In re Moeder, BAP No. 97-6098NE.

• Decision Date: 28 April 1998
• Docket Number: BAP No. 97-6098NE.
• Citation: 220 BR 52
• Parties: In re Michael MOEDER, Debtor. Martha MOEDER, Plaintiff-Appellee, v. Michael MOEDER, Defendant-Appellant.
• Court: U.S. Bankruptcy Appellate Panel, Eighth Circuit

220 B.R. 52 (1998)

In re Michael MOEDER, Debtor Martha MOEDER, Plaintiff-Appellee, v. Michael MOEDER, Defendant-Appellant.

BAP No. 97-6098NE.

United States Bankruptcy Appellate Panel of the Eighth Circuit.

Submitted March 13, 1998.

Decided April 28, 1998.

Michael J. Moeder, Lincoln, NE, pro se.

Carole Jean McMahon-Boies, Lincoln, NE, for appellee.

Before KOGER, Chief Judge, SCOTT, and DREHER, Bankruptcy Judges.

DREHER, Bankruptcy Judge.

This appeal allows us to revisit the issue of the dischargeability of marital obligations under § 523 of the Bankruptcy Code. The bankruptcy court in this case held that certain debts owed to the debtor's former spouse are nondischargeable under 11 U.S.C. § 523(a)(5) and (a)(15). After carefully considering the arguments of the parties and the record on appeal, we affirm in part and reverse in part.

I. BACKGROUND

Michael ("Michael") and Martha ("Martha") Moeder were married on November 20, 1982. During their marriage, the parties adopted Nicole Michelle Moeder, a minor child born on September 13, 1990. Eventually Michael and Martha separated, and, on March 22, 1996, they were divorced by decree entered in Nebraska state court. Under the terms of the divorce decree, Martha was awarded sole custody of Nicole and Michael was ordered to pay child support in the sum of $265 per month until Nicole reached the age of majority, died or became emancipated. In addition, the state court ordered Michael to: (1) pay alimony in the amount of $100 per month for a term of forty-eight months; (2) provide health insurance for Nicole; (3) pay 78% of all unreimbursed medical expenses incurred on Nicole's behalf; (4) pay a $985 outstanding debt to Nicole's child psychologist; and (5) pay to Martha the sum of $10,392 plus interest, representing Martha's share of the marital property awarded to Michael under the decree.

On September 24, 1996, Michael filed a petition for relief under Chapter 7 of the United States Bankruptcy Code. On October 24, 1996, Martha commenced the present adversary proceeding, seeking a determination that certain of Michael's obligations under the divorce decree are nondischargeable pursuant to 11 U.S.C. § 523(a)(5) and (a)(15). After conducting a trial on the issue, the bankruptcy court ruled that Michael's obligation to pay alimony, his obligation to pay Nicole's medical expenses, and his obligation to pay the child psychologist constituted non-dischargeable "alimony, maintenance or support" under § 523(a)(5). The bankruptcy court further ruled that Michael's $10,392 property settlement obligation constituted a nondischargeable property settlement pursuant to § 523(a)(15). In making its decision under § 523(a)(15), the bankruptcy court found that Michael did not have the ability to pay his debt to Martha from his disposable income, but nevertheless concluded that the debt was nondischargeable because the benefit to Michael of discharging the debt was outweighed by the detrimental effect that nonpayment of the debt would have on Martha. Michael appeals.¹

II. DISCUSSION

Section 523(a) of the Bankruptcy Code excepts certain categories of debts from a debtor's discharge granted under section 727, 1141, 1228(a), 1228(b) or 1328(b). Among the debts rendered nondischargeable by this provision are marital obligations owed to a spouse, former spouse, or child of the debtor incurred by the debtor in the course of a divorce or separation. Specifically, § 523(a)(5) of the Code excepts from discharge any debt:

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 (other than debts assigned pursuant to section 408(a)(3) of the Social Security Act, or any such debt which has been assigned to the Federal Government or to a State or any political subdivision of such State); 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.

11 U.S.C. § 523(a)(5) (1994). Thus, under § 523(a)(5), a debt that is "actually in the nature of alimony, maintenance or support of a spouse, former spouse, or child of the debtor" is nondischargeable in bankruptcy.

In 1994, Congress expanded the exception to discharge for marital obligations by adding § 523(a)(15) to the Bankruptcy Code. Section 523(a)(15) renders nondischargeable any debt:

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 dependant of the debtor and, if the debtor is engaged in 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.

