In re Radinick

• Decision Date: 03 December 2009
• Docket Number: Bankruptcy No. 08-26139-MBM.
• Citation: 419 B.R. 291
• Parties: In re Kimberly A. RADINICK, Debtor. Carlota M. Bohm, Trustee for the Bankruptcy Estate of Kimberly A. Radinick, Movant, v. Kimberly A. Radinick, Respondent.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

419 B.R. 291

In re Kimberly A. RADINICK, Debtor Carlota M. Bohm, Trustee for the Bankruptcy Estate of Kimberly A. Radinick, Movant, v. Kimberly A. Radinick, Respondent.

Bankruptcy No. 08-26139-MBM.

United States Bankruptcy Court, W.D. Pennsylvania.

December 3, 2009.

Carlota M. Bohm, for Carlota M. Bohm, the Trustee.

Mary Bower Sheats, for Kimberly A. Radinick.

MEMORANDUM OPINION

M. BRUCE McCULLOUGH, Bankruptcy Judge.

Carlota Bohm, the Chapter 7 Trustee for the bankruptcy estate of Kimberly Radinick the instant debtor (hereafter "the Trustee"), has filed an "Objection of Trustee to Debtor's Exemptions and Amended Exemptions and Motion to Clarify Exemption" (Doc. No. 32) so as to object to several exemptions that have been taken by Ms. Radinick (hereafter "the Debtor"). The instant Memorandum Opinion only deals with the Debtor's exemption of her marital interest in her estranged spouse's individual retirement account; the accompanying Order of Court deals with all of the Trustee's exemption objections, including the Trustee's objection to the aforesaid individual retirement account marital interest. For the reasons that are set forth below, and subsequent to hearings on the matter that were held on June 9, 2009, and August 11, 2009, the Court shall (a) rule that the Debtor's marital interest in her estranged spouse's individual retirement account, as well as anything that might be derived therefrom, constitutes property of the Debtor's bankruptcy estate, and (b) defer ruling on the Trustee's objection to the Debtor's exemption of such marital interest, as well as the Trustee's other exemption objections, until a final decision regarding equitable distribution is rendered in the Debtor's presently-pending divorce action.

STATEMENT OF FACTS

The Debtor filed for divorce and requested equitable distribution of marital assets owned by herself and her estranged spouse on November 28, 2006. The Debtor commenced the instant bankruptcy case on September 16, 2008. The state court wherein the divorce action was commenced has not yet either granted a divorce nor resolved the Debtor's request for equitable distribution—in other words, the issues of divorce and equitable distribution remain pending as of the present time.

Marital assets of the Debtor and her estranged spouse include the Debtor's estranged spouse's 401(k) plan rollover from his former employment with Westfalia Surge, which fund now appears to be invested in an individual retirement account with Edward D. Jones & Co. that the Court shall presume is exempt from taxation under section 408 of the Internal Revenue Code (hereafter "the Estranged Spouse's Retirement Plan"). The Trustee and the Debtor have stipulated that the entire value of the Estranged Spouse's Retirement Plan is approximately $130,000, although the Court is uncertain as of what date such value is attributed to such retirement plan. The Estranged Spouse's Retirement Plan is presently owned solely by the Debtor's estranged spouse, notwithstanding that such retirement plan constitutes a marital asset.

DISCUSSION

I. Whether the Debtor's marital right to the Estranged Spouse's Retirement Plan constitutes property of the Debtor's bankruptcy estate pursuant to 11 U.S.C. § 541(a)(1), and whether anything derived from such marital right also constitutes bankruptcy estate property?

The Debtor and the Trustee have stipulated that the sole issue that remains for resolution by this Court regarding the Debtor's marital (i.e., equitable distribution) right to the Estranged Spouse's Retirement Plan is whether such right may be exempted by the Debtor. One can infer from such stipulation that the Debtor thus agrees that such marital right constitutes property of her bankruptcy estate. Such an inference, that is that the Debtor agrees that such marital right constitutes property of her bankruptcy estate, is also consistent with the fact that the Debtor has listed such marital right as her property in her Bankruptcy Schedule B, and that the Debtor has taken an exemption in such marital right in her Bankruptcy Schedule C—of course, a debtor need, in fact can, only exempt property that first constitutes bankruptcy estate property. However, the Debtor now argues for the first time that her marital right to the Estranged Spouse's Retirement Plan does not constitute property of her bankruptcy estate.

