In re Taylor
| Decision Date | 26 October 1999 |
| Docket Number | Bankruptcy No. 99-32959-T. |
| Court | United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia |
| Parties | In re James M. TAYLOR, Jr. |
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James E. Kane, Chaplin, Papa & Gonet, Richmond, VA, for Debtor.
William C. Parkinson, Jr., Richmond, VA, for Peggy Ann Young Taylor.
Robert E. Hyman, Richmond, VA, Chapter 13 Trustee.
An evidentiary hearing was held August 18, 1999, on the objection of Peggy Ann Young Taylor, debtor's former wife, to confirmation of the debtor's Chapter 13 plan dated June 2, 1999. For reasons stated in this memorandum opinion, the objection to confirmation will be sustained.
The debtor, Dr. James M. Taylor, Jr., and the movant, Peggy Ann Young Taylor, were previously married and had four children. They were divorced by a decree of the Circuit Court for the County of Chesterfield, Virginia, entered May 8, 1997. The divorce decree ordered the debtor to pay Ms. Taylor $500.00 per week for child support plus provide health and dental insurance for the children, $2,000.00 per month for spousal support and an additional lump sum spousal support payment of $17,219.00. The lump sum spousal support amount equaled Ms. Taylor's total bill from Jonathan M. Murdoch-Kitt, her divorce attorney. (Ms. Taylor specifically requested that "any award of attorney fees be in the form of a lump sum of alimony or equitable distribution, since Dr. Taylor said he will go bankrupt.") The circuit court also awarded Ms. Taylor $14,982.88 for attorney fees due to Charles J. McCall, an attorney that she retained for his expertise in complex real estate, corporate, taxation, and bankruptcy issues.
The debtor appealed the circuit court award. Among the matters that the debtor appealed were issues related to the award in favor of Ms. Taylor for spousal support, child support, and attorney fees. The Court of Appeals of Virginia affirmed the circuit court's award of attorney fees, but held that the circuit court erred in delineating an award of attorney fees as a lump sum spousal support award. The court of appeals stated:
In the instant case, the trial court examined the required factors and awarded wife periodic spousal support. An additional award of attorney\'s fees as lump sum spousal support offends the statute and threatens to blur the distinction between the two types of awards. Wife\'s attempted end run around potential bankruptcy proceedings was improper.1 Consequently, we hold that the trial court erred in awarding attorney\'s fees as an award of "lump sum spousal support."
On April 21, 1998, the court of appeals remanded the case to the circuit court to characterize the previously designated lump sum spousal support award as attorney fees and directed the circuit court to further award to Ms. Taylor attorney fees and costs related to the appeal.
On remand, the Chesterfield Circuit Court, in addition to recharacterizing the lump sum spousal support as attorney fees and determining reasonable attorney fees and costs related to the appeal, compelled the debtor to show cause why he should not be fined or imprisoned for violating the final divorce decree for failure to make payments and compelled him to pay her attorney fees and costs related to that proceeding. On September 28, 1998, the circuit court entered an order that required the debtor to pay attorney fees and costs to the plaintiff as follows: $17,219.00 on account of Murdoch-Kitt's attorney fees and costs, $14,982.88 on account of McCall's attorney fees and costs, $7,640.14 on account of Ms. Taylor's reasonable attorney fees and costs incurred in the appeal. The court also awarded $3,488.00 on account of her reasonable attorney fees and costs incurred in the proceedings on contempt and show cause matters. Finally, the court entered an order that required the $500.00 bond posted by the debtor to perfect his appeal to the court of appeals released to Ms. Taylor with the debtor given credit against the various awards ordered by the appeal.2
The debtor filed a chapter 13 petition on April 24, 1999, and filed a chapter 13 plan on June 2, 1999. His schedules indicate that the only unsecured priority claims are for state and federal taxes. The schedules also include a $90,072.00 unsecured nonpriority claim by Peggy Ann Young Taylor for a "domestic matter." Thus, debtor's plan treats the various divorce awards as unsecured claims.
Ms. Taylor objects to confirmation of the debtor's chapter 13 plan on the following grounds: (1) Ms. Taylor is a priority creditor under 11 U.S.C. § 507(a)(7), and the debtor's plan fails to comply with 11 U.S.C. § 1322(a)(2) in that it fails to provide for the payment in full of her priority claim; (2) the debtor's plan fails to comply with 11 U.S.C. § 1322(a)(1) in that it fails to submit all of the debtor's disposable income to the plan; (3) the debtor's plan is not proposed in good faith in violation of 11 U.S.C. § 1325(2)(3); and (4) the debtor's plan violates 11 U.S.C. § 1325(a)(4) in that the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured creditor is less than the amount that would be paid on each claim if the estate of the debtor were liquidated under chapter 7.
