Robb, In re, ROBB-FULTO

• Decision Date: 06 May 1994
• Docket Number: P,ROBB-FULTO,No. 93-2024,93-2024
• Citation: 23 F.3d 895
• Parties: Bankr. L. Rep. P 75,869 In re David ROBB, Sr., Debtor. Lindalaintiff-Appellee, v. David ROBB, Sr., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 895

23 F.3d 895

Bankr. L. Rep. P 75,869

In re David ROBB, Sr., Debtor Linda ROBB-FULTON, Plaintiff-Appellee, v. David ROBB, Sr., Defendant-Appellant.

No. 93-2024.

United States Court of Appeals Fourth Circuit.

Argued April 13, 1994.

Decided May 6, 1994.

ARGUED: Joel D. Seledee, Weinstock, Stevan, Harris & Friedman, P.A., Baltimore, MD, for appellant.

Anthony A. Keder, Law Office of Saul J. McGrane, Hyattsville, MD, for appellee.

ON BRIEF: Melvyn J. Weinstock, Weinstock, Stevan, Harris & Friedman, P.A., Baltimore, MD, for appellant.

Before RUSSELL, WILKINSON, and HAMILTON, Circuit Judges.

Affirmed by published opinion. Judge HAMILTON wrote the opinion, in which Judge DONALD RUSSELL and Judge WILKINSON joined.

OPINION

HAMILTON, Circuit Judge:

In this appeal, we must decide whether David Robb, Sr. (the Debtor) may discharge his obligation for $3,000 monthly payments ($3,000 Monthly Payments) to his ex-wife, Linda Robb-Fulton (Linda or the ex-wife), which arose as part of a voluntarily executed marital settlement. The bankruptcy court found that the Debtor and his ex-wife intended these monthly payments as support for his ex-wife's daughter by another marriage (Dianna) and, therefore, the payments were dischargeable in bankruptcy. 11 U.S.C. Sec. 727. On appeal, the district court reversed the bankruptcy court, holding that this obligation was alimony and, therefore, excepted from discharge. 168 B.R. 575. 11 U.S.C. Sec. 523(a)(5). For the reasons stated herein, we affirm the decision of the district court.

I

The Debtor and Linda married on November 10, 1974. At that time, Linda had two children by another marriage, a son David and a daughter Dianna. Prior to this marriage, Dianna suffered severe brain damage during dental surgery and required constant care thereafter. As a result of a recovery from a medical malpractice lawsuit involving Dianna, Linda established a $150,000 trust fund for Dianna's benefit. The Debtor and Linda had no children by their marriage and the Debtor never adopted David or Dianna.

During their marriage, the Debtor was a physician earning between $100,000 and $125,000 annually. Although Linda had only a high school degree, after they married the Debtor financed her efforts to continue her education, resulting in her obtaining a college degree. Consequently, Linda became an emergency room physician's assistant during her marriage to the Debtor.

As a result of marital difficulties, the parties separated in 1980. On November 18, 1980, the Debtor and Linda executed a Separation Agreement (the 1980 Agreement). Among other things, the 1980 Agreement required the Debtor to pay a prescribed amount of alimony for 121 months, commencing in August 1980 and ending after the last payment on September 1, 1990. The payment amounts were as follows:

August 1980 to December 1980--$3,000 per month

January 1981 to June 1981--$3,150 per month

July 1981 to December 1981--$3,300 per month

January 1982 to September 1990--$700 per month

The 1980 Agreement allowed for subsequent adjustments to the alimony payments, depending on inflation.

The 1980 Agreement also required the Debtor to provide medical insurance for Linda and her two children for ten years and to pay Linda's medical expenses to the extent they were not covered by her insurance. Notably, the 1980 Agreement did not require the Debtor to cover the uninsured medical expenses for Linda's children. Finally, the 1980 Agreement divided certain personal property and required the Debtor to convey the marital home to Linda, with Linda assuming the existing mortgage obligation. When the Debtor conveyed the home, there was approximately $50,000 equity in the home.

The parties attempted to reconcile in November 1981, resuming cohabitation and participating in marital counseling. Unfortunately, this reconciliation did not last and the parties separated again in 1983. When the parties separated for the second time, the Debtor was earning in excess of $100,000 annually compared to Linda's annual salary of approximately $20,000. On August 24, 1983, the parties entered into an agreement entitled "Addendum to Separation and Property Settlement Agreement" (Addendum). The parties agreed that, except as modified or amended by the Addendum, the obligations contained in the 1980 Agreement would continue as valid and binding. The Addendum was incorporated but not merged into the Final Judgment of Absolute Divorce.

