In re Nix, Bankruptcy No. G90-21690-REB. Adv. No. 93-2038.
| Decision Date | 18 October 1994 |
| Docket Number | Bankruptcy No. G90-21690-REB. Adv. No. 93-2038. |
| Citation | 185 BR 929 |
| Parties | In re E. Gerald NIX, Debtor. E. Gerald NIX, Plaintiff, v. Euzelia NIX, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
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Harmon T. Smith, Jr., Gainesville, GA, for plaintiff.
John E. Kardos, Kardos, Warnes & McElwee, Athens, GA, for defendant.
This adversary proceeding is before the Court on cross-motions for summary judgment. In his complaint, Plaintiff-Debtor seeks a determination that a jury award of $500,000 to Defendant arising out of the parties' divorce is dischargeable because it constitutes a property settlement. Defendant counters that the obligation is in the nature of alimony, maintenance, or support and thus is nondischargeable pursuant to 11 U.S.C. § 523(a)(5). This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I). After reviewing the record and evidence presented, and after considering the argument presented in the briefs, the Court concludes that Defendant's motion should be granted and Plaintiff-Debtor's motion should be denied.
The following material facts are not in dispute. The parties were divorced in 1985 and on February 3, 1987, the Superior Court of Hall County, Georgia entered a Final Judgment and Decree which incorporated a verdict returned on January 15, 1987 after a jury trial. By virtue of this Decree, Defendant was awarded child support of $600 per week, certain real and personal property, and a lump sum cash award in the amount of $500,000. Four children were born to the parties during their marriage and Defendant was awarded custody of the three minor children by previous agreement.
The property awarded to Defendant, which was separately listed in the verdict under "Equitable Division of Property," consisted of the marital residence and furnishings with the mortgage balance to be assumed by Defendant, three lake lots and dock with a mortgage to be paid by Plaintiff, a Cadillac and a pickup truck, and one half of a pension plan and Keogh Plan. No other property was awarded to her in this part of the verdict. The Decree also incorporated a brief colloquy between the court and the jury foreman which clarified that any property not specifically identified in the verdict was awarded to the party in whose name it was titled. See Decree of February 3, 1987, ¶ 9, attached as Exhibit "D" to Plaintiff's motion.
The lump sum cash award was set forth in the verdict under the heading "Alimony" and stated that "we the jury find that the plaintiff Defendant herein is entitled to alimony as follows: the following being inserted by hand $500,000.00 cash award to be paid $100,000 per year for five years or with option to pay-off in full." See Verdict of January 15, 1987, attached as Exhibit "C" to Plaintiff's motion. No other payment terms were provided. This award constituted the only provision specifically designated as alimony in the verdict.
In paragraph 7 of the Decree, the trial judge interpreted the jury's award "to be a lump sum award payable in periodic installments, at Defendant's Plaintiff herein option." See Decree at 9, attached as Exhibit "D" to Plaintiff's motion. Further, the court ordered that if Plaintiff elected to pay the award at the rate of $100,000 per year, "the first payment of $100,000 shall be made . . . not later than the 15th day of January, 1988 and a like amount shall be paid . . . not later than said date of each succeeding year" for the next four years until the amount awarded was fully paid. Id. In paragraph 8, the trial judge ordered that the right of Defendant herein to recover these payments "shall not be affected by the death or remarriage of either party" and any unpaid balance existing at the time of Plaintiff's death would be a charge against his estate. Id. at 10. Shortly thereafter, Plaintiff elected to pay the award on a periodic annual basis.
Defendant subsequently filed a motion for temporary relief on March 3, 1987 seeking temporary alimony and attorney's fees during the pendency of a motion for a new trial which had been filed by Plaintiff. The court granted Defendant's motion and ordered Plaintiff to pay child support and all necessary medical expenses of the minor children. In addition, Defendant was awarded $1,500 per month for her support pending further order of the court. The superior court also ordered, by means of a handwritten notation apparently initialed by the judge, that any amounts so paid were "to be set-off against the lump sum alimony awarded in the final judgment." Order of March 13, 1987, ¶ 3, attached as Exhibit "G" to Plaintiff's motion. Defendant received five such payments from Plaintiff in 1987 in the total amount of $7,500. In addition, Plaintiff paid $292,500 toward the award on an annual basis through 1990, leaving the sum of $200,000 as unpaid and in arrears. He filed a petition under Chapter 11 on December 28, 1990 and this case was converted to a case under Chapter 7 on June 7, 1993.
