Melichar v. Ost

Decision Date22 November 1980
Docket NumberBankruptcy No. K-76-00921 G.,Civ. No. K-78-498
Citation7 BR 951
PartiesTheodore F. MELICHAR v. Betty Jane OST.
CourtU.S. District Court — District of Maine

Bert W. Kapinus, Mount Rainier, Md., for appellant.

Charles C. Bowie, Rockville, Md., for appellee.

FRANK A. KAUFMAN, District Judge.

This case is before this Court on appeal for the third time following two remands to the Bankruptcy Judge. Neither the factual recitations nor the discussion of law set forth in the prior opinions1 of this Court or the Bankruptcy Judge will be repeated in full.2 In response to this Court's latest (i.e., second) remand (Nov. 14, 1978), the Bankruptcy Judge filed, on December 21, 1979, an "Additional Statement of Facts and Conclusions of Law." It is from that opinion which defendant Melichar3 appeals for the third time.

In this case, the husband seeks to be discharged from his obligations to his former wife under paragraph 8 of the MSA.4 The wife objects to that discharge. The burden of proof is on the plaintiff-wife to show that the defendant-husband is not entitled to discharge of his payment obligations under paragraph 8.5 To be specific, pursuant to section 17(a)(7) of the Bankruptcy Act, 11 U.S.C. § 35(a)(7),6 the burden is on the wife to show that the husband's monetary obligations under paragraph 8 of the MSA are alimony, and hence non-dischargeable, and do not constitute a property settlement.

In its first opinion in this case, this Court concluded that Illinois law governed the interpretation of the MSA. See Melichar v. Ost, supra at 1167 n. 4, and cases cited therein. Subsequent to that first opinion, Judge Blair of this Court wrote that, in a bankruptcy case such as this one, the Bankruptcy Court is required to look to the substance of the payment obligation in question, and not to the labels imposed by state law, in determining whether the obligation is dischargeable under section 17(a)(7) of the Bankruptcy Act. In that case, Shacter v. Shacter, 467 F.Supp. 64 (D.Md.1979), the husband appealed from an order of the Bankruptcy Court declaring his payment obligations under a separation agreement to be in the nature of alimony and, hence, non-dischargeable. The husband argued that since the payments required by the separation agreement did not satisfy the technical requirements of alimony under Maryland law, the debt was in the nature of a property settlement and, thus, dischargeable in bankruptcy. Rejecting that contention, Judge Blair stated (at 66):

Payments required by a contract for the support and maintenance of a wife are not dischargeable in bankruptcy even though they do not constitute payments for alimony under state law, see In re Adams, 25 F.2d 640, 642 (2d Cir. 1928), and even though the separation agreement itself contains provisions concerning the settlement of property rights of the parties, see In re Ridder, 79 F.2d 524 (2d Cir. 1935), cert. denied, 297 U.S. 721, 56 S.Ct. 599, 80 L.Ed. 1005 (1936). In determining whether certain obligations are liabilities for support, a court should look to the substance of the obligation, and not to labels imposed by state law. In re Nunnally, 506 F.2d 1024, 1027 (5th Cir. 1975).7

"Alimony" is defined as follows for purposes of the Bankruptcy Act in Nichols v. Hensler, 528 F.2d 304, 307 (7th Cir. 1976):

The authorities are clear, and the parties do not dispute, that "alimony" in section 17(a)(7) of the Bankruptcy Act means payments in the nature of support for a former spouse. Citations omitted.
If the debt is determined to be one arising under a property settlement, it is discharged by bankruptcy. Citations omitted.

The inquiry required herein is whether the payments under paragraph 8 of the MSA were intended by the parties to fulfill the husband's common law duty to support his wife or, rather, were intended to constitute consideration for an overall property settlement. While that determination is ultimately governed by federal law, and while state law labels are not controlling, state law, nevertheless, is not only relevant, but indeed in the end may provide controlling guidance with regard to construction of the husband's underlying obligation and determination of the intent of the parties.8

The issues herein are rather easy to state. However, they are by no means easy to resolve. Under the applicable federal and Illinois9 law, there would appear to be five different possible classifications of the payment obligations in question herein:

(1) A property settlement pursuant to section 17 of the Illinois Divorce Act, Ill. Rev.Stat. ch. 40, ¶ 18 (1971)10.

