Paderewski, Matter of, 75-1858
| Decision Date | 28 November 1977 |
| Docket Number | No. 75-1858,75-1858 |
| Citation | 564 F.2d 1353 |
| Parties | In the Matter of Cecilia May PADEREWSKI (Bankrupt). C. J. PADEREWSKI, Petitioner and Appellant, v. John H. BARRETT, Oscar F. Irwin, and Lewis H. Silverberg, Co-Trustees and Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
L. William McGrath, Jr., San Diego, Cal., for petitioner and appellant.
William S. Bannasch, San Diego, Cal., for co-trustees and appellees.
Appeal from the United States District Court for the Southern District of California.
Before GOODWIN and SNEED, Circuit Judges, and HAUK *, District Judge.
C. J. Paderewski appeals from an order of a referee in bankruptcy dividing the proceeds from the sale of community real property owned by appellant and his former wife, the bankrupt. Paderewski contends that the referee incorrectly measured the interest which passed to the bankrupt's trustees when she filed her petition in bankruptcy. The United States District Court for the Southern District of California affirmed the referee's order. We reverse.
The Paderewskis were married in 1935. Appellant was granted an interlocutory judgment of divorce in California on July 25, 1967. No appeal was taken from the interlocutory judgment. A final judgment of divorce was entered on April 15, 1969.
In the interlocutory judgment of divorce, the trial judge divided the community property equally between the parties. Among the community assets was the Paderewskis' residence, which the trial judge ordered to be sold. The court ordered that the first trust deed and taxes on the property, the costs of sale, the community debts listed at $15,000, and the attorneys' fees for the parties were to be paid out of the gross proceeds before any division of the proceeds was made. Appellant was ordered to pay the taxes and payments due on the property until the time of sale. Appellant was to be reimbursed out of the gross proceeds for any payments he made on the property's first trust deed and taxes between the date of the interlocutory decree and the date of sale, and for any payments he made on the $15,000 of community debts. After all of the above payments and reimbursements had been made out of the gross proceeds, the net proceeds from the sale were to be divided equally between the parties.
On December 30, 1970, appellant's wife filed a petition in bankruptcy. The bankrupt's financial plight was caused by debts she had incurred after the interlocutory decree. Her husband was not liable for these debts. Although almost two and a half years had passed since the interlocutory judgment of divorce, the Paderewskis' residence had not yet been sold on the date the bankrupt filed her petition.
On June 3, 1970, the divorce court entered an order allowing the sale of an approximately two-acre part of the community residential real property for the sum of $65,000. One-half, or $32,500, was paid as a down payment, $7,500 was paid in July of 1970, and the balance, $25,000, was paid in July of 1971. Pursuant to court order, the down payment was used to pay the attorneys' fees from the divorce, the costs of sale, and the costs of partial reconveyances by the first trust deed and mortgage holders. The remainder of the proceeds was divided equally between the parties, 1 with the exception of the $25,000 payment in July of 1971, which was divided between the parties as follows:.$23,500 to appellant and $1,500 to the bankrupt, subject to the rights of her trustees in bankruptcy.
When the bankrupt's trustees sought to sell her interest in the remaining real property in 1972, appellant agreed to join in the sale so that the property could be sold as a whole. The referee in bankruptcy ordered the property sold at public sale. The order of sale referred to the bankrupt's "one-half interest" in the real property, but noted that appellant had reserved the right to a further hearing regarding the allocation of the proceeds from the sale. The property was sold on January 23, 1973, for $103,738.28.
The bankrupt had recorded declarations of homestead in June 1966 and May 1967. The United States District Court held, in 1973, that she was entitled to the full statutory homestead exemption in effect in California on the date of the filing of the petition in bankruptcy, which was $15,000.
