In re Long

• Decision Date: 21 December 1992
• Docket Number: Adv. No. 92-4278.
• Citation: In re Long, 148 B.R. 904 (Bankr. W.D. Mo. 1992)
• Parties: In re Samuel Frank LONG, Debtor. Samuel Frank LONG, Plaintiff, v. Jacqueline D. DONAHUE, Defendant.
• Court: U.S. Bankruptcy Court — Western District of Missouri

148 B.R. 904 (1992)

In re Samuel Frank LONG, DebtorSamuel Frank LONG, Plaintiff, v.Jacqueline D. DONAHUE, Defendant.

Adv. No. 92-4278.

United States Bankruptcy Court, W.D. Missouri.

December 21, 1992.

Steven L. Crouch, Kansas City, MO, for plaintiff.

Ellen Greenberg, Kansas City, MO, for defendant.

ORDER AND MEMORANDUM OPINION

KAREN M.SEE, Bankruptcy Judge.

Two related matters are before the Court: a motion to modify automatic stay and a complaint to determine dischargeability of a debt.The court has jurisdiction over these matters pursuant to 28 U.S.C. § 1334(b), and may enter final orders pursuant to 28 U.S.C. § 157(b)(2)(I).

The issue is whether division of debtor's ERISA-qualified pensions by a pre-petition dissolution decree and property settlement creates a nondischargeable property interest if debtor's ex-spouse is unable to obtain a Qualified Domestic Relations Order before the bankruptcy petition is filed.

Debtor's pensions are excluded from property of the estate pursuant to § 541(c)(2).Patterson v. Shumate,___ U.S. ___, 112 S.Ct. 2242, 119 L.Ed.2d 519(1992).Prohibiting entry of the QDRO post-petition would not increase the assets of the estate available for the benefit of creditors, but would only increase Debtor's pension interests at the expense of his former wife.For the following reasons, the court holds that debtor's former wife has a nondischargeable property interest arising from the pre-petition dissolution decree, and orders the automatic stay modified for the purpose of allowing entry of a Qualified Domestic Relations Order.

I.FACTS

The parties entered into a joint stipulation of facts and agreed not to submit live testimony or other evidence at trial.The parties were divorced by a Decree of Dissolution entered on December 29, 1990.The state court found that Debtor's three ERISA-qualified pension plans were marital property and made the following divisions of the pensions pursuant to the Decree:

a. The International Union of Operating Engineers Central Pension, DefendantJacqueline Donahue was allocated 40 percent of the pension.

b. International Union of Operating Engineers General Pension, DefendantJacqueline Donahue was allocated 40 percent of the pension.

c. Operating Engineers Local 101 Pension Fund, DefendantJacqueline Donahue was allocated 24 percent of the pension.

Debtor Sam Long appealed the Decree to the Missouri Court of Appeals.One of his main points on appeal was that the trial court erred in setting aside part of his pensions to his wife.On January 28, 1992, the appellate court affirmed the judgment of the trial court, including the property settlement award.

Debtor filed for bankruptcy relief under Chapter 7 on May 20, 1992.A Qualified Domestic Relations Order (QDRO) was not entered in the domestic relations case at any time before the bankruptcy.Debtor listed his former wife, Ms. Donahue, on his schedules as a creditor in an amount unknown.The parties stipulated that the Decree did not meet the requirements of an enforceable QDRO and that the pension award was not in the nature of alimony, child support, or maintenance but was intended as a property settlement.

At the request of Debtor's counsel, the court conducted a pretrial conference in late afternoon the day before trial, during which the parties agreed to several additional statements of undisputed fact, which the judge wrote down in the presence of the parties.The parties stipulated that Ms. Donahue attempted to obtain approval of the QDRO in a timely fashion.At trial, Debtor's counsel disavowed entering into a stipulation as to timeliness.In light of counsel's confusion as to the stipulated facts, the court finds, independent of the stipulation, based on facts on record, that Ms. Donahue attempted to obtain the QDRO in a timely manner upon completion of the appeal.

The parties agree that the pension administrators refused to approve a QDRO until the pension issue was resolved by the court of appeals.Although no specific dates were offered as evidence, the parties do not dispute that efforts to obtain the QDRO were underway at the time debtor filed bankruptcy.After the appellate decision became final, there was a period of about three months before the bankruptcy intervened.The court finds that this period was not unreasonable in light of the fact that it was necessary to communicate with administrators of three different pension plans,¹ and the trial court record was under seal.²

This is not a case where the former spouse sat on her rights by failing to diligently pursue entry of the QDRO prior to bankruptcy.Ms. Donahue acted as promptly as possible to obtain the QDRO, and debtor is the party responsible for the lengthy delay in the process which was stayed by the bankruptcy.The period in which Ms. Donahue could accomplish the necessary transactions was controlled solely by debtor, who elected first to appeal the state court judgment, and then elected the time to file bankruptcy.