(2) Periodic alimony pursuant to section 18 of the Illinois Divorce Act, Ill.Rev.Stat. ch. 40, ¶ 19 (1971),11 i.e., alimony "for an indefinite period of time and usually for an indefinite total sum," Walters v. Walters, 341 Ill.App. 561, 94 N.E.2d 726, 729 (1950), payable in installments.

(3) Gross alimony (or alimony in gross, as it is apparently interchangeably labeled) pursuant to section 18 of the Illinois Divorce Act, supra, i.e., a fixed sum payable in lump at one time or in installments over a fixed period of time.

(4) A non-section 17 property settlement, i.e., a fixed sum payable in lump at one time or in installments over a fixed period of time.

(5) Even if the payment obligations in question do not specifically fall within the technical definitions of periodic or gross alimony under section 18 of the Illinois Divorce Act, supra, as those terms have been interpreted by the Illinois courts, the payments may still be classified as alimony under both federal and/or Illinois law if they were intended by the parties to satisfy the husband's common law duty to support his former wife.12

The intention of the parties governs the determination as to which of the five types of agreement is in fact involved in a given case. If the parties' intent was not the discharge of a common law duty of support, then the payment obligations are in the nature of a property settlement and are not alimony, either periodic or in gross. If the payments were intended by the parties to discharge a common law duty of support and the payments were to be made over an indefinite period of time, subject, as a matter of law, to modification by a court if the situations of the parties changed, then periodic and not gross alimony is seemingly involved. If, on the other hand, the parties intended fixed payments in lump or in installments over a fixed period of time, then gross and not periodic alimony is apparently involved.

If periodic alimony is involved and the beneficiary-spouse remarries, "the agreement cannot be enforced under Illinois law, after such remarriage despite the specific provisions in the agreement that payments will continue despite plaintiff's remarriage." Richheimer v. Richheimer, 9 Ill. App.3d 376, 292 N.E.2d 190, 193 (1972). In this case, there is no provision for such continuation of payments after the plaintiff-wife's remarriage. Thus, a fortiori, if periodic alimony is involved — it is to be noted that Judge Goldburn held that periodic alimony is not involved, and this Court agrees in that respect — then paragraph 8 of the MSA is unenforceable under Illinois law and the issue of whether the defendant-husband's obligations under the MSA are dischargeable in bankruptcy need not be reached.

Thus, if periodic alimony is involved herein, the defendant-husband is entitled to judgment because of Illinois law. If alimony in gross is involved, the defendant-husband is not entitled to the discharge under the bankruptcy law which he seeks and plaintiff-wife is entitled to judgment herein. If a property settlement is involved, the defendant-husband is entitled to such discharge under the bankruptcy law and to judgment herein.

The agreement in this case calls for monthly payments for a fixed amount over a fixed period of either 108 or 121 months, depending on whether the wife remarries. The agreement further provides that if either of the parties dies, the husband's payment obligations are extinguished.

Illinois case law is instructive even though the lines of definition and distinction between alimony and property settlement and between periodic and gross alimony are certainly not easy to draw. The key issue is whether alimony of any type as opposed to a property settlement was intended. That issue requires an analysis of Illinois statutory and case law.

In Walters v. Walters, 341 Ill.App. 561, 94 N.E.2d 726, 729 (1950), aff'd, 409 Ill. 298, 99 N.E.2d 342 (1951), the Court enumerated the distinctions between "periodic" alimony and alimony in gross:

* * * Periodic or ordinary alimony is for an indefinite period of time and usually for an indefinite total sum. It is based upon the husband\'s income and the needs of the wife determined from the standpoint of the manner in which they have been accustomed to live. It is modifiable after decree when the wife\'s needs increase or decrease, or when the husband\'s ability to pay increases or decreases. This is so because it takes the form of periodic allowances which do not vest until they become due. It usually terminates upon the death of the husband, although by agreement payments may be made a charge upon the husband\'s estate after they become due. They are never a charge on a husband\'s estate in advance of the due date because they are not, prior to that time, vested. Payments of alimony from husband to wife are not based upon any consideration moving from wife to husband, but are based upon the common law duty of the husband to support his wife. "Alimony" in this sense of the word, is modifiable.
On the other hand, the phrase "alimony in gross" or "gross alimony" is always for a definite amount of money; the payment is always for a definite length of time; it is always a charge upon the husband\'s estate and has uniformly been held by our courts to be not modifiable.

Under Illinois law, either the husband or the wife may be ordered to pay...

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