In re Mason

• Decision Date: 28 November 2012
• Docket Number: No. 2012–096.,2012–096.
• Citation: 58 A.3d 1153,164 N.H. 391
• Parties: In the Matter of Robin MASON and Martin Mason.
• Court: New Hampshire Supreme Court

164 N.H. 391

58 A.3d 1153

In the Matter of Robin MASON and Martin Mason.

No. 2012–096.

Supreme Court of New Hampshire.

Argued: Sept. 20, 2012.

Opinion Issued: Nov. 28, 2012.

Robin Mason, by brief, pro se.

Cheryl C. Deshaies, of Exeter on the brief and orally, and Tamposi Law Group, of Nashua (Peter Tamposi on the brief), for the respondent.

LYNN, J.

The respondent, Martin Mason, appeals an order of the 1st Circuit Court—Berlin Family Division (Patten, J.), upon the recommendation of the Marital Master (Barber, M.), finding that the obligation of the petitioner, Robin Mason, to pay 50% of Martin's federal income taxes was automatically discharged in Robin's proceedings for bankruptcy under Chapter 7 of the United States Bankruptcy Code, 11 U.S.C. §§ 701 et seq. (2006). We affirm in part, reverse in part, and remand.

The following facts were either found by the trial court or are undisputed. The parties' final decree of divorce was issued in October 2007. It directed Robin to pay 50% of Martin's federal income taxes for 2006. In September 2010, Robin filed for Chapter 7 bankruptcy, listing her obligation under the divorce decree in three separate places. She listed Martin as a creditor holding an unsecured nonpriority claim for $4,519.50 for "2010; divorce settlement" and as a codebtor on a "federal tax lien." She also included among her unsecured priority claims a "2006; Federal Tax lien joint with ex husband" in the amount of $5,052.82. In December 2010, the United States Bankruptcy Court for the District of New Hampshire found Robin entitled to a discharge. Robin and Martin each petitioned the Internal Revenue Service (IRS) for "innocent spouse" relief^* from their federal income tax liability for 2006. Her petition was granted; his was denied.

In July 2011, Martin filed a motion for contempt in the 1st Circuit Court—Berlin Family Division, asking the court to order Robin to pay 50% of his federal income tax liability for 2006. The court found that, even though "innocent spouse" relief "changed the nature of [Robin's] obligation from a tax debt to a debt owed [Martin,]" bankruptcy had absolved Robin of her obligation to pay 50% of Martin's 2006 federal income taxes. The court reasoned as follows:

[Robin] sought to have her debt to [Martin] discharged in bankruptcy. Toward [that] end, in her bankruptcy petition [Robin] noticed [Martin] as a creditor for "2010: divorce settlement" in the amount of the original debt to the IRS. [Martin] was duly noticed that he was listed as a creditor and had the opportunity to litigate the issue in the bankruptcy court. [Robin] was granted a bankruptcy and the debt was discharged.

The trial court denied Martin's motion for contempt as well as his request for attorney's fees. This appeal followed.

On appeal, Martin argues that the trial court erred as a matter of law when it found that Robin's obligation to pay 50% of his 2006 federal income taxes had been discharged in bankruptcy because he failed to make a showing before the bankruptcy court that her obligation was non-dischargeable. Martin also argues that the trial court erred as a matter of law and unsustainably exercised its discretion when it declined to award him attorney's fees and costs. We address each argument in turn.

I. Dischargeability of Robin's Debt

As an initial matter, we find that this court has jurisdiction to determine the dischargeability of the debt at issue, contrary to Robin's argument that "[i]n a contested case, whether a debt is nondischargeable is a matter for the Bankruptcy Court alone to decide." Federal "district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11," subject to an exception not at issue here. 28 U.S.C. §§ 1334(b), (e)(2) (2006) (emphasis added). "While it is true that state courts lack jurisdiction to modify or to grant relief from a bankruptcy court's discharge injunction, they retain ... concurrent jurisdiction under 28 U.S.C. § 1334(b) to construe the discharge and determine whether a particular debt is or is not within the discharge." Sunbeam Corp. v. Dortch, 313 S.W.3d 114, 115–16 (Ky.2010) (quotation omitted); see Howard v. Howard, 336 S.W.3d 433, 442 (Ky.2011) ; State of New York High. Ed. v. Rochlitz, 132 Misc.2d 664, 505 N.Y.S.2d 354, 356 (Sup.Ct.1986) ; In re Grabinski, 150 B.R. 427, 432 (Bankr.N.D.Ill.1993).

