In re Randolph

• Decision Date: 29 January 2016
• Docket Number: CASE NO. 15–59532–BEM
• Citation: 546 B.R. 474
• Parties: In re: Kevin Matthew Randolph, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

546 B.R. 474

In re: Kevin Matthew Randolph, Debtor.

CASE NO. 15–59532–BEM

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

Signed January 29, 2016

John Clayton Davis, John Clayton Davis, PC, McDonough, GA, for Debtor.

ORDER ON OBJECTION TO DISALLOW EXEMPTION

Barbara Ellis-Monro, Bankruptcy Judge

This case comes before the Court on Neil C. Gordon, Chapter 7 Trustee's (the "Trustee") Objection to Claimed Exemptions and Supplement to Objection to Claimed Exemptions (collectively, the "Objection") and Debtor's Response to Trustee's Objection to Claimed Exemptions (the "Response"). [Doc. Nos. 23, 39, 56]. A hearing on the Objection and Response was held on November 4, 2015 at which Michael J. Bargar appeared on behalf of the Trustee and John Clayton Davis appeared on behalf of Debtor. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(B).

I. Facts and Procedural Background

On May 14, 2015, Debtor and his now former spouse, Judith Randolph ("Ms.Randolph") signed a Settlement Agreement which, in relevant part, provided for the division of the couple's property (the "Settlement Agreement"). [Doc. No. 40, p. 10]. On the same date, Debtor executed a quitclaim deed pursuant to which he "bargained, sold, and does by these presents ... bargain, sell, remise, release and forever quit-claim ... all the right, title, interest, claim or demand which the Grantor has or may have had in and to" the real property located at 435 Jackson Street, Locust Grove, Georgia 30248 (the "Property") to Ms. Randolph (the "Deed"). [Doc. No. 56 Ex. A]. The Deed states further that, "neither the said Grantor, nor any other person or persons claiming under Grantor shall at any time claim or demand any right, title or interest to the [Property]" and that the Deed is "[s]igned, sealed and delivered" in the presence of the witnesses. Id. Similarly, the Settlement Agreement states, with respect to the Property:

[t]he Wife and children reside in a marital home located at 435 Jackson Street, Locust Grove, Henry County, Georgia 30243. The parties have a first mortgage on this home for which they are jointly liable. The Wife shall have exclusive use, possession and ownership of the marital home. Contemporaneously with the execution of this Agreement and as part of the equitable division of property, for good and valuable consideration, the sufficiency and receipt of which is acknowledge [sic], Husband does hereby devise, quitclaim, and transfer to Wife all of his right, title, and interest in the real property known as 435 Jackson Street, Locust Grove, Henry County Georgia 30248.... This Agreement and any court order in which it is incorporated may be filed in the real estate records of the Henry County Superior Court and shall be sufficient to transfer the property to Wife.

[Doc. No. 40, p. 3, 4].

The following day, May 15, 2015, Ms. Randolph filed a Complaint for Divorce in the Superior Court of Henry County (the "Divorce Proceeding"). [Doc. No. 45]. The Deed and the Settlement Agreement were filed in the Divorce Proceeding on May 15, 2015. [Doc. Nos. 56 Ex. A; 40]. The Deed was recorded in the Superior Court of Henry County on May 18, 2015. Id. A Final Judgment of Divorce (the "Final Judgment"), which incorporated the Settlement Agreement, was entered in the Divorce Proceeding on July 31, 2015. [Doc. Nos. 39, p. 6; 41 p. 2].

On May 22, 2015, after execution of the Settlement Agreement but prior to the Final Judgment, Debtor filed a petition for relief under Title 11, chapter 7 (the "Petition Date").¹ [Doc. Nos. 23, p. 1; 39, p. 1]. On line 10 of the Statement of Financial Affairs, Debtor indicated he had transferred no property during the two years prior to the petition date. On Schedule A, Debtor listed the Property and described his interest as "JTWROS" or joint with right of survivorship. [Doc. No. 1, p. 7]. On Debtor's original Schedule C, Debtor claimed an exemption of an interest in the Property in the amount of $9,686.00² pursuant to O.C.G.A. § 44–13–100(a)(6). [Doc. Nos. 1, p. 11; 23, p. 2; 39, p. 2]. On October 3, 2015, Debtor filed an amended Schedule C and reduced his claimed exemption in the Property to $4,234.00 pursuant to O.C.G.A. § 44–13–100(a)(6). [Doc. Nos. 34, 56].

