Justice v. Justice

• Court: North Carolina Court of Appeals
• Writing for the Court: WALKER; EAGLES; JOHN; JOHN
• Citation: Justice v. Justice, 475 S.E.2d 225, 123 N.C.App. 733 (N.C. App. 1996)
• Decision Date: 17 September 1996
• Docket Number: No. COA95-686,COA95-686
• Parties: Kevin Lee JUSTICE, Plaintiff, v. Constance Lee JUSTICE, Defendant.

Page 225

475 S.E.2d 225

123 N.C.App. 733

Kevin Lee JUSTICE, Plaintiff, v. Constance Lee JUSTICE, Defendant.

No. COA95-686.

Court of Appeals of North Carolina.

Sept. 17, 1996.

Manning, Fulton & Skinner, P.A. by Michael S. Harrell and Cary E. Close, Raleigh, for defendant-appellant.

WALKER, Judge.

The plaintiff and defendant were married on 10 April 1987 and separated on 29 October 1989. The defendant filed a petition for Chapter 7 bankruptcy protection on 27 September 1990, which included all of the marital debts accumulated by the parties. The petition listed the plaintiff as a general unsecured creditor regarding "disputed claims for marital debts" in the amount of $4,000.00. The plaintiff received timely notice of the bankruptcy proceeding and was represented by counsel. Plaintiff requested relief from the stay to protect his interest in the marital residence but made no objection to the discharge of marital debt and requested no further relief from the Bankruptcy Court. On 6 March 1991, the Bankruptcy Court granted defendant's Chapter 7 petition.

On 9 April 1991, plaintiff filed a motion for absolute divorce and equitable distribution. The court entered a judgment on 5 June 1991 granting an absolute divorce and reserving all equitable distribution matters. During the two-day equitable distribution hearing on 18 and 19 October 1993, the defendant moved to dismiss the equitable distribution hearing on the grounds that the claim was barred by the earlier bankruptcy proceeding. The trial court denied defendant's motion to dismiss and entered a final equitable distribution order on 4 January 1995. The order contained the following pertinent findings and conclusions:

FINDINGS OF FACT

...

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5. On September 27, 1990, some 11 months after the date of separation, the defendant filed a Chapter 7 Petition for bankruptcy protection in the United States District Court for the Middle District of North Carolina. The plaintiff had notice of defendant's Bankruptcy Petition and in fact asked for a lifting of the stay as to the parties' former marital residence.

6. On March 6, 1991, the defendant's Bankruptcy Petition was granted, and the defendant was discharged as to those debts as listed in her Petition. Those debts include most, if not all, of the marital debts that had been accumulated by the parties.

...

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12. The income of the defendant exceeds that of the plaintiff. Having considered the contentions by each party for an uneven distribution, the Court finds that the plaintiff is entitled to an uneven distribution of the marital property.

...

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17. The marital estate has negative value....

CONCLUSIONS OF LAW

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* * * 3. The defendant's Bankruptcy Petition had the effect of discharging $4,000 of plaintiff's disputed claim for equitable distribution.

4. This Court has authority pursuant to § 50-20 et seq. of the North Carolina General Statutes to enter an Order providing for an uneven distribution of marital property. An equal division would not be equitable. Based upon the disparity in the respective incomes of the parties, the Court finds that there should be an uneven distribution in favor of the plaintiff such that the defendant pays to the plaintiff a distributive award of $4,500.

...

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7. It is equitable because the income of the defendant is greater than that of the plaintiff that the defendant pay a distributive award to the plaintiff of $4,500 and be allocated those debts allocated to the defendant above after giving due consideration to the $4,000 amount of plaintiff's claim against defendant which was discharged in bankruptcy.

8. It is equitable because the income of the defendant is greater than that of the plaintiff that the plaintiff receive a distributive award of $4,500 from defendant, and that the plaintiff be allocated marital debt as enumerated above taking into account the effect of the [defendant's] Bankruptcy Petition which discharged [defendant] from her obligation to pay $4,000 of plaintiff's claim.

On appeal, defendant contends that the trial court erred (1) by finding that plaintiff's equitable distribution claim was not discharged by defendant's prior bankruptcy, (2) by awarding plaintiff a greater than equal share of the parties' marital estate and ordering defendant to pay a distributive award based upon a finding that defendant's income exceeded that of the plaintiff, and (3) by placing the burden of loss of certain household furnishings on defendant.

I.

