Perlow v. Perlow
| Decision Date | 17 April 1991 |
| Docket Number | No. 90-583-CIV-5-BR.,90-583-CIV-5-BR. |
| Citation | 128 BR 412 |
| Parties | Frann PERLOW, Appellant, v. Ronald Allyn PERLOW, Appellee. |
| Court | U.S. District Court — Eastern District of North Carolina |
Roland C. Braswell, Goldsboro, N.C., for appellant.
Charles Diederich Heidgerd, Ragsdale, Kirschbaum, Nanney, Sokol & Heidgerd, Raleigh, N.C., William Lemuel Ragsdale, Ragsdale, Kirschbaum, Nanney, Sokol & Heidgerd, Raleigh, N.C., for appellee.
This matter is before the court on appeal by Frann Perlow from the bankruptcy court's order of 25 May 1990 in which the court held that her claim for equitable distribution of marital property was discharged by reason of her former husband's discharge in bankruptcy which was entered on 9 February 1990.
Jurisdiction is established in the United States District Court for the Eastern District Of North Carolina pursuant to 28 U.S.C. § 158(a), this proceeding being one that was referred to the bankruptcy court under 28 U.S.C. § 157. Appeal was duly taken pursuant to Rule 8001(a) of the Federal Rules of Bankruptcy Procedure.
Appellee, Ronald Perlow, filed an action on 9 May 1988 in Wayne County District Court, Perlow v. Perlow, 88 CVD 813, in which he requested an absolute divorce and equitable distribution of marital property. The divorce was granted on 14 June 1988 and the court held that all claims except that of the absolute divorce be retained until a later date.
The equitable distribution issue was still pending when Mr. Perlow filed a petition in bankruptcy under Chapter 7 of Title 11 of the United States Code on 18 October 1988. In his petition for relief, Mr. Perlow listed Ms. Perlow as an unsecured creditor without priority on a claim listed as "Case 88 CVD 813; Contingent, Disputed, Unliquidated; Division of Marital Property." Additionally, on page five of the Statement of Financial Affairs section of his petition for relief, Mr. Perlow listed Ms. Perlow as a party to the case in Wayne County District Court, case number 88 CVD 813, and described the case as "Equitable Distribution of Marital Property of Ronald A. Perlow; Child Support."
Ms. Perlow received two different notices informing her that her equitable distribution claim had been listed as a debt in her former husband's bankruptcy case. On 25 October 1988, Mr. Perlow filed a document entitled "Notice of Plaintiff's Bankruptcy" with the Wayne County District Court in case number 88 CVD 813 and mailed a copy of it to Ms. Perlow's attorney. That notice specifically stated that "all matters of equitable distribution will be requested to be completed by the Bankruptcy Court," and that "it is the contention of the plaintiff that upon the determination of equitable distribution by the Bankruptcy Court that all matters concerning distribution of property in this action should be dismissed." The notice concluded with "until the bankruptcy is concluded, all action in this file should be stayed as by law required."
Ms. Perlow also received a document entitled "Order and Notice of Chapter 7 Bankruptcy" which was filed by the clerk of the bankruptcy court on 19 October 1988. That notice specifically notified all creditors listed by Mr. Perlow, Ms. Perlow included, that Mr. Perlow sought a discharge of all of the debts that he listed. Although the notice advised creditors not to file a proof of claim because the case was classified as a no asset case, the notice did specifically provide as follows: "If a creditor believes that debtor should not receive a discharge under 11 U.S.C. § 727 or a specific debt should not be discharged under 11 U.S.C. § 523(c) for some valid reason specified in the bankruptcy law, the creditor must take action to challenge the discharge." The notice provided that the deadline to file a complaint objecting to the discharge of a debt was 17 January 1989. Ms. Perlow never filed such a complaint. On 9 February 1989 the bankruptcy court entered an order discharging Mr. Perlow from his debts.
On 21 September 1989, Ms. Perlow filed a motion in Wayne County District Court, case number 88 CVD 813, requesting that the court distribute the marital property of the parties and further requesting that the court require Mr. Perlow to pay debts previously discharged by the bankruptcy court. On 23 January 1990, Mr. Perlow brought an adversary proceeding in the bankruptcy court pursuant to Bankruptcy Rule 4007 to determine the dischargeability of Ms. Perlow's interest in an equitable division of Mr. Perlow's marital property. Both parties filed motions for summary judgment and Mr. Perlow's motion was granted.
