In re Yerrington
| Decision Date | 04 September 1992 |
| Docket Number | AK-91-1603-JVAs,Adv. No. A90-00789-001.,BAP No. AK-91-1584-JVAs,Bankruptcy No. A90-00789-DMD |
| Citation | 144 BR 96 |
| Parties | In re Seth W. YERRINGTON, Debtor. Luba YERRINGTON, Appellant, v. Seth YERRINGTON, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
J. Mitchell Joyner, Anchorage, Alaska, for Luba Yerrington.
M. Gregory Oczkus, Anchorage, Alaska, for Seth W. Yerrington.
Before: JONES, VOLINN and ASHLAND, Bankruptcy Judges
The state divorce court dissolved a marriage relation giving the marital home to the husband and a judicial lien against the home to the wife. The husband filed for bankruptcy, and the bankruptcy court avoided the wife's judicial lien. The wife appeals.
The Yerringtons, Seth and Luba, were married in 1977. Thereafter they built a residence on unimproved land already owned by Seth in Homer, Alaska ("the Homer residence," or "the Property"). Title was held by Seth.
Seth and Luba were divorced in 1990. A final decree was not entered until August 23, 1990, after the bankruptcy petition date. On July 16, 1990, the divorce court orally awarded the residence to Seth, stating:
Secondly, the house and property — the Homer property should be awarded to the husband. This is marital property. He shall execute a note and deed of trust to secure said note in the amount $27,500.00 payable one year from the date of the decree bearing interest from the date of the decree at the legal rate for judgment. He shall not further encumber nor sell the property or any interest in the property until such deed of trust is recorded.
Luba's attorney, fearing that this language did not protect Luba in the event of bankruptcy, asked the court to grant Luba an equitable interest in the property, whereupon the judge stated: "I'm granting her an equitable interest at this time in the property."
Seth never executed the note and deed of trust which were intended to protect Luba's interest in the Homer residence. On August 9, 1990, Seth filed his Chapter 7 bankruptcy petition. Seth listed the Homer residence and claimed a $54,000.00 statutory exemption, naming Luba as an unsecured creditor owed $27,500.00.
On August 23, 1990, the divorce court entered findings and conclusions prepared by Luba:
The husband is awarded the house and furnishings located in Homer. The court finds that the plaintiff has an equitable ownership interest in this property and that the defendant shall pay to the plaintiff $27,500 for her portion of the equity. The terms of this payment shall be that the principal and interest is due one year from the date the decree is signed by the court. The note shall bear interest at a rate of 10.5% per annum. The plaintiff\'s ownership interest in the property shall not be considered terminated until full payment of $27,500 has been made.
Luba filed an adversary complaint objecting to the classification of her claim as unsecured and objecting to its discharge. The bankruptcy court found that the debt to Luba was a judicial lien avoidable pursuant to § 522(f)(1). Luba appeals. We REVERSE and REMAND.
Whether Luba's post-dissolution interest in the property was a judicial lien is a question of bankruptcy law which we review de novo. E.g., In re Ehring, 900 F.2d 184, 187 (9th Cir.1990). Whether Luba's judicial lien was avoidable pursuant to § 522(f)(1) is a question of bankruptcy law which we review de novo. See In re Wade, 115 B.R. 222, 225 (9th Cir.BAP 1990), aff'd, 948 F.2d 1122 (9th Cir.1991).
Luba argues that the divorce court granted her an "equitable ownership interest" in the property. Luba further argues that because property interests are determined by state law,1 and because the divorce court made that determination,2 the bankruptcy court should have given collateral estoppel effect to the divorce court determination.
Luba is arguing, in essence, that the divorce court granted her an ownership interest and not a judicial lien. However, the federal definition of "judicial lien" must control the determination of whether Luba's interest is a judicial lien for bankruptcy purposes, since the Code provides a definition. See McKenzie v. Irving Trust Co., 323 U.S. 365, 369-70, 65 S.Ct. 405, 407-08, 89 L.Ed. 305 (1945); Ehring, 900 F.2d at 187. If state law were allowed to vary what would otherwise be a judicial lien by merely calling it an equitable ownership interest, havoc would result. See Boyd v. Robinson, 741 F.2d 1112, 1115 (8th Cir.1984) (Ross, J., dissenting), majority opinion disapproved by Farrey v. Sanderfoot, ___ U.S. ___, 111 S.Ct. 1825, 114 L.Ed.2d 337 (1991).
Section 101(37) of the Bankruptcy Code3 defines a lien as a "charge against or interest in property to secure payment of a debt or performance of an obligation." Section 101(36) defines a judicial lien as a "lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding." In the instant appeal, the state court granted Luba a lien against the house to secure performance of Seth's obligation to pay her $27,500.00. The bankruptcy court held:
Luba had a "judicial lien" within the meaning of § 101(36) as her interest was a lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding. The purpose of her "equitable interest" was solely to secure payment of a $27,500.00 property settlement obligation.
Luba's lien fits precisely within the Code's definition of a "judicial lien." See Boyd dissent, 741 F.2d at 1115. The state court's dissolution decree gave the Property outright to Seth, subject to Luba's lien. Prior to the order, Luba had some interest in the Property determined by state law. At the time of the decree, this prior interest was extinguished and replaced by a debt of $27,500.00 enforceable by a judicial lien on the Property. See id.
In Sanderfoot the Supreme Court held:
Section 522(f)(1) of the Bankruptcy Code requires a debtor to have possessed an interest to which a lien attached, before it attached, to avoid the fixing of the lien on that interest.
___ U.S. at ___, 111 S.Ct. at 1831.
In Sanderfoot a husband and wife had jointly acquired marital property during the marriage. Applying Wisconsin law, the Sanderfoot Court held that the dissolution decree simultaneously extinguished pre-dissolution interests and created new ones. Consequently, the Sanderfoot debtor could not be said to possess an interest to which a lien attached, before it attached, since his interest arose at the same time as his spouse's lien.
In the instant case Seth owned the property before his marriage to Luba. The bankruptcy court apparently believed that this fact distinguished the instant case from Sanderfoot.4 We disagree.
The extent of Seth's interest in the Property when Luba's lien attached is a question of state law. See at ___, 111 S.Ct. at 1830. The Alaska Supreme Court has held:
Where one spouse has made contributions to the marital community, whether of a pecuniary or of a more intangible nature, and where these contributions have benefitted in any manner the separate property of the other spouse acquired before the marriage, we believe that the trial court may determine that all or a portion of that property should be included with the property acquired after marriage in effecting a just and equitable division of property.
Vanover v. Vanover, 496 P.2d 644, 648 (Alaska 1972). In the instant case the state court held that the Homer residence was "marital" property and that Luba had an equitable interest therein. What the state court apparently meant was that Luba had a pre-dissolution interest in the Property's accumulated equity. See Burgess v. Burgess, 710 P.2d 417, 420 (Alaska 1985) (); Wanberg v. Wanberg, 664 P.2d 568 (Alaska 1983) (...
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