Marriage of Craib, In re

• Decision Date: 22 September 1994
• Docket Number: No. 93-471,93-471
• Parties: In re the MARRIAGE OF Kenneth G. CRAIB, Respondent and Appellant, and Debra L. Rhodes, Petitioner and Respondent.
• Court: Montana Supreme Court

Page 1379

880 P.2d 1379

266 Mont. 483

In re the MARRIAGE OF Kenneth G. CRAIB, Respondent and Appellant and Debra L. Rhodes, Petitioner and Respondent.

No. 93-471.

Supreme Court of Montana.

Submitted on Briefs May 11, 1994.

Decided Sept. 22, 1994.

Susan J. Rebeck, Great Falls, for appellant.

K. Dale Schwanke, Jardine, Stephenson, Blewett & Weaver, Great Falls, for respondent.

WEBER, Justice.

Appellant Kenneth G. Craib (Kenneth) appeals an Order of the District Court of the Eighth Judicial District, Cascade County, which increased his child support obligation; awarded petitioner Debra L. Rhodes (Debra) a judgment for recovery of money she has paid for income taxes, interest and penalties; and awarded Debra attorney's fees and costs incurred in the action. The District Court's order covered motions by both parties to modify their original decree of dissolution of marriage entered on June 8, 1988 in Cascade County. We affirm.

The issues presented for review are:

I. Did the District Court abrogate the benefit that Kenneth received from his discharge in a federal bankruptcy proceeding?

II. Did the District Court abuse its discretion by increasing the amount of child support that Kenneth must pay?

III. Did the District Court abuse its discretion in granting judgment to Debra for 100 percent of the parties' income tax liability that she was required to pay following the dissolution of their marriage?

IV. Did the District Court abuse its discretion in refusing to admit certain evidence offered by Kenneth?

V. Did the District Court err in adopting Debra's findings of fact?

VI. Did the District Court err in awarding attorney's fees and costs to Debra?

The Property Settlement and Child Custody Agreement (Agreement) signed by Debra and Kenneth in connection with the dissolution of their marriage in 1988 provided, among other things, that Kenneth would pay to Debra $200 per month for support of the parties' minor son; that Debra would receive the family home and would be responsible for the first mortgage on the home; that Kenneth would remain responsible for the second mortgage on the home, which had been taken out so that Kenneth could buy shop equipment for his business; and that the prevailing party in any subsequent action related to the Agreement would recover attorney's fees and costs incurred in that action. Unbeknownst to Debra, Kenneth had not filed the parties' previously prepared income tax returns for the years 1984, 1986 and 1987 at the time of the dissolution in 1988, and therefore, these liabilities were not included in the Agreement. The Agreement was prepared by Debra's attorney; Kenneth was not represented by counsel although he was encouraged to obtain separate counsel and represented in the Agreement that he had done so for purposes of reviewing the Agreement prior to signing it.

In June of 1990, Debra filed an affidavit of contempt alleging Kenneth was in arrears $1802 in child support and $900 on a marital debt he had assumed. Subsequently, at a hearing held in July of 1990, Kenneth volunteered to pay an additional $50 per month in support and a lump sum of $1,000. Although Kenneth began making payments of $250 per month, he paid only $650 of the lump sum promised.

In addition to being in arrears in his support payments, Kenneth also failed to make payments on a loan from Beneficial Mortgage Co. to cover the second mortgage on the home. Debra was required to pay $730 to prevent foreclosure and has made payments on the Beneficial loan since Kenneth's default in early 1990. In December of 1990, Kenneth filed a Chapter 7 bankruptcy petition and has since been discharged and relieved of his liability on the second mortgage. Kenneth also failed to pay a Sears account and a loan he had taken out at Village Bank which was collateralized by Debra's car. Because the bank failed to perfect its security interest in the car, Debra has not been required to make payments on the loan from Village Bank.

After filing his bankruptcy petition in December of 1990, Kenneth filed the late tax returns with the Internal Revenue Service (IRS) and the Montana Department of Revenue (MDOR) for tax years 1984, 1986 and 1987. In February of 1991, Debra received notices from the IRS assessing penalty and interest in addition to the unpaid taxes from those years. Debra had signed the returns shortly after they were prepared and testified she was unaware of any unpaid tax liability at the time of the dissolution in 1988 and until she received the IRS notices. She subsequently received similar notices from MDOR for taxes, penalty and interest. Debra had taxes withheld from her income during those years; the unpaid taxes represented tax liability for Kenneth's income from self-employment in his auto body repair business.

