In re Scott

• Citation: 194 BR 375
• Decision Date: 24 October 1995
• Docket Number: Bankruptcy No. 94-76092. Adv. No. 95-8065.
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina
• Parties: In re Daniel J. SCOTT, III, M.D., Debtor. Laura T. SCOTT, Plaintiff, v. Daniel J. SCOTT, III, M.D., Defendant.

194 B.R. 375 (1995)

In re Daniel J. SCOTT, III, M.D., Debtor.

Laura T. SCOTT, Plaintiff, v. Daniel J. SCOTT, III, M.D., Defendant.

Bankruptcy No. 94-76092. Adv. No. 95-8065.

United States Bankruptcy Court, D. South Carolina.

October 24, 1995.

Elizabeth M. Atkins, Charleston, SC, for Plaintiff.

Elbert M. Rozier, N. Charleston, SC, for Defendant.

ORDER

JOHN E. WAITES, Bankruptcy Judge.

THIS MATTER came before the Court upon the Complaint of the Plaintiff, Laura T. Scott, seeking an Order declaring that the obligations owed by Defendant/Debtor should be excepted from discharge pursuant to 11 U.S.C. § 523(a)(5)¹ and § 523(a)(15).² Based upon the evidence and testimony presented, the Court makes the following Findings of Fact and Conclusions of Law:

FINDINGS OF FACT

The Plaintiff and Defendant were married in May 1978.

One child, Laura Alice Scott, was born during the marriage on November 9, 1987. The Plaintiff and Defendant separated in October 1991, when Laura Alice was almost four (4) years old.

Previously Plaintiff had completed college in July 1977 and received a Bachelor of Science degree from the University of North Alabama. Defendant received a Bachelor of Science degree from the University of Denver in May of 1977. In July 1979, Defendant began a pre-med curriculum at Memphis State which continued until May 1981. In August 1981, Defendant began medical school at the University of Tennessee Center for the Health Sciences and subsequently graduated from medical school in June 1985.

The employment history of Plaintiff during the marriage is limited to the period when Defendant was enrolled in pre-med or medical school. After Defendant graduated from medical school in 1985, Plaintiff did not work outside the home and the Defendant provided the primary support for the family.

Plaintiff obtained employment shortly before the divorce in December 1992. After six (6) months, her position was terminated due to general economic conditions. Thereafter, she was hired by another manufacturing plant. After eleven (11) months, her position was again terminated when the entire division of the parent corporation was closed. Plaintiff has been employed by her present employer for approximately seventeen (17) months. At a recent staff meeting, she was advised of imminent pay cuts and layoffs because of general economic conditions.

Defendant is currently serving a Family Practice residency at the University of Tennessee. He served as a medical officer in the U.S. Navy for ten (10) years. As a civilian doctor, his income prospects will improve when his residency ends. Defendant is currently seeking a reinstatement of his license from the North Carolina Physician Licensing Board, which had previously restricted his license to practice. Defendant testified that, after a Family Practice residency, his income could be $90,000.00 to $140,000.00, depending on whether he could qualify to deliver children.

On January 4, 1993, a judgment was entered in the General Court of Justice, District Court Division of Onslow County, North Carolina ("January 4, 1993 Order") granting the divorce of Plaintiff and Defendant. Subsequently, on February 4, 1993, a consent judgment ("February 4, 1993 Order") was entered which addressed the remaining issues of child support, child custody, equitable distribution and alimony. A copy of the Separation Agreement and Property Settlement ("Agreement") between the parties was attached to and incorporated into the February 4, 1993 Order.

In the February 4, 1993 Order, the Defendant was required to pay child support in the sum of $650.00 per month and other issues related to the dissolution of the marriage were resolved by the Agreement. The child support obligation has been modified twice since the original judgment was entered. The current obligation is $343.00 per month.

