Matter of Taff

• Decision Date: 13 March 1981
• Docket Number: Adv. Proceeding No. 2-80-0478.,Bankruptcy No. 2-80-00977
• Citation: 10 BR 101
• Court: U.S. Bankruptcy Court — District of Connecticut
• Parties: In the Matter of Frederick N. TAFF, Debtor. Elizabeth C. WARREN, Plaintiff, v. Frederick N. TAFF, Defendant.

10 B.R. 101 (1981)

In the Matter of Frederick N. TAFF, Debtor Elizabeth C. WARREN, Plaintiff, v. Frederick N. TAFF, Defendant.

Bankruptcy No. 2-80-00977, Adv. Proceeding No. 2-80-0478.

United States Bankruptcy Court, D. Connecticut.

March 13, 1981.

Doris B. Shiller, Marsh, Day & Calhoun, Bridgeport, Conn., for plaintiff.

Eric M. Gross and Bernard Green, Bridgeport, Conn., for defendant.

MEMORANDUM AND ORDER

ROBERT L. KRECHEVSKY, Bankruptcy Judge.

I.

Frederick N. Taff, the debtor, filed a petition for relief under Chapter 7 of the Bankruptcy Code on September 25, 1980. Except for an unpaid fee to his attorney, the only creditor listed in his schedules is his former wife, Elizabeth C. Warren (plaintiff). Her claim, listed in the amount of $21,900.00, is described as a "contract debt — disputed". Taff's schedules of assets and exemptions disclose various items of personal property with a total stated value of $8,862.26, and social security benefits and a "Uniroyal Qualified Salaried Pension Plan" of no ascribed values, all of which are claimed by him as exempt property. Although Mrs. Warren has not yet filed a proof of claim, she issued a complaint against Taff on November 12, 1980 alleging, inter alia, (1) that her claim listed by Taff is nondischargeable because it represents alimony, support or maintenance pursuant to 11 U.S.C. § 523(a)(5);¹ (2) that Taff should be denied a discharge because he has failed to explain satisfactorily a deficiency of assets to meet his liabilities under 11 U.S.C. § 727(a)(5);² and, (3) that the payments Taff receives under his pension are not exempt under 11 U.S.C. § 522(d)(10)(E)³ as they are in excess of an amount needed to support him and any dependent.⁴ Taff filed an answer generally denying all of these assertions.

II.

At the trial, the plaintiff introduced into evidence an executed separation agreement (agreement) between her and Taff dated May 9, 1969. The agreement recites that the parties were married on June 12, 1937, have five children, two of whom are minors, and that since the parties are now living separate and apart from each other, they wish to adjust property rights and provide for support and maintenance of the plaintiff and the minor children. The agreement provides for the support of the minor children by Taff, including payment for a four-year college education. Taff agrees, under Section IV, entitled "Support Payments", to pay varying amounts to the plaintiff during her life, such payment to cease upon her remarriage.⁵ These amounts are to be computed generally according to formulae contained in the agreement, but for the first two years, the plaintiff was to receive not less than $18,000.00 per year.⁶ In Section VI of the agreement, the plaintiff "acknowledges that the provisions herein made for her support and maintenance . . . are fair, adequate and reasonable and satisfactory to her". Section III, entitled "Division of Property", provides for two transfers of property by Taff to the plaintiff. Both transfers were to be without income tax liability on the part of the plaintiff. The first transfer called for by Section III was to comprise all of Taff's interest in a jointly-owned home in Woodbury, Connecticut and its furnishings. The second transfer called for is the basis of the dispute between the parties and is set forth in the agreement as follows:

Husband agrees to transfer to Wife between the dates of September 1, 1970 and January 31, 1971, 400 shares of Uniroyal, Inc. as it exists on December 1, 1968 together with stock splits or stock dividends if such stock is split or stock dividends payable in Uniroyal stock are received thereon before such transfer. Such obligation on the Husband is not conditioned on the death or remarriage of the Wife, but payable to the Wife or her estate in all events. Until transfer, the Husband shall be entitled to all dividend paid on such shares and to vote such shares. Husband will also be entitled to sell or transfer such shares he now owns, but will be required to replace such shares at the time the foregoing transfer is to be made.