Turning to defendant's first assignment of error--whether the trial court erred by allowing plaintiff to commence an equitable distribution claim following defendant's prior bankruptcy--is a question of first impression before this Court. Defendant contends that plaintiff should not be permitted to proceed with a claim for equitable distribution where plaintiff received notice of defendant's bankruptcy and participated with counsel in the bankruptcy proceeding without raising any objection to the discharge.

The effect of a discharge under Chapter 7 is to relieve the debtor from all debts or claims that arose before the date of the order for relief. 11 U.S.C. § 727(b) (1986); 11 U.S.C. § 101(12) (1986). A discharge in bankruptcy:

(1) voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged ..., whether or not discharge of such debt is waived.

(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor....

11 U.S.C. § 524(a)(1)(2) (1984). These provisions are designed to protect the debtor from a subsequent suit in state court regarding a debt or claim that was discharged. "Debts" and "claims" are to be broadly construed so as to permit the broadest possible relief and afford the debtor a "fresh start." H.R. 95-595, 95th Cong., 1st Sess. 180, 309 (1977).

A. Pre-petition Claim

As support for her position that plaintiff's equitable distribution claim was a pre-petition claim, defendant relies on the case Perlow v. Perlow, 128 B.R. 412 (E.D.N.C.1991). In Perlow, Mr. Perlow filed an action on 9 May 1988 requesting absolute divorce and equitable distribution of marital property. Id. at 413. The court granted the divorce on 14 June 1988 but reserved the issue of equitable distribution until a later date. Id. The valuing of marital property and the equitable distribution of such property had not occurred at the time Mr. Perlow filed a Chapter 7 petition in bankruptcy. Id. at 415. In his petition for relief, Ms. Perlow was listed as a general unsecured creditor on a claim described as "Case 88 CVD 813; Contingent, Disputed, Unliquidated; Division of Marital Property." Id. at 413-14. Ms. Perlow received timely notice of the bankruptcy but failed to object to the discharge or otherwise seek relief from the bankruptcy court. Id. at 416.

On 21 September 1989, Ms. Perlow filed a motion in Wayne County District Court requesting that the court distribute the parties' marital property and require Mr. Perlow to pay debts previously discharged by the Bankruptcy Court. Id. at 414. The Perlow court recognized that upon filing a petition for Chapter 7 liquidation, an estate is comprised of all legal and equitable interests of the debtor and any interest in property acquired within six months after the filing (including property obtained pursuant to a settlement agreement or divorce decree). Id. at 415; 11 U.S.C. § 541 (1984). Among the assets not included in the bankruptcy estate are tenancy by the entirety property, exempt property, or post-petition income. Property in which the debtor has an ownership interest is included in the bankrupt's estate, whether or not it would be classified as "marital property." In Perlow, the court stated that Ms. Perlow's right to equitable distribution was a general unsecured claim which was properly listed as a debt in Mr. Perlow's bankruptcy petition. Id. at 415. Therefore, the court concluded that where Ms. Perlow failed to object to Mr. Perlow's discharge or request an exception from the stay upon receiving proper notice of the proceeding, her pending claim for equitable distribution was discharged. Id. at 416. While we might have decided Perlow differently, it is instructive and must be taken into account, particularly in view of the fact that it is a decision of a federal court interpreting federal bankruptcy law.

In the case sub judice, plaintiff attempts to distinguish Perlow, on the basis that no claim for equitable distribution was pending at the time of defendant's bankruptcy. "Claim" is defined under the Bankruptcy Code as a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." 11 U.S.C. § 101(5)(A) (1986). Therefore, the question of whether a particular action qualifies as a pre-petition claim does not depend on whether the action was actually filed.

Under the law in this State, the right to equitable distribution is a "species of common ownership ... vesting at the time of the parties separation." N.C.Gen.Stat. § 50-20(k) (1995). This Court has held that "[s]ubsection k did not create any vested rights in particular marital property; [rather] it created a right to the equitable distribution of that property, whatever a court should determine that property is." Wilson v. Wilson, 73 N.C.App. 96, 99, 325 S.E.2d 668, 670, disc. review denied, 314 N.C. 121, 332 S.E.2d 490 (1985) (emphasis in original). Further, N.C.Gen.Stat. § 50-21(a) (1995) provides "[a]t any time after a husband and wife begin to live separate and apart from each other, a claim for equitable distribution may be filed...." Therefore, following the parties' separation, a spouse's right to equitable...