The Debtor argues as she does because (a) she contends, as a matter of law, that, if a debtor is still married when such debtor's bankruptcy petition is filed, then such debtor's marital (i.e., equitable distribution) interest in such debtor's estranged spouse's separately-titled property will only become bankruptcy estate property if a divorce or property settlement occurs within 180 days of the bankruptcy petition filing date, (b) she was married when she commenced her bankruptcy case, and (c) a period of much more than 180 days has passed since she commenced her bankruptcy case and, as of the present time, she has not become divorced. For the foregoing statement of law, the Debtor relies entirely on the decisions in Kane v. Kane, 2009 WL 3208653 (D.N.J.2009),¹ and In re Frederes, 141 B.R. 289 (Bankr. W.D.N.Y.1992).

In both Kane and Frederes it was determined that (a) the debtors therein, both of whom were married at the commencement of their respective bankruptcy cases, did not own marital interests in property (i.e., equitable distribution rights) as of such case commencements precisely because they were still married, (b) such marital interests, since they did not even exist as of such case commencements, thus could not constitute bankruptcy estate property under 11 U.S.C. § 541(a)(1),² and (c) such marital interests could only constitute bankruptcy estate property under 11 U.S.C. § 541(a)(5)(B)³ in the event that divorces or property settlements occurred within 180 days of such case commencements. See Kane, 2009 WL 3208653 at 3-4; Frederes, 141 B.R. at 291-292. Unfortunately for the Debtor, state law determines the nature of property rights when considering whether something constitutes bankruptcy estate property under § 541(a), see Frederes, 141 B.R. at 291 (citing Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L.Ed.2d 136 (1979)), and in both Kane and Frederes the courts therein held that, pursuant to New Jersey and New York law respectively, a marital interest in property (i.e., a right to equitable distribution) only arises, that is vests, upon the entry of a judgment of divorce. See Kane, 2009 WL 3208653 at 3; Frederes, 141 B.R. at 291. Because bankruptcy debtors who file for divorce in either New Jersey or New York thus obtain marital interests in property only upon becoming divorced, the Kane and Frederes courts were constrained to rule as they did.

However, in contrast to the law in New Jersey and in New York, in Pennsylvania a marital interest in property (i.e., a right to equitable distribution) vests immediately upon the initiation of a divorce action coupled with the request for equitable distribution of marital assets. See In re Bennett, 175 B.R. 181, 185 & 186 nn. 5 & 6 (Bankr.E.D.Pa.1994) (citing In re Wilson, 85 B.R. 722, 726 (Bankr.E.D.Pa. 1988)); In re Polliard, 152 B.R. 51, 53 (Bankr.W.D.Pa.1993). Such marital interest constitutes a property interest in marital assets. See Bennett, 175 B.R. at 184; In re Scholl, 234 B.R. 636, 641 (Bankr. E.D.Pa.1999). Therefore, if a debtor, prior to filing a bankruptcy petition, files for divorce in Pennsylvania and also requests equitable distribution, such debtor will, as of the date of such bankruptcy petition filing, possess a marital interest in property, which marital interest (a) itself constitutes a legal and/or equitable interest of the debtor in property as of the commencement of the case, regardless of when such debtor becomes divorced, see Bennett, 175 B.R. at 182 & 184; Scholl, 234 B.R. at 638 & 641, and (b) will thus constitute bankruptcy estate property regardless of when such debtor becomes divorced, see 11 U.S.C.A. § 541(a)(1). The only way that the marital interest of a debtor who files for divorce in Pennsylvania will not become bankruptcy estate property is if such debtor refrains from filing for divorce and/or requesting equitable distribution until after such debtor first commences such debtor's bankruptcy case. Unfortunately for the Debtor, she filed for divorce in Pennsylvania and requested equitable distribution nearly two years prior to the date upon which she commenced the instant bankruptcy case. Therefore, in accordance with the foregoing statement of the law, the Debtor possessed a marital interest in property—in particular, the Estranged Spouse's Retirement Plan—when she filed for bankruptcy, which marital interest consequently constitutes property of her bankruptcy estate pursuant to § 541(a)(1).

Although the Debtor does not explicitly argue as much, the Court presumes that the Debtor would also contend that anything that she might ultimately derive from her marital interest in the Estranged Spouse's Retirement Plan via equitable distribution will not constitute bankruptcy estate property because (a) such equitable distribution has not yet occurred, (b) more than 180 days have elapsed since the commencement of the instant bankruptcy case, and (c) such distribution consequently could not constitute bankruptcy estate property pursuant to 11 U.S.C. § 541(a)(5)(B). However, the Trustee argues, and the Court rules as well, that, consistent with a prior ruling of this Court in another bankruptcy case, anything that the Debtor might derive from her right to equitable distribution vis-a-vis the Estranged Spouse's Retirement Plan will (a) constitute proceeds or product of or from property of the Debtor's bankruptcy estate (such bankruptcy estate property being the Debtor's marital interest in the Estranged Spouse's Retirement Plan), and (b) thus also constitute bankruptcy estate property, pursuant to 11...