3) whether the claim for equitable distribution is nondischargeable under Code section 523(a)(15); (4) whether Ms. Lawrence is entitled to a constructive trust based on unjust enrichment; and (5) whether Ms. Lawrence is entitled to an award of attorney's and accountant's fees. These matters were tried before the court over five days in December, 1998 and January 1999. The parties submitted written summations which were addressed at a hearing on February 4, 1999 at which time the court reserved decision.

c. Factual background

Herbert and Michelle Lawrence were married on March 19, 1978. At that time Ms. Lawrence had several years experience as a dental assistant but no formal training or college education. She stopped working in 1981 and she and the debtor adopted three children. After Ms. Lawrence filed the complaint for divorce in 1993 she began working at a dry cleaning business. Ms. Lawrence is currently a full time employee of that business earning seven dollars per hour and she resides in a townhouse owned by her parents. The three children, who are in their teens or twenties, apparently now live with the debtor or are emancipated.

The debtor is licensed to practice law in the state of New Jersey and has been a practicing attorney since 1970. He has a 100% ownership interest in Herbert F. Lawrence, P.A., doing business as the law firm of Lawrence, Leslie & Kain, P.A., ("LLK"). The law firm primarily represents plaintiffs in personal injury and workers compensation cases.

d. The value of 706 Main Street

The building at 706 Main Street, Asbury Park, from which the law practice is operated is jointly owned by the debtor and Ms. Lawrence. Since the marital residence has been sold, 706 Main Street is the only real property within the marital estate in which Ms. Lawrence holds legal title with the debtor. For a period of time prior to the commencement of the divorce proceeding, the debtor and Ms. Lawrence held a one half interest in the 706 Main Street property and the other half interest was held by a third party, Brenda Perlstein. In 1992, however, the debtor and Ms. Lawrence purchased Ms. Perlstein's interest in the property for $120,000., and Ms. Perlstein took back a mortgage. The debtor and Ms. Lawrence each had the property appraised for purposes of equitable distribution. The debtor's appraisal asserts a market value...