In re Slingerland, Bankruptcy No. 85-30142
| Decision Date | 28 July 1988 |
| Docket Number | Bankruptcy No. 85-30142,Adv. No. 87-0211. |
| Citation | 87 BR 981 |
| Parties | In re Marshall Van SLINGERLAND Debtor. Marshall Van SLINGERLAND, Plaintiff, v. Marilyn L. SLINGERLAND, Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of Illinois |
Jack Johnston (withdrew 7/28/88), Richard O. Habermann, Vandalia, Ill., for plaintiff.
Paula G. Phillips, Mattoon, Ill., Richard J. Day, St. Elmo, Ill., for defendant.
This matter is before the Court on the Complaint to Determine Dischargeability of Debt filed by Marshall Van Slingerland (hereafter, plaintiff). At the trial of June 16, 1988, plaintiff failed to appear but was represented by counsel. Plaintiff's former wife, Marilyn L. Slingerland (hereafter, defendant), appeared objecting to discharge of the debt and was represented by counsel.
The facts, compiled from documents certified from the court file of In re Marriage of Marshall V. Slingerland and Marilyn L. Slingerland, No. 84-D-14, Fourth Judicial Circuit, Effingham County, Effingham, Illinois, from documents contained in plaintiff's bankruptcy case, No. BK 85-30142, and from defendant's testimony on June 16, 1988, reflect that the parties were married on May 23, 1957. They separated on or about December 1, 1983. They received a Judgment of Dissolution of Marriage on January 10, 1985. At the time of their divorce, plaintiff was 52 years of age and defendant was 48 years of age. Plaintiff had been engaged in private veterinary practice for 27 years and was earning approximately $42,000.00 yearly. The two children born of the marriage were emancipated.
The Judgment of Dissolution of Marriage incorporated the parties' Marital Settlement Agreement (hereafter, Agreement) concerning property and financial matters. The Agreement provided, inter alia, in paragraph 4 that defendant receive the jointly owned farm. According to paragraph 4, plaintiff was to assume the note held by Federal Land Bank and secured by a mortgage on the farm, and to hold defendant harmless thereon. This obligation required him to pay $505.00 per month to the bank. The Agreement did not provide that plaintiff's obligation to pay the mortgage would terminate upon defendant's remarriage or death.
In paragraph 19, the Agreement provided that plaintiff would pay defendant the sum of $1,000.00 each month for five years and $500.00 each month for a sixth year as maintenance. It was expressly stated in the Agreement that these payments were to be considered payments of support and maintenance and not a property distribution. In paragraph 21, defendant was awarded rehabilitative maintenance to enable her to obtain a bachelor's degree and employment skills. Rehabilitative maintenance of $166.67 each month was to be paid until December 31, 1988 as long as defendant was enrolled as a full time student.
On March 1, 1985, plaintiff filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code. His bankruptcy schedules filed April 1, 1985 listed Federal Land Bank as an unsecured creditor owed $42,067.72 but failed to list defendant as a creditor. In his Statement of Affairs, in response to questions about payments to dependents, plaintiff stated that he paid $1,167.00 per month plus $505.00 per month mortgage payment for the support of defendant, a dependent not living at home. In copies of computer printouts showing checkbook expenditures — attached as exhibits to his Chapter 13 Monthly Statements of Operations — plaintiff twice referred to his payment to Federal Land Bank as a maintenance payment.
Between October 1985 and March 1986, the parties were involved in litigation in the state court on plaintiff's motion to modify the Judgment of Dissolution of Marriage and on defendant's Petition for Rule to Show Cause. Plaintiff initiated the litigation in an attempt to reduce by half his monthly maintenance obligation of $1,000.00 per month and to eliminate the mortgage payment obligation to Federal Land Bank. In response, defendant sought to have plaintiff held in contempt of the Judgment of Dissolution for non-payment of, inter alia, these obligations. According to the documents certified to this Court, plaintiff did not raise as an affirmative defense to the contempt action the discharge in bankruptcy of the mortgage payment obligation.
On March 10, 1986, the state court judge ruled that plaintiff had presented no basis — such as fraud or inequity — to justify the opening of the judgment to eliminate the mortgage payment obligation. While finding defendant's attorney's fees nondischargeable in bankruptcy, the judge was silent on the dischargeability of the mortgage payment debt. He further ruled that plaintiff had failed to show a sufficient change of circumstances to justify a modification of maintenance. Finally, the judge found plaintiff in willful contempt of the Judgment of Dissolution for failure to pay the maintenance and mortgage payment obligations.