During their marriage of 24 years, Plaintiff and Defendant reared four children and maintained a comfortable standard of living while acquiring substantial marital property. At the time of the entry of the jury verdict, Plaintiff maintained a successful professional practice as an orthodontist earning in excess of $225,000. Although she later earned her masters degree in childhood education, during the marriage Defendant was a homemaker and primary caretaker for the children. At the time of the trial, she had been out of the public job market for 19 years. Plaintiff disputes Defendant's claim that a large disparity in earning ability existed between them; however, Plaintiff acknowledges that at the time of the trial, Defendant was not qualified to earn as much income as he and needed additional training over time to improve her earning potential.
At the time of the divorce, Plaintiff's net worth exceeded $2 million. He was allowed to retain property which included a 340 acre farm, an automobile dealership, and certain secured real estate notes. He asserts that the combined value of the marital home and lake front property awarded to Defendant was $700,000, but she contests this allegation, primarily, because she was required to assume the mortgage on the marital residence.
Defendant argues that at the time of the jury verdict, she was virtually unemployed and needed substantial support. Without the $500,000 award, she contends, she would have been forced to liquidate some of the property awarded to her by equitable division in order to meet normal living expenses, pay the mortgage on the family home, and continue her education in hopes of becoming financially self-sufficient. Plaintiff challenges Defendant's claim that she was not self-supporting at the time of the divorce and incapable of meeting her bills without an award of support. He argues that based on certain gifts of stocks and bonds, coupled with the one-half interest in the pension fund ($93,664.50), child support, and the lake front property she had been awarded, Defendant had ample means of support without the $500,000 award.
Under Section 523(a)(5), the burden of proof is on Defendant to establish that the lump sum award of $500,000, $200,000 of which remains unpaid, is "actually in the nature of alimony, maintenance, or support" as distinguished from a property settlement, and thus nondischargeable. See Harrell v. Sharp (In re Harrell), 754 F.2d 902, 905 (11th Cir.1985); Edwards v. Edwards (In re Edwards), 31 B.R. 113 (Bankr.N.D.Ga.1983); see also Youngman v. Youngman (In re Youngman), 122 B.R. 612, 614 (Bankr. N.D.Ga.1991). Although the validity and enforceability of a claim is determined by reference to state law, federal law governs with respect to the characterization of an obligation as support and thus, whether it is dischargeable in bankruptcy. In this case, issues regarding alimony and property division were submitted to a jury to which the state trial judge was required to conform his final judgment. Accordingly, this Court's inquiry is directed to ascertaining the substance of the obligation and the jury's intent in regard thereto. See Long v. West (In re Long), 794 F.2d 928, 931 (4th Cir.1986).1
Defendant asserts that several factors indicate that the award was intended to function as support. For instance, as clearly shown on the face of the verdict form, the jury decided that, in addition to an equitable division of specifically identified property, Defendant was also entitled to an award of alimony to be provided in the form of a $500,000 cash award. Further, she argues that the award was intended as support given the disparity in the parties' relative financial status as demonstrated by the differences in their earning ability, prior work experience, business opportunities, level of education, benefits she would have received had the marriage continued, probable future need, and existence of other means of support or financial resources.
Although it is not conclusive, the jury's deliberate designation of the award as alimony in a distinct category in its verdict, as distinguished from its prior, separate equitable division of property, does provide relevant insight into the purpose of the award. See Long, supra, 794 F.2d at 931; Myers v. Myers (In re Myers), 61 B.R. 891, 894 (Bankr.N.D.Ga.1986); see also Youngman, supra, 122 B.R. at 614-15; accord Harrell, supra, 754 F.2d at 906. Further, the factors as asserted by Defendant tend to support the conclusion that the substance and function of the award was to provide for her support needs. See generally Davidson v. Davidson (In re Davidson), 104 B.R. 788, 794-95 (Bankr.N.D.Tex.1989), aff'd, 133 B.R. 795 (N.D.Tex.1990), rev'd on other grounds, 947 F.2d 1294 (5th Cir.1991); see also Montgomery v. Montgomery (In re Montgomery), 169 B.R. 442, 444 (Bankr.M.D.Fla.1994).
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