Turning to the merits of the appeal, we find that the trial court erred as a matter of law when it found that Robin's obligation to pay 50% of Martin's 2006 federal income taxes had been discharged in bankruptcy. Section 523 of the Bankruptcy Code deals with exceptions to discharge for certain kinds of debts. 11 U.S.C. § 523 (2006) provides:

(a) A discharge under [Chapter 7] does not discharge an individual debtor from any debt— ...

(5) for a domestic support obligation;

...

(15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit....

Certain debts under 11 U.S.C. § 523(a) are non-dischargeable only if the creditor makes the necessary showing in bankruptcy.

Except as provided in subsection (a)(3)(B) of this section, the debtor shall be discharged from a debt of a kind specified in paragraph (2), (4), or (6) of subsection (a) of this section, unless, on request of the creditor to whom such debt is owed, and after notice and a hearing, the court determines such debt to be excepted from discharge under paragraph (2), (4), or (6), as the case may be, of subsection (a) of this section.

11 U.S.C. § 523(c)(1) (2006).

The issue here is whether a debt under 11 U.S.C. § 523(a)(15) is automatically non-dischargeable in bankruptcy, or whether the creditor must request the bankruptcy court not to discharge the debt. We conclude that since the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub.L. No. 109–8 (codified as amended at 11 U.S.C. § 523 (2006) ), a debt under 11 U.S.C. § 523(a)(15) is automatically non-dischargeable in Chapter 7 bankruptcy. Prior to BAPCPA, 11 U.S.C. § 523(a) (2000) exempted from discharge any debt:

(5) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that —

(A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise ...; or (B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support....

...

(15) not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, a determination made in accordance with State or territorial law by a governmental unit unless —

(A) the debtor does not have the ability to pay such debt from income or property of the debtor not reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor and, if the debtor is engaged in a business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business; or

(B) discharging such debt would result in a benefit to the debtor that outweighs the detrimental consequences to a spouse, former spouse, or child of the debtor....

11 U.S.C. § 523(a) (2000) (emphasis added). Also prior to 2005, debts under 11 U.S.C. § 523(a)(15) were included in 11 U.S.C. § 523(c)(1) (2000). Thus, a creditor had to make a showing in bankruptcy court in order to preserve the non-dischargeability of the debt under 11 U.S.C. § 523(a)(15).

BAPCPA eliminated the balancing tests that the bankruptcy court had to undertake in order to determine whether debts under 11 U.S.C. § 523(a)(15) were exempt from discharge.

[T]here is no longer a distinction made between an alimony, maintenance or support claim and a property settlement.... This change also means that there is no longer a need for the balancing test imposed by former § 523(a)(15). That provision is now simplified to provide that a debt to a spouse, former spouse or child of the debtor that is incurred by the debtor in the course of a divorce or separation and that is not covered by § 523(a)(5) is excepted from discharge, whether the obligation is the product of an agreement, divorce decree, order of a court of record or determination made in accordance with state or territorial law by a governmental unit.

Fitzgerald, We All Live in a Yellow Submarine: BAPCPA's Impact on Family Law Matters, 31 S. Ill. U.L.J. 563, 566 (2007).

Consequently, as a debtor's ability to pay is no longer a factor bankruptcy courts consider when analyzing whether a debt is non-dischargeable under § 523(a)(15), courts do not engage in any balancing test of whether a debtor would gain more than his or her domestic relations creditors if the debtor were granted a discharge.

... As amended, §§ 523(a)(5) and (a)(15) provide that a chapter 7 bankruptcy does not discharge an individual debtor from any debt [which falls under 11 U.S.C. §§ 523(a)(5) and (15) ].

Prensky v. Clair Greifer LLP, No. 09–6200, 2010 WL 2674039, at *4 (D.N.J. June 30, 2010) (citation omitted). Since 2005, a debt under 11 U.S.C. § 523(a)(15) is automatically non-dischargeable.

Robin's obligation under the divorce decree to pay 50% of Martin's 2006 federal income taxes was automatically non-dischargeable because it was a debt...