On April 23, 1986, plaintiff amended bankruptcy schedule A-3 to add defendant as an unsecured creditor owed $41,000.00. On June 9, 1986, defendant filed a second Petition for Rule to Show Cause for plaintiff's failure to comply with the March 10, 1986 order of the state court. In response, on July 23, 1986, plaintiff filed an answer in which he argued that the mortgage payment obligation was a division of marital property and dischargeable in bankruptcy rather than an award of alimony, maintenance or support. He further sought to enforce the automatic stay to bar the state court from proceeding as to the $41,000.00 debt to defendant listed on amended schedule A-3. It appears from the state court documents that a hearing was never held on this petition.
On December 5, 1986, plaintiff's bankruptcy case was converted to a case under Chapter 7. Thereafter, on January 8, 1987, the § 341 meeting of creditors was held. On this same day, defendant filed in state court a third Petition for Rule to Show Cause again alleging, inter alia, that plaintiff was in contempt for non-payment of the maintenance and mortgage obligations.
On February 17, 1987, plaintiff filed his Chapter 7 schedule A-3 which listed defendant as an unsecured creditor. March 9, 1987, the filing deadline for complaints to determine dischargeability under 11 U.S.C. § 523(c), passed without defendant filing an action under 11 U.S.C. § 523(a)(2)(A). On April 28, 1987, plaintiff was granted a discharge in his Chapter 7 bankruptcy case.
On August 14, 1987, after hearing by a second judge on defendant's contempt action, an order was entered in the state court which held, inter alia, that plaintiff was in contempt for non-payment of the mortgage and that the state court order of March 10, 1986, by holding plaintiff in contempt, had necessarily found the mortgage debt nondischargeable. Plaintiff appealed this order to the Illinois Court of Appeals and that appeal is now pending.1
On September 21, 1987, plaintiff filed the instant action in this Court seeking a determination that his obligation to make the mortgage payments was a division of property and thus dischargeable in bankruptcy.
A division of property pursuant to a marital settlement agreement or decree of dissolution is a debt which is dischargeable in bankruptcy. E.g., Matter of Coil, 680 F.2d 1170, 1171 (7th Cir.1982); In re Maitlen, 658 F.2d 466, 468 (7th Cir.1981). An indebtedness for alimony, maintenance or support of a former spouse is not dischargeable. 11 U.S.C. § 523(a)(5). The dispute in this case centers around whether plaintiff's obligation to make mortgage payments to Federal Land Bank for the farm where defendant continued to reside after their divorce, and to hold defendant harmless thereon, was a support obligation or a property division.
It is clear that the party asserting the nondischargeability of a debt has the burden of proof. E.g., In re Myers, 61 B.R. 891, 894 (Bankr.N.D.Ga.1986); In re Barac, 62 B.R. 713, 717 (Bankr.E.D.Mo. 1985); In re Altavilla, 40 B.R. 938, 941 (Bankr.D.C.Mass.1984); In re Edwards, 31 B.R. 113, 114 (Bankr.N.D.Ga.1983). Accordingly, defendant herein is required to show by a preponderance of the evidence that the mortgage debt is in the nature of a support obligation. See, e.g., In re Shaw, 66 B.R. 399, 400 (Bankr.N.D.Ohio 1986); In re Snider, 62 B.R. 382, 385 (Bankr.S.D.Tex. 1986). Moreover, consistent with the liberal spirit pervading the entire Bankruptcy Code, in determining whether a particular debt is nondischargeable, exceptions to discharge must be strictly construed against the objecting creditor and liberally in favor of the debtor and the fresh start. E.g., 3 Collier on Bankruptcy, ¶ 523.05A at 523-16 to 523-17 (15th ed. 1988) (citing In re Rahm, 641 F.2d 755, 756-57 (9th Cir.), cert. denied, 454 U.S. 860, 102 S.Ct. 313, 70 L.Ed.2d 157 (1981); In re Dolnick, 374 F.Supp. 84, 90 (N.D.Ill.1974)). In the instant matter, as sympathetic as the Court may be to defendant's position, nonetheless, defendant has failed to meet her burden of proving that the obligation in question is one for alimony, maintenance or support.
In determining what constitutes alimony, maintenance or support for purposes of dischargeability, the bankruptcy court is not bound by labels imposed by state law. 3 Collier on Bankruptcy, supra, ¶ 523.151 at 523-105. Rather, the court must look to the substance of the obligation and attempt to effectuate the parties' intent. E.g., Matter of Coil, 680 F.2d at 1172; In re Maitlen, 658 F.2d at 468. Thus, "it is the basis for creation of the obligation which determines whether it was intended as an equalization of property rights or as support and maintenance." Matter of Woods, 561 F.2d 27, 29 (7th Cir.1977).
The Seventh Circuit has discussed four factors to be evaluated in determining what the divorcing parties intended: (1) whether the settlement agreement provides for payments directly to the ex-spouse; (2) whether the provision represents an intention to...
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