In re Vassilowitch, Bankruptcy No. 85-01190-JNG

• Decision Date: 21 April 1987
• Docket Number: Bankruptcy No. 85-01190-JNG,Adv. No. 86-1435.
• Citation: 72 BR 803
• Parties: In re Theodore A. VASSILOWITCH a/k/a Theodore A. Vassil, Debtor. John A. MAIONA, as Chapter 7 Trustee of Theodore A. Vassilowitch a/k/a Theodore A. Vassil, Plaintiff, v. Theodore A. VASSILOWITCH, Elizabeth Vassilowitch and Branford Savings Bank, Defendants.
• Court: U.S. Bankruptcy Court — District of Massachusetts

72 B.R. 803 (1987)

In re Theodore A. VASSILOWITCH a/k/a Theodore A. Vassil, Debtor John A. MAIONA, as Chapter 7 Trustee of Theodore A. Vassilowitch a/k/a Theodore A. Vassil, Plaintiff, v. Theodore A. VASSILOWITCH, Elizabeth Vassilowitch and Branford Savings Bank, Defendants.

Bankruptcy No. 85-01190-JNG, Adv. No. 86-1435.

United States Bankruptcy Court, D. Massachusetts.

April 21, 1987.

Joseph S.U. Bodoff, Kaye, Fialkow, Richmond & Rothstein, Boston, Mass., for defendants.

Joan N. Feeney, Hanify & King, Boston, Mass., for plaintiff/debtor.

John Maiona, Boston, Mass., trustee.

MEMORANDUM

JAMES N. GABRIEL, Chief Judge.

The matter before the Court is the Trustee's Complaint, filed on November 7, 1986, pursuant to 11 U.S.C. § 363(h). The Trustee seeks to sell the Debtor's interest in real estate, consisting of one and one-half acres of land and a nine-room, raised ranch-style home containing four bedrooms, a living room, a dining room, a kitchen, a family room, a utility room and a two-car garage (the "property"). The Debtor owns the property, which is located at 170 Maupas Road, North Guilford, Connecticut, with his former wife Elizabeth Vassilowitch ("Mrs. Vassilowitch"), as a tenant-in-common. The Debtor filed an answer to the Trustee's Complaint assenting to the sale. Mrs. Vassilowitch filed an answer and, shortly thereafter, an amended answer and counterclaim. In her answer, she contests the Trustee's allegations: (1) that partition of the property is impracticable; (2) that the sale of the estate's interest alone would produce significantly less for the estate than the sale of the entire property free of her interest; and (3) that the benefit to the estate from a sale free of her interests would outweigh the detriment to her, since the Debtor's interest in the property serves as the only asset of value to be distributed to his creditors. Mrs. Vassilowitch, in her counterclaim, invokes sections 362 and 108 of the Bankruptcy Code and seeks relief from the automatic stay to exercise a purported purchase option granted to her in a divorce proceeding. Alternatively, she contends that, if the exercise of her purchase option is found to be untimely, she is entitled to two-thirds of the proceeds of sale of the property pursuant to the provisions of a judgment entered in a divorce proceeding. The Court conducted a trial of this matter on January 13, 1987. The Debtor, Mrs. Vassilowitch and a neighbor of Mrs. Vassilowitch, Arthur Hunt, testified.

FACTS

The facts essentially are undisputed. The property that the Trustee wishes to sell is the former marital home of the Debtor and Mrs. Vassilowitch. The Debtor and Mrs. Vassilowitch separated in November of 1984, and divorce proceedings eventually were commenced by the Debtor. The Superior Court for the Judicial District of New Haven, Connecticut entered a divorce decree on September 3, 1985. The Connecticut court awarded custody of the two children to Mrs. Vassilowitch, fixed alimony and support obligations, found and provided for the Debtor's arrearage on the pendente lite orders, divided various items of personal property and fixed the Vassilowitchs' respective interests in the property as follows:

2. The residence at 170 Maupas Road, Guilford, Conn. shall remain in the joint names of the parties. The parties sic interests therein shall be treated in the following manner:

a. The defendant Mrs. Vassilowitch may buy out the plaintiff\'s share for $10,000 until April 1, 1986 (which amount shall be reduced by any arrearage due as of that date).

b. If the defendant does not buy out the plaintiff\'s share by April 1, 1986 the house will be placed on the market for sale no later than the April 1, 1986 date.

In the event of a sale, the parties will cooperate in listing the house at a reasonable price. From the gross sale price shall be subtracted the then due first mortgage, broker\'s commission, if any, normal closing costs and mutually agreed upon fix up expenses for sale. The amount remaining shall then be apportioned 2/3\'s to the defendant and 1/3 to the plaintiff. (The plaintiff\'s amount shall be reduced by any arrearage due as of that date.)