Taff evidently did not make the stock transfer by January 31, 1971, and the plaintiff's post-trial brief states that the plaintiff instituted "an action for breach of contract in 1976".⁷ This action was pending in the Connecticut superior court and scheduled for trial on September 30, 1980 when Taff filed his petition for relief on September 25, 1980, thereby preventing the trial under the automatic stay provisions of the Bankruptcy Code (11 U.S.C. § 362).⁸ The plaintiff has chosen to rely solely on the language of the agreement for her assertion that the stock transfer represents support, and has introduced no evidence concerning the background of the execution of the agreement, the intention of the parties, or the existence or nonexistence of marital property other than that referred to in Section III. Taff, who was called as a witness by the plaintiff, was not questioned concerning the agreement, and the plaintiff did not testify.⁹ Despite the citation of cases by the plaintiff which hold that the court is not bound by the labels used in separation agreements in distinguishing between support and property provisions, e.g., In re Smith, 436 F.Supp. 469 (N.D.Ga.1977), the court finds, on record before it, that Section III of the agreement deals only with a property settlement, and not with support obligations. In Smith, supra, there is an express holding that the court should hear and consider all of the circumstances surrounding the execution of a separation agreement "and all other relevant incidents bearing on the intent of the parties or their apparent object in contracting". Id. at 475. It was only after hearing such extensive testimony that the Smith Court felt justified in ignoring the label used by the parties. The plaintiff also refers to In re Mohrlok, 2 B.R. 224 (Bkrtcy., W.D.Mo.1980), for the proposition that a court can decide whether an agreement relates to support or to property division based on the document itself, and no other evidence is necessary. However, in Mohrlok, the bankruptcy court had before it a judgment of the divorce court which included findings of fact and conclusions of law on the issue of support which was "very explicit, lengthy and unambiguous". No such findings and conclusions are before me, and Mohrlok is not apposite. In addition, the stock transfer in issue is not conditioned on the death or remarriage of the plaintiff, but is payable to her or her estate in any event. Obligations which do not terminate on the death or remarriage of the obligee spouse and do not expressly or inferably relate to living expenses are more indicative of property settlements than support payments. In re Snyder, 7 B.R. 147, 150 (D.C., W.D.Va., 1980) and cases therein cited. Cf. In re Smith, supra, at 475. The burden of proof in proceedings to determine a debt nondischargeable is on the holder of the debt, and the plaintiff has not met that burden.

III.

On the issue of whether Taff should be denied a discharge due to his failure to explain any deficiency of assets to meet his liabilities, the plaintiff points to the Statement of Affairs filed with Taff's petition which discloses that in 1978, the year he retired at age 65, he had an income of $70,983.61. Since then his annual income has averaged $36,000.00 from social security and pension payments. The plaintiff did not elicit from Taff any significant testimony as to his use of this income. Taff stated only that he paid the household expenses at his wife's home. Bankruptcy Rule 407 specifically provides: "At the trial on a complaint objecting to a discharge, the plaintiff has the burden of proving the facts essential to his objection". There was nothing in the statements made by Taff on the witness stand in response to the few questions directed to him which affords the court a basis for denying Taff his discharge. The plaintiff has failed to bear her burden of proof. 1A Collier on Bankruptcy (14th ed.) ¶¶ 14.59-14.60.

IV.

The objection by the plaintiff to Taff's claim that pension payments are totally exempt brings the parties and the court into uncharted waters. There appear to be no reported cases which the parties or the court have located dealing with the pension exemption of § 522(d)(10)(E). Furthermore, when compared to the results obtained by this court's examination of the legislative history of the enactment of the Bankruptcy Code of 1978 in previous instances, reference therein to exemption of pension payments is relatively sparse. The specific issue in the proceeding at bar is the standard to be applied in construing the portion of § 522(d)(10)(E) which exempts pension payments only "to the extent reasonably necessary for the support of the debtor and any dependent of the debtor".¹⁰

Turning first to the evidence, once again, as was true with respect to prior issues, the parties offered limited testimony at trial. Taff testified that he retired from Uniroyal, Inc. as vice-president in 1978; that during 1980, his social security benefits totaled $6,735.00, that he had $1,185.00 interest income, and that he received $29,226.84 from his pension payments.¹¹ Taff stated that from his income he pays all the household expenses at the home occupied by him and his wife. Taff's present wife, called by the plaintiff, testified that she resigned from Uniroyal, Inc. in 1969 and is now retired, has an annual income of $20,000.00 derived from a portfolio of stocks, bonds and money market investments with a present value of $232,500.00. She stated that she and Taff live in a house constructed in 1970 on a three-acre parcel in Roxbury, Connecticut and paid for with her funds. The cost of the land and house construction was $130,000.00. The property is encumbered by a $53,000.00 mortgage. She acknowledged no other liabilities. Her remaining assets consist primarily of two automobiles, one of which (a...