In a section captioned "Alimony," the Addendum provided, in part, that the Debtor "does hereby agree to pay alimony (temporary and permanent) for support and maintenance of the Wife until such time as the Wife should die, or until the [Debtor] dies, in accordance with the payment terms specified herein.... Said alimony shall be paid ... in the amount of three thousand dollars ($3,000) per month." (J.A. 20). This provision in the Addendum thereby replaced the alimony payment schedule contained in the 1980 Agreement with the $3,000 Monthly Payments. In a separate section captioned "Temporary Support," the Addendum also required the Debtor to "pay temporary support for David Maphis until he has completed boarding school ... or until he discontinues said schooling" and to pay $5,200 "in consideration of [Linda's] miscellaneous expenses incurred on behalf of her son, David Maphis." (J.A. 21). In return, the Addendum allowed the Debtor to claim David as a dependent on his Federal and State income tax returns. In another section captioned "Housekeeping Expenses," the Addendum required the Debtor to pay for the housekeeper currently working for Linda, who assisted in caring for Dianna. If the housekeeper chose to leave, this section required the Debtor to pay Linda an additional $400 per month as "temporary support until such time as Dianna Maphis is in a residential situation elsewhere." (J.A. 21). In a section captioned "Medical and Hospital Expenses and Insurance," the Addendum provided that the Debtor would not be liable for Linda's medical expenses or insurance after their divorce, but required the Debtor to pay for "continu[ing] ... [the] insurance policies ... cover[ing] David Maphis until such time as he becomes ineligible under said policies and cover[ing] Dian[n]a Maphis until such time as the [Debtor] and [Linda] agree that such coverage is unnecessary." (J.A. 23). Finally, the Addendum required the Debtor to convey his interest in a 1982 Datsun automobile to Linda, and to continue making the payments on this car.

The Debtor made the required $3,000 Monthly Payments for approximately three years. During this time, the Debtor deducted these payments as alimony on his income tax returns and Linda reported these payments as income on her tax returns. After experiencing severe financial problems, the Debtor informed Linda that he could no longer afford the $3,000 Monthly Payments and subsequently ceased making these payments. On March 15, 1991, the Debtor filed his petition for bankruptcy, which was subsequently converted into a Chapter 7 petition. On February, 13, 1992 Linda filed a complaint objecting to the dischargeability of the $3,000 Monthly Payments. In that complaint, Linda asserted that these payments were alimony for her benefit and, therefore, excepted from discharge.

During the hearings before the bankruptcy court, the Debtor testified that he intended the $3,000 Monthly Payments as support for Dianna rather than as alimony for his ex-wife. The Debtor stated that he arrived at the $3,000 per month figure by taking the cost of placing Dianna in an institution (estimated by him at $2,500 per month) and taking into account the tax effects of the payments as income to his ex-wife and a deduction for himself. In response, Linda testified that she needed support at the time of the separation and was aware of the disparity in her income and the income of the Debtor. She further testified that she did not discover the Debtor purportedly intended the payments to support Dianna until the bankruptcy proceedings.

On January 3, 1993, the bankruptcy court entered an order finding the $3,000 Monthly Payments dischargeable because the parties intended them to support Dianna, the Debtor's non-adopted stepchild, rather than as alimony for his ex-wife. Linda appealed to the district court. On July 8, 1993, the district court entered its order, reversing the bankruptcy court and holding that these payments were excepted from discharge pursuant to 11 U.S.C. Sec. 523(a)(5). The district court reasoned that the bankruptcy court's finding as to the parties' intent was clearly erroneous because the objective indicia of intent "establishes beyond a reasonable doubt that the payments were in fact alimony." (J.A. 178).

The Debtor appeals.

II

To effectuate the Bankruptcy Code's "fresh start" policy, Chapter 7 of the Code entitles a debtor to discharge "all debts that arose before the date of the order for relief." 11 U.S.C. Sec. 727(b). However, the Code excepts from discharge any debts to a "former spouse or child of the debtor ... for alimony to, maintenance for, or support of such spouse or child ... [provided that] such liability is actually in the nature of alimony, maintenance or support." 11 U.S.C. Sec. 523(a)(5)(B). This provision in the Bankruptcy Code "departs from the general policy of absolution or fresh start in order to 'enforce an overriding public policy favoring the enforcement of familial obligations.' " In re Sampson, 997 F.2d 717, 721 (10th Cir.1993), citing Shaver v. Shaver, 736 F.2d 1314, 1315-16 (9th Cir.1984).

In the context of a voluntarily executed marital settlement, determining whether the payments are "actually in the nature of alimony, maintenance or support" and, therefore, excepted from discharge, focuses on whether the parties intended the debtor's obligation to support his ex-spouse or children. Tilley v. Jessee, 789 F.2d 1074, 1077 (4th Cir.1986). In undertaking this analysis, a court must examine the mutual...