When the referee allocated the proceeds from the sale of the property, he held that the bankrupt's homestead exemption was to be paid out of the gross proceeds of the sale. The first trust deed and the cost of sale were also to be paid out of the gross proceeds. The remainder, the net proceeds, he divided equally between the parties one half to appellant and one half to be distributed between the bankrupt's secured creditor and her trustees in bankruptcy. No provision was made for the payment of community debts out of the gross proceeds. The referee ordered the proceeds distributed as follows:
1. Mrs. Paderewski $ 15,000.00
2. La Jolla Federal Savings
and Loan Association 26,705.72
3. Cost of Sale 1,876.76
4. Mr. Paderewski 30,202.90
5. Alvarado Investment Co. 15,330.25
6. Trustee 14,622.65
-----------
$103,738.28
The referee found that appellant had paid $33,421.67 for "(t)rust deed payments, taxes, maintenance and improvements" on the real property between the date of the interlocutory judgment of divorce in 1967 and the sale of the property in 1973. The referee also found that appellant had paid a total of $5,719.08 on the community debts before the bankrupt filed her petition in bankruptcy in 1970.
The referee decided that appellant was entitled to reimbursement for only one-half of the $33,421.67 he had spent on trust deed payments, taxes, maintenance, and improvements ($16,710.84), because these payments benefited both parties equally. Appellant was found to be entitled to reimbursement for the $5,719.08 he had paid on community debts before the bankrupt filed her petition in bankruptcy, but the referee discharged the bankrupt from the remaining community obligations and held that appellant was entitled to no further reimbursement for payments on the community debts since he alone was now liable for them. The referee found that appellant had already been reimbursed in the amount of.$23,500 out of the proceeds from the earlier sale of a portion of the property and that this amount covered the reimbursements to which appellant was entitled. The referee therefore gave appellant no further reimbursement out of the proceeds from the sale of the remaining property.
Appellant contends that the referee's allocation of the proceeds was incorrect for two reasons. First, appellant argues that the bankrupt's only interest in the real property at the time she filed her petition in bankruptcy was her interest in the net proceeds as awarded in the 1967 interlocutory judgment of divorce. Appellant contends that the referee should therefore have allocated the proceeds according to the order in that judgment and that under that judgment he is entitled to full reimbursement for his payments on the community debts and the first trust deed, taxes, maintenance, and improvements on the property. Second, appellant argues that the referee erred in awarding the homestead exemption to the bankrupt out of the gross proceeds from the sale. Appellant contends that the homestead exemption should have been taken from the bankrupt's share of the net proceeds. We will discuss appellant's contentions separately.
Section 70(a) of the Bankruptcy Act vests the trustee in bankruptcy with the title to all nonexempt property owned by the bankrupt at the time of the filing of the petition. 11 U.S.C. § 110 (1970). The trustee is given only those interests in property possessed by the bankrupt under state law. In the matter of Telemart Enterprises, Inc., 524 F.2d 761, 765 (9th Cir. 1975), cert. denied, sub nom. Holzman v. Lewis, 424 U.S. 969, 96 S.Ct. 1466, 47 L.Ed.2d 736 (1976).
In this case, the trustees argue that title to a one-half interest in the community property residence passed to the trustees on the date the bankrupt filed her petition. In taking this position, the trustees fail to recognize the interlocutory judgment of divorce which had been in effect for almost two and a half years.
The Bankruptcy Act generally does not vest the trustee with any better right or title to the bankrupt's property than the bankrupt had at the moment of bankruptcy. In the matter of Forester, 529 F.2d 310, 316 (9th Cir. 1976).
Under California law, if an interlocutory divorce decree is not appealed and becomes final, it is res judicata with respect to awards of community property. Harley v. Whitmore, 242 Cal.App.2d 461, 470, 51 Cal.Rptr. 468, 474 (1966). Therefore, the trustees in the instant case cannot claim title to a greater interest than that awarded to the bankrupt in the interlocutory decree.
The interlocutory order of an equal division of community property does not necessarily mean that the parties were each awarded a one-half interest in each community asset. Green v. Green, 27 Cal.App.2d 99, 101, 80 P.2d 513, 514 (1938).
A California trial court has discretion to divide community assets in any way which complies with statutory provisions. In re Marriage of Brown,15 Cal.3d 838, 848 n. 10, 126 Cal.Rptr. 633, 639 n. 10, 544 P.2d 561, 567 n. 10 (1976). The court may combine all the community property assets into one fund and then divide the fund equally. Full title to one asset, such as a house or a car, may be awarded to one party, so long as the total amounts awarded to both parties are equal. See Green v. Green, supra.
Moreover, California courts often deduct the community debts from the gross value of the community property before dividing the residue. See Wong v. Superior Court, 246 Cal.App.2d 541, 54 Cal.Rptr. 782 (1966); Mears...
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