Id. § 523(a)(15). Section 523(a)(15) excepts from discharge those debts arising out of marital dissolution proceedings that do not constitute nondischargeable alimony, maintenance or support under § 523(a)(5); i.e. property settlement awards. The legislative history of this provision indicates that it was added to the Bankruptcy Code to provide greater protection for nondebtor divorcing spouses who agree to take reduced alimony and support payments in exchange for an increased property settlement. H.R. REP. No. 103-385, at 54 (1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3363. Thus, while a debtor's obligation to make a settlement of marital property would be dischargeable under § 523(a)(5), such an obligation is nondischargeable under § 523(a)(15), with two important exceptions: (1) subsection (A) of § 523(a)(15) provides that a property settlement award arising out of divorce proceedings is dischargeable where the debtor does not have the ability to pay the debt from disposable income; and (2) subsection (B) provides that such a property settlement award is dischargeable where discharging such debt would result in a benefit to the debtor that outweighs the detrimental consequences to the nondebtor spouse. See Jodoin v. Samayoa (In re Jodoin), 209 B.R. 132, 139 (9th Cir. BAP 1997); Schaefer v. Deppe (In re Deppe), 217 B.R. 253, 259 (Bankr.D.Minn.1998); Johnson v. Rappleye (In re Rappleye), 210 B.R. 336, 340 (Bankr. W.D.Mo.1997); Williams v. Williams (In re Williams), 210 B.R. 344, 346 (Bankr.D.Neb. 1997); Wellner v. Clark (In re Clark), 207 B.R. 651, 655-56 (Bankr.E.D.Mo.1997).

As we have previously stated, the question of whether a particular debt constitutes "alimony, maintenance or support" or rather constitutes a property settlement is a question of federal bankruptcy law, not of state law. Tatge v. Tatge (In re Tatge), 212 B.R. 604, 608 (8th Cir. BAP 1997) (citing Williams v. Williams (In re Williams), 703 F.2d 1055, 1056 (8th Cir.1983) (quoting H.R.REP. No. 95-595, 95th Cong. 2nd Sess. at p. 364, 1978 U.S.Code Cong. & Ad.News at p. 6319 (1977))). The crucial issue in making this determination is the intent of the parties and the function the award was intended to serve at the time of the divorce. Holliday v. Kline (In re Kline), 65 F.3d 749, 751 (8th Cir.1995); Adams v. Zentz, 963 F.2d 197, 200 (8th Cir.1992); Williams, 703 F.2d at 1056; Boyle v. Donovan, 724 F.2d 681, 683 (8th Cir.1984). Factors to be considered by the courts in determining whether an award arising out of marital dissolution proceedings was intended to serve as an award for alimony, maintenance or support, or whether it was intended to serve as a property settlement include, but are not limited to: the relative financial conditions of the parties at the time of the divorce; the respective employment histories and prospects for financial support; the fact that one party or another receives the marital property; the periodic nature of the payments; and whether it would be difficult for the former spouse and children to subsist without the payments. Tatge, 212 B.R. at 608; Kubik v. Kubik (In re Kubik), 215 B.R. 595, 599 (Bankr.D.N.D. 1997). The bankruptcy court's determination of this issue constitutes a finding of fact that may be reversed only if it is clearly erroneous under the evidence presented. First Nat'l Bank v. Pontow, 111 F.3d 604, 609 (8th Cir.1997); Kline, 65 F.3d at 750; Adams, 963 F.2d at 200; Williams, 703 F.2d at 1056.

Applying these principles to the first part of the bankruptcy court's holding, we have no trouble affirming the bankruptcy court's determination that Michael's obligations to pay alimony, medical expenses and the psychologist's bill are nondischargeable under § 523(a)(5). The record before us indicates that, in ordering Michael to pay these debts, the divorce court was concerned with balancing the income and earning capacities of the parties and with providing for the proper care and support of Nicole. Thus, we hold that the bankruptcy court's finding that these debts were intended to serve the function of "alimony, maintenance or support" was not clearly erroneous.

We reach a different conclusion with respect to the bankruptcy court's holding that Michael's obligation to pay Martha $10,392 plus interest is nondischargeable under § 523(a)(15), however. Although the court's finding that this debt was intended to serve the...