The bankruptcy court exercised jurisdiction over the equitable distribution claim and liquidated it in light of the North Carolina equitable distribution statute. N.C. Gen.Stat. § 50-20. The court determined that Ms. Perlow's claim for equitable distribution had no value and that it was discharged on 9 February 1988. It is from this order that Ms. Perlow appeals.
A district court applies two standards of review when considering an appeal from a bankruptcy court decision: "one for findings of fact; the other for conclusions of law." Morter v. Farm Credit Services, 110 B.R. 390, 392 (N.D.Ind.1990). Rule 8013 of the Federal Rules of Bankruptcy Procedure provides that "findings of fact shall not be set aside by the district court unless clearly erroneous." Bankr.R. 8013. "When a bankruptcy judge's conclusions of law are challenged, the district court must make a de novo review and may overturn the findings if they are contrary to law." Morter, 110 B.R. at 393. The district court "may affirm, modify, or reverse" the bankruptcy court's conclusions. Bankr.R. 8013. The appellant in this case alleges the bankruptcy court made an error of law in determining the nature of her claim and its dischargeability in bankruptcy.
Ms. Perlow contends that her right to equitable distribution is not dischargeable because it is not a debt or claim against the debtor's property but instead a preexisting property right in the marital property. The bankruptcy court concluded her rights to be those of a general unsecured creditor. In order to determine which assessment of Ms. Perlow's rights is correct, the court must determine as the bankruptcy court did, the nature of Ms. Perlow's claim.
1. Ms. Perlow has a general unsecured claim
Ms. Perlow's claim for equitable distribution of marital property is a statutory right granted to spouses under North Carolina law. N.C.Gen.Stat. § 50-20. The right is a "species of common ownership . . . vesting at the time of the parties' separation." N.C.Gen.Stat. § 50-20(b). This vested right, however, does not, as Ms. Perlow contends, create a property right in the marital property. In re Fisher, 67 B.R. 666 (Bankr.Colo. 1986). Nor does the fact of separation create a lien on specific marital property in favor of the spouse. In re Harms, 7 B.R. 398 (Bankr.Colo.1980). Rather, it only creates "a right to an equitable distribution of that property, whatever a court should determine that property is." Wilson v. Wilson, 73 N.C.App. 96, 325 S.E.2d 668, cert. denied, 314 N.C. 121, 332 S.E.2d 490 (1985). Such a "right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured" qualifies as a "claim" against the estate pursuant to the Code definition of that term. 11 U.S.C. § 101(5)(A). Therefore, Ms. Perlow's right to equitable distribution is a general unsecured claim and Mr. Perlow properly listed it as a debt against the estate. 11 U.S.C. § 101(12) ().
The bankruptcy court in In re Fisher held that pursuant to 11 U.S.C. § 544 the wife's vested interests in marital property were cut off by the filing of the bankruptcy petition where the wife's rights had not been fixed. 67 B.R. at 669. Under Section 544, "the trustee in bankruptcy is clothed with the status of a hypothetical lien creditor and a hypothetical bona fide purchaser of property from the debtor." Id. The court reasoned that because the wife "had failed to file a notice of lis pendens giving notice of the filing of the divorce proceeding and thereby perhaps perfecting of record her vested right in any real property owned by the . . . debtor," the husband would have been able to separately convey the property which he owned free of the wife's vested interests. Id. The court therefore determined that a "judgment lien creditor seeking to execute on the debtor's property, or a bona fide purchaser of real property, would have taken title to that property free and clear of the . . . wife's interest." Id. Accordingly, the vested interests of the wife in any specific marital property were cut off by the bankruptcy filing.
In this case, the valuing of the marital property and the equitable distribution of it had not occurred at the time Mr. Perlow filed for bankruptcy. Ms. Perlow had not perfected her vested rights in the marital property by filing a lis pendens giving notice of the divorce proceeding. Likewise, she had not obtained an execution lien on the personal property. Therefore, Ms. Perlow's rights in specific marital property, like those of the wife in Fisher were cut off by the bankruptcy filing. Although Section 544 of the Code bars Ms. Perlow's claim to specific marital property, she is not left without a remedy. See Fisher, 67 B.R. at 669. Ms. Perlow has a general unsecured claim against the estate and has a right to be compensated from the estate the same as any other unsecured creditor. Id. In this case, however, there were insufficient assets to compensate any of the unsecured creditors.
Ms. Perlow contends that even if her right to equitable distribution is a "claim"...
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