On August 6, 1992, Ms. Donahue filed a Motion for Relief from Automatic Stay to allow the state domestic relations court to enter a QDRO.Debtor filed an adversary proceeding alleging that without a pre-petition QDRO, Ms. Donahue's claim was dischargeable in bankruptcy.

II.QUALIFIED DOMESTIC RELATIONS ORDERS

In order for the ex-spouse to have an enforceable interest against debtor's ERISA-qualified plan there must be a qualified domestic relations order (QDRO) in place.A QDRO is an express statutory exception to the anti-alienation provisions required for pensions governed by the Employee Retirement Income Security Act (ERISA).29 U.S.C. § 1056(d)(1).Restrictions on assignment and alienation "shall apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a participant pursuant to a domestic relations order, except ... if the order is determined to be a qualified domestic relations order."29 U.S.C. § 1056(d)(3)(A).A "domestic relations order" means "any judgment, decree, or order (including approval of a property settlement agreement) which:

(I) relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse ... and

(II) is made pursuant to a State domestic relations law (including a community property law).

The anti-alienation provisions of ERISA are inapplicable to a QDRO.The requirements for a QDRO are provided by 29 U.S.C. § 1056(d)(3)(B)-(E) and summarized below.A QDRO is a special type of domestic relations order:

(1) which creates or recognizes the existence of an alternate payee\'s right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a plan....

29 U.S.C. § 1056(d)(3)(B)(i)(I).

A QDRO must specify the name, last known mailing address of both the plan participant and alternate payee, amount or percentage of participant's benefits to be paid to the alternate payee, or the manner in which the percentage will be determined, the number of payments due under the order, and the identity of the plan subject to the QDRO.29 U.S.C. § 1056(d)(3)(B)-(C).The Longs' decree of dissolution did not satisfy the requirements for a QDRO because it did not specify the number of payments due under the order.

Notwithstanding the state court's division of the pensions as marital property, the dissolution decree does not create a legal right to debtor's pensions that Ms. Donahue may enforce against the pension administrators.State domestic relations law is preempted "in rare instances where Congress has directly and specifically legislated in the area...."Mansell v. Mansell,490 U.S. 581, 587, 109 S.Ct. 2023, 2028, 104 L.Ed.2d 675(1989).Although Ms. Donahue has no recognizable legal right under ERISA to debtor's pension benefits because she was unable to obtain the QDRO prepetition, she has an equitable interest in debtor's pensions arising from entry of the decree of dissolution.That equitable interest is the right to obtain a QDRO arising from the pre-bankruptcy division of the pensions by the dissolution decree.Ms. Donahue's right to obtain a QDRO is not dischargeable in bankruptcy.

III.PROPERTY RIGHT OR DEBT?

Classification of the claim against debtor's pension funds as either a property right or a debt is necessary to determine whether Debtor can discharge his obligation to pay his ex-wife a portion of his pensions as set forth in the Decree of Dissolution.If division of the pensions creates a debt rather than a property interest in favor of the ex-spouse, then any award to the ex-spouse not in the nature of alimony, child support or maintenance is dischargeable.See,11 U.S.C. § 523(a)(5).

Debtor argues that without a QDRO, his ex-spouse's interest in the pension funds amounts to an unperfected judgment lien created by the divorce decree and is dischargeable as a debt arising from a property settlement.Ms. Donahue responds that the QDRO merely quantifies the ex-spouse's ownership interest and is not required to establish ownership of the funds.The court concludes that Ms. Donahue's right to obtain entry of the QDRO is not a dischargeable debt, but is in the nature of a property interest.

The decree purported to divide debtor's pensions according to each spouse's marital contributions.According to the stipulated facts, the pension interests awarded to Ms. Donahue were not in the nature of alimony, child support or maintenance, but were intended as a property settlement.Debts arising from a divorce decree that are in the nature of a property settlement are not excepted from discharge under § 523(a)(5).Bush v. Taylor,912 F.2d 989, 993(8th Cir.1990).In this case, however, there is no debtor-creditor relationship between the parties arising from the property settlement.Entry of a QDRO herein is more akin to exercising a property right than to collection of a pre-petition debt.

The court...