From the date of entry of this judgment, the defendant shall be responsible for all carrying costs on the Maupas Road property including repairs up to $200. per occurrence. She shall fully indemnify and hold the plaintiff completely harmless from said expenditures. For as long as the defendant is an owner of said property, all repairs over $200. per occurrence, as to that part of the repair which exceeds $200. shall be paid 2/3\'s by the defendant and 1/3 by the plaintiff.

Neither party shall further encumber said property.

Shortly after the entry of the September 3, 1985 divorce decree, the Debtor, on October 23, 1985, filed a voluntary petition under Chapter 7 of the Bankruptcy Code. Mrs. Vassilowitch remained in the former marital home where she presently resides with her two children, ages seven and five. The property is encumbered by a first mortgage, the balance of which is approximately $85,000. Mrs. Vassilowitch makes the monthly mortgage payment of $1,053. The mortgage is current except for a small pre-divorce arrearage.

During the trial, the Debtor acknowledged that the property was appraised at $179,000. However, he testified that in his opinion, the property is worth over $200,000.

With respect to the purchase option contained in the September 3, 1985 Memorandum of Decision, the evidence presented at trial clearly established that Mrs. Vassilowitch did not exercise the option by April 1, 1986. In late March of 1986, the Debtor telephoned Mrs. Vassilowitch to inquire whether she would be buying out his interest. Mrs. Vassilowitch responded that she lacked the funds to exercise the option. Although her neighbor, Arthur Hunt, was willing to lend Mrs. Vassilowitch the money to purchase the Debtor's interest, he did not, in fact, turn over funds to her.

The parties correctly have identified the legal issues that emerge from the foregoing facts as follows:

1. What is the extent of the estate\'s interest in the property?

2. Whether the unexercised purchase option granted to Mrs. Vassilowitch can be extended by reason of 11 U.S.C. § 108?

3. Whether the Court should authorize the sale of the property pursuant to 11 U.S.C. § 363(h)?

DISCUSSION

With respect to the first issue presented, "the Debtor's interest in the property as of the date of the filing is determinative. The commencement of a bankruptcy case creates an estate, including all legal and equitable interests of the Debtor in property as of the commencement of the case." In re Addario, 53 B.R. 335, 337 (Bankr.D.Mass.1985); cf. 11 U.S.C. § 541(a). For purposes of determining what becomes property of the estate at the time of the filing of the petition, state law governs. Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). Moreover, "the bankruptcy court cannot create an interest for the debtor where none exists." In re Anne Cara Oil Co., Inc., 32 B.R. 643, 647 (Bankr.D.Mass.1983).

Mrs. Vassilowitch urges this Court to respect the judgment of the Connecticut divorce court. She cites In re Johnson, 51 B.R. 439 (Bankr.E.D.Pa.1985), a case in which the court stated: "`It is appropriate for bankruptcy courts to avoid incursions into family law matters out of consideration of court economy, judicial restraint, and deference to our state court bretheren and their established expertise in such matters.'" 51 B.R. at 443. More significantly, Mrs. Vassilowitch maintains that the Debtor's interest in the property was fixed by the Connecticut divorce court pursuant to its Memorandum of Decision prior to the filing of the bankruptcy petition.

The Trustee, joined by the Debtor, argues that the Debtor held a fifty-percent ownership interest in the property as of the date of filing. Their argument is predicated on a puzzling misstatement of the facts, i.e., that the Superior Court judgment granting Mrs. Vassilowitch two-thirds of the proceeds of a sale of the property was entered after the commencement of the bankruptcy and the concomitant creation of the bankruptcy estate. This is simply not the case, and, consequently, cases cited by the Trustee and the Debtor that stand for the proposition that a divorce court has no jurisdiction to partition estate property or determine the interests of non-debtor spouses are irrelevant.

The Trustee and the Debtor also assert that even if the Court considers the Superior Court's order to be a valid one, the Debtor's obligation to divide the proceeds on a one-third/two-thirds basis is dischargeable pursuant to section 523(a)(5)(B) of the Bankruptcy Code. That section provides in relevant part:

(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 or in accordance with state or territorial law by a government unit, or property settlement agreement, but not to the extent that — ....

(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.

11 U.S.C. § 523(a)(5)(B).

The Court is unable to conclude that the judgment of the Connecticut Superior Court should be disrupted. Mrs. Vassilowitch correctly perceives that the section 523(a)(5) cases cited by the Trustee and the Debtor in their joint memorandum deal with divorce decrees and separation agreements that both allocate jointly held property and create financial obligations. Mrs. Vassilowitch also perceives that only the financial obligations, the debts, the liabilities on claims, cf. 11 U.S.C. § 101(11), are held to be...