Debra was forced to borrow money to pay the IRS and to make payment arrangements with MDOR to prevent her property from being levied upon. Kenneth had scaled back his business, was not then employed and had petitioned for discharge in bankruptcy, making it impossible for the IRS or MDOR to collect from him at that time even though the taxes would not be discharged in his bankruptcy proceeding. Kenneth did not notify Debra that he was filing the returns after his bankruptcy petition. Debra testified that, had she known, she could have filed separately for those years and not owed any taxes.

Soon thereafter, in February of 1991, Kenneth contracted with the Great Falls Tribune to paint newspaper dispensing machines and to deliver newspapers. Kenneth received a Chapter 7 bankruptcy discharge on April 5, 1991. In July 1991, he also began full-time employment with Procraft, a Great Falls automobile body repair business. He earns in excess of $40,000 per year from these sources. He also has purchased a building for use in automobile body work; although he claimed he was not doing any body work for profit, he acknowledged that he had done so in the past on a "trade-out" basis and to assist in the payment of attorney fees in this and another proceeding. At the time of the trial in this proceeding, Kenneth had more than twenty vehicles located on this property.

In October of 1991, Kenneth remarried and has since supported his new wife and her two children. In February of 1992, Kenneth filed a petition to adopt one of his stepchildren on grounds her father was not supporting her. In that proceeding, Kenneth testified he was not current in the support of his own son because of personal disagreements with Debra but that he was able to meet his support obligations for their son. His petition to adopt his second wife's daughter was later denied.

Just prior to filing his bankruptcy petition, Kenneth filed motions on November 28, 1990, to modify support and to be relieved of the liability for the Beneficial mortgage loan, the loan on Debra's automobile and the Sears account. Debra later moved for an increase in child support, for maintenance, for child support arrearages, for judgment for the amounts she had been forced to pay due to Kenneth's default of the Agreement, and for recovery of what she had paid to the IRS and MDOR.

The Agreement contains a provision by which each party represented to the other there were no debts incurred for which the other was not aware and could be held liable. In addition, it contains a provision providing that a non-defaulting party is entitled to recover payment such party is required to make because of default, together with interest, attorney's fees and costs, including those incurred because of default under the Agreement.

The District Court awarded increased child support retroactive to the date of the petition to modify support in the amount of $400 per month through the end of 1992 and increased support in the amount of $475 per month beginning in January of 1993. The Court denied Debra's request for maintenance but did award her a judgment for the amounts she had paid to the IRS and the MDOR and for delinquent child support. The court further awarded to Debra her attorney's fees and costs incurred in this action according to the provision in the Agreement. The court also found Kenneth in contempt for his arrearages in child support.

ISSUE I.

Did the District Court abrogate the benefit received by Kenneth from his discharge in a federal bankruptcy proceeding?

Kenneth has provided the Court with a lengthy argument on this first issue which essentially contends that the District Court substituted an increase in support from $200 per month to $400 and $475 per month for an award of maintenance, which was barred by the two-year limitation period set forth in § 40-4-208(2)(a), MCA, and for amounts which Debra has been forced to pay on the second mortgage obligation to Beneficial Mortgage Co. which was discharged in his bankruptcy proceeding. According to Kenneth, he is now being forced to pay maintenance and to pay for a debt that has been discharged in his bankruptcy proceeding by way of an unfounded increase in support for his son.

Debra moved for both increased support and an award of maintenance. The District Court denied her motion for maintenance and granted her motion to increase support. The amount of the child support award is addressed separately in Issue II below. The record does not support Kenneth's argument that the District Court substituted child support for the Beneficial loan which was discharged in Kenneth's bankruptcy proceeding.

Kenneth's argument that the increase in his support obligation is a substitute for maintenance or debt is similar to that presented and rejected by this Court in In re the Marriage of Jones (1990), 242 Mont. 119, 122-23, 788 P.2d 1351, 1353-54. In that case, the husband argued that he was being penalized by the court for using proper bankruptcy procedures in discharging a $43,594 debt to the wife and that the court erred by increasing a maintenance award because the debt to the wife had been discharged in the...