Five additional obligations agreed to by the Defendant/Debtor in the Agreement are the subject of this action. The five obligations include:

1. Maintenance of health insurance for the minor child (Paragraph 5 of the Agreement);

2. One-half (½) of the medical costs of the child which were not covered by Champus or other insurance (Paragraph 6 of the Agreement);

3. Maintenance of life insurance with a face value of $100,000.00 for the benefit of the minor child (Paragraph 8 of the Agreement);

4. Assumption of sole responsibility for marital debts owed to the following creditors (Paragraph 20 of the Agreement);

a) UBD Master Card

b) Sears

c) Dominion Visa (Now First Union)

d) First Card

e) Chase Master Card

f) Montgomery Ward

g) Choice Visa

h) Mellon Master Card

5. A monthly payment to the Plaintiff in the sum of $550.00 per month (Paragraph 9 of the Agreement).

Paragraph 9 of the Agreement states that "Husband hereby agrees to pay to wife for her sole use and benefit the sum of $550.00 per month, beginning February 1, 1993 and continuing thereafter in a like amount each month for a period of sixty (60) months or until wife remarries or dies or husband dies, whichever shall first occur." Paragraph 10 of the Agreement expressly waives any other claims Plaintiff may have for alimony, except as expressly stated in the Agreement. Paragraph 27 of the Agreement specifically refers to the Paragraph 9 obligation as alimony and states that the obligation cannot be modified. Paragraph 11 of the February 4, 1993 Order states in full "that the parties have specifically contracted and agreed that paragraph 9 of the attached Separation Agreement shall not be incorporated into and made a part of this Judgment". The 1993 individual income tax returns for Plaintiff and Defendant, respectively, reflect alimony received and paid. Plaintiff's 1994 individual income tax return reflects alimony received, although Defendant declined to adjust his 1994 income for any alimony payment.

CONCLUSIONS OF LAW

This adversary proceeding was commenced to obtain a determination as to the character of the obligations owed by Defendant to Plaintiff pursuant to the Onslow County District Court orders. No dispute exists that the obligation set forth in Paragraph 4 of the Agreement constitutes a child support obligation that is excepted from discharge pursuant to § 523(a)(5). The issue before the Court is whether the obligations set forth in Paragraphs 5, 6, 8, 9, and 20 of the Agreement should be excepted from discharge. Plaintiff contends that the obligations set forth in those paragraphs are in the nature of support and should be excepted from discharge or, in the alternative, Plaintiff contends that those obligations should be excepted from discharge pursuant to § 523(a)(15) because the detrimental consequences of such a discharge to Plaintiff and the minor child exceed the benefit to Defendant or because Defendant has the ability to pay the obligations from his income.

I. 11 U.S.C. § 523(a)(5)

Section 523(a)(5) excepts from discharge debts owed to a spouse, former spouse, or child of the debtor if such debt is in the nature of alimony, support or maintenance. Section 523(a)(5) states in full:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from 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 (other than debts assigned pursuant to section 402(a)(26) 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;

A two-prong test has been applied in determining if a marital debt is non-dischargeable under this section. In re Carrigg, 14 B.R. 658 (Bankr.D.S.C.1981). The first prong of the test involves a determination of whether the debt is payable on behalf of the former spouse or child. The second prong of the test involves a determination of whether the debt is in the nature of alimony, maintenance, or support. In Carrigg, the Court held that the label attached to the debt is not determinative of the issue of dischargeability.

In this matter, the Defendant was required to maintain health insurance and life insurance for the benefit of Laura Alice, the minor child. Defendant was also required to pay one half of the uninsured medical expenses of the child. Further, the Agreement between the parties requires the Defendant to make payments in the sum of $550.00 per month directly to Plaintiff. Accordingly, it appears that the first prong of the test is met as to the obligations in Paragraphs 5, 6, 8, and 9 of the Agreement.

The second prong of the test requires the Court to examine the underlying reasons behind the requirement for one party to make the payment. As stated in In re Rhodes, 44 B.R. 79 (Bankr.D.N.M.1984):

. . . the label or designation placed thereon . . . provides only an initial perception. As to what the parties intended, that only begs the question. The real questions are why did the party demand payment and why did the other party accede thereto?

In re Rhodes, 44 B.R. at 81. The intent of the parties in the matter before the Court is in dispute. Plaintiff contends that each of the subject paragraphs provides for support to either herself or the minor child. The Defendant denies that the monies are needed to support the daily needs of the family.

In In re Calhoun, 715 F.2d 1103 (6th Cir. 1983), four areas of inquiry were established by the Court to assist in determining the true nature of...