In the Objection, the Trustee argues that Debtor's claimed exemption in the Property should be disallowed because Debtor has no interest in the Property to exempt due to the unconditional transfer of Debtor's interest in the Property to Ms. Randolph on May 15, 2015. The Trustee further argues that pursuant to the doctrine of merger, the Deed was effective in accordance with its terms prior to the Final Judgment. The Trustee also raises a conditional objection based on allegations that the transfer of the Property to Ms. Randolph is voidable pursuant to 11 U.S.C. § 548 such that 11 U.S.C. § 522(g)(1)(A) prohibits Debtor from exempting an interest in the Property if it is recovered by the Trustee.³

In the Response, Debtor relies on Owens v. Owens, 248 Ga. 720, 721, 286 S.E.2d 25 (Ga.1982) to argue that the Property was not transferred until July 31, 2015, upon entry of the Final Judgment and that because the Property was marital property it is not subject to claims for equitable division until dissolution of the marriage. Debtor argues further that pursuant to O.C.G.A. § 19–5–7, after an action for divorce is filed, a transfer of property will not pass title. With respect to the Trustee's fraudulent transfer allegations, Debtor argues that the separation and divorce were not amicable, that the transfer of the Property should not be avoided because the Settlement Agreement was entered into in contemplation of divorce and that destruction of a legal relationship can constitute consideration. Further, Debtor argues that there was no equity in the Property on the date of transfer, that Ms. Randolph was not an insider, that Debtor was not insolvent or rendered insolvent by virtue of the Settlement Agreement and finally, that there are no facts that would support a finding of fraud related to the divorce and the Settlement Agreement. The parties do not dispute the facts relevant to resolution of this matter, rather they disagree on the legal effect of the Settlement Agreement, the Deed and the Final Judgment.

II. Legal Analysis

A. Property of the Estate

Upon filing a petition in bankruptcy an estate is created that is comprised of "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541. Thereafter, the debtor may exempt certain property from the bankruptcy estate pursuant to 11 U.S.C. § 522(b).⁴ "No property can be exempted (and thereby immunized), however, unless it first falls within the bankruptcy estate. Section 522(b) provides that the debtor may exempt certain property from property of the estate; obviously, then, an interest that is not possessed by the estate cannot be exempted." Owen v. Owen, 500 U.S. 305, 308, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991). While federal law determines if property is property of the bankruptcy estate, state law determines debtor's interest in such property. Witko v. Menotte (In re Witko), 374 F.3d 1040, 1043 (11th Cir.2004) (quoting Segal v. Rochelle, 382 U.S. 375, 379, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966) and Butner v. U . S . , 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979) ).

A quitclaim deed conveys from grantor to grantee whatever interest the grantor has in the real property. Georgia Lien Servs., Inc. v. Barrett, 272 Ga.App. 656, 657, 613 S.E.2d 180 (Ga.Ct.App.2005). A deed must be delivered to be valid and pass title.

Robinson v. Williams ex rel. Estate of Dunn, 280 Ga. 877, 879, 635 S.E.2d 120 (Ga.2006). "Delivery of a deed is complete against the grantor when it passes out of his control with the intention that it shall be transmitted to the grantee." Dawson v. Keitt, 232 Ga. 10, 12, 205 S.E.2d 309 (Ga.1974). "The true test of delivery is whether or not the grantor intended to reserve to himself ... an opportunity to undo what one has done or a right to withdraw from an incomplete transaction." Johnson v. Johnson, 327 Ga.App. 604, 606, 760 S.E.2d 618 (Ga.App.2014) (quoting Morr is v. Johnson, 219 Ga. 81, 89, 132 S.E.2d 45 (Ga.1963) ). The recording of a deed does not give the deed legal force but gives notice "to the world of the grantor's intention to give this deed legal force and effect." Id. ; O.C.G.A. § 44–2–2.

During a marriage, "[a] spouse may voluntarily execute an agreement described in Code Section 19–3–62⁵ or he may at any time during the marriage, either indirectly through trustees or directly to his spouse, convey any property to which he has title." O.C.G.A. § 19–3–64. When spouses are living in separation, they may enter into an agreement settling such issues as the division of their marital real property. Holsomback v. Caldwell, 218 Ga. 393, 395, 128 S.E.2d 47 (Ga.1962). A settlement agreement is enforced outside of a divorce proceeding under the principals of contract law, and is only viewed under the theory of equitable division during a divorce proceeding. Guthrie v. Guthrie, 277 Ga. 700, 702, 594 S.E.2d 356 (Ga.2004).

In contrast, a claim for equitable division of property arises either after or contemporaneously with the filing of a claim for divorce and will abate if not pursued to judgment after entry of a divorce decree. Segars v. Brooks, 248 Ga. 427, 428, 284 S.E.2d 13 (Ga.1981). As a result, no property rights become vested because of equitable division during the existence of a marriage. Owens, 248 Ga. at 721, 286 S.E.2d 25. O.C.G.A. § 19–5–7 states:

After a petition for divorce has been filed, no transfer of property by either party, except a bona fide transfer in payment of preexisting debts, shall pass title so as to avoid the vesting thereof according to the final verdict of the jury in the case; provided, however, that the title to real property shall not be

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