As a preliminary procedural matter, debtor's counsel questions whether Ms. Taylor is a proper party to this proceeding. At the time debtor filed bankruptcy, Ms. Taylor was liable to attorneys Murdoch-Kitt and McCall. Because the divorce decree requires the debtor to make payment to Ms. Taylor rather than attorneys Murdoch-Kitt and McCall, the debtor has standing but attorneys Murdoch-Kitt and McCall do not. See Macys v. Macys (In re Macys), 115 B.R. 883, 894 (Bankr. E.D.Va.1990) ().
Although Ms. Taylor states several grounds of objection to the plan, the essential basis for her objection to confirmation is that the plan fails to comply with Bankruptcy Code § 1322(a)(2) because it does not provide for full payment of her priority claim. Section 1322(a)(2) requires the plan to pay priority claims under § 507 in full.3 Section 507(a)(7)(B) gives priority status to alimony, support and maintenance payments.4 This court must therefore determine whether the attorney fees are actually in the nature of support.
Section 507(a)(7) was added by the Bankruptcy Reform Act of 1994. See Pub.L. No. 103-394 § 304(c). The language of § 507 parallels that of § 523(a)(5), which excepts from discharge debts in the nature of alimony and child support.5See In re Crosby, 229 B.R. 679, 681 (Bankr.E.D.Va.1998). "Notwithstanding the fact that the issue was brought under § 507(a)(7)(B), the plethora of case law discussing whether debts are `actually in the nature of alimony, maintenance or support' under § 523(a)(5) is applicable and useful precedent in determining whether such debts should receive priority treatment." See In re Grady, 180 B.R. 461, 464 (Bankr.E.D.Va.1995); accord In re Crosby, 229 B.R. at 681.
Section 523(a)(5) excepts from discharge obligations of a debtor to a spouse or former spouse for alimony, maintenance, or support arising out of a separation or divorce. See 11 U.S.C. § 523(a)(5); In re Macys, 115 B.R. at 889. However, a debtor's liability which represents a spousal property settlement is not within the exception and is therefore dischargeable under § 523(a)(5). See id.
"To determine whether an attorney fee award is nondischargeable, the court must first determine whether the debt connected with the fees is nondischargeable." Roberson v. Roberson (In re Roberson), 187 B.R. 159, 163 (Bankr. E.D.Va.1995) (); accord Bulman v. Bulman (In re Bulman), 123 B.R. 24, 28 (Bankr.E.D.Va.1990) (). The burden is placed upon the objecting spouse to prove that a debt connected with attorney fees is nondischargeable under § 523(a)(5) because it is "actually in the nature of alimony, maintenance or support." See Tilley v. Jessee, 789 F.2d 1074, 1077 (4th Cir.1986).
Whether the debt connected with the attorney fees is nondischargeable turns on bankruptcy law and not state law; the bankruptcy court must make an independent determination of what constitutes alimony, maintenance or support under federal standards. See In re Macys, 115 B.R. at 890. However, there is a tension between this principle and the fact that there is no federal law of domestic relations. See id. Under federal bankruptcy law, the nature of an award is based upon the intent of the parties where there is an agreement or, as in the instant case, upon the intent of the state divorce court in making the award. See id. (citing Long v. West (In re Long), 794 F.2d 928, 931 (4th Cir.1986)). State court labels attached to a spousal obligation, while not binding, may and should be considered by the bankruptcy court. See In re Long, 794 F.2d at 931; Tilley, 789 F.2d at 1077; Melichar v. Ost (In re Melichar), 661 F.2d 300, 303 (4th Cir.1981); In re Macys, 115 B.R. at 890. The bankruptcy court may look to a variety of sources to ascertain the intent of the state court, including all pleadings, orders, transcripts, and the language of the divorce decree. See Bangert v. McCauley (In re McCauley), 105 B.R. 315, 319 (E.D.Va.1989); In re Grady, 180 B.R. at 465. In this case, the evidence before the court is the final decree from the Chesterfield Circuit Court, the opinion of the Court of Appeals of Virginia, and the circuit court's order on remand.
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