Taylor v. Taylor, 96 C 1425.
| Decision Date | 10 July 1996 |
| Docket Number | No. 96 C 1425.,96 C 1425. |
| Parties | Janet L. TAYLOR, Appellant, v. Joseph L. TAYLOR, Appellee. |
| Court | U.S. District Court — Northern District of Illinois |
Howard Earl Gilbert, Howard E. Gilbert & Associates, Ltd., Skokie, IL, Michael Anthony Gustaitis, Chicago, IL, John H. Redfield, Skokie, IL, for appellant.
Chester H. Foster, Jr., Foster & Kallen, Chicago, IL, for appellee.
Now before the Court is Appellant Janet L. Taylor's ("Janet") appeal pursuant to 28 U.S.C. § 158 from an order of the Bankruptcy Court discharging Appellee Joseph L. Taylor's ("Joseph") debt to Janet — a debt arising out of a Marital Settlement Agreement. Specifically, Janet contends that the Bankruptcy Court erred (1) in failing to consider the nature of the debt and the conduct of the parties; (2) in basing its decision, in part, on Janet's wealth; and (3) in discharging Joseph's debt to Janet, notwithstanding that Joseph has sufficient disposable income with which to pay the disputed obligation. For the reasons set forth below, the Court affirms the ruling of the Bankruptcy Court.
The bulk of the relevant facts, as detailed by the Bankruptcy Court, are undisputed by the parties. Joseph and Janet were married on October 2, 1983. There were no children from the marriage. Both Janet and Joseph were very successful in their various joint business ventures — ventures that produced relatively high incomes for each of them. Their marriage failed, however, and on March 8, 1991, a Judgment for Dissolution of Marriage was entered in the Illinois Circuit Court for DuPage County. Incorporated into the Judgment for Dissolution was a Marital Settlement Agreement (the "Agreement").
The subject debt owed to Janet by Joseph arose pursuant to Paragraph 3.3 of the Agreement. According to the terms of the Agreement, Joseph was required to reimburse Janet from his share of proceeds from the sale of the Taylor's marital residence for the following items:
Under Paragraph 3.3, in the likely event that Joseph's share of the sale proceeds proved insufficient to cover the specified reimbursements, Joseph was required to execute a promissory note for the remaining balance of the reimbursements.
The Taylor's marital residence was initially listed at $739,000. For a number of reasons, the residence did not sell until August 1993 for a substantially reduced price of $585,000, leaving Joseph with insufficient funds fully to reimburse Janet for the items identified. A promissory note (the "note") was therefore executed by Joseph on August 20, 1993 for the sum of $52,702.24 — the amount of the shortfall; the note provided for interest at the rate of 10% per annum and specified that Joseph would be liable for all attorney's fees and costs arising from attempts to collect on the note. The note came due on August 20, 1994. The balance claimed due on the promissory note through the end of December 1995, the date of the trial in the Bankruptcy Court, was $59,047.28, exclusive of Janet's attorney's fees and other expenses.
Joseph's financial condition deteriorated subsequent to the marital dissolution. By January 19, 1995, Joseph had reached the point where he filed a voluntary Chapter 7 bankruptcy petition with attendant schedules of assets and liabilities and a statement of his affairs. Those papers revealed, among other things, that Joseph's income had further declined in 1993 and 1994; that he was a defendant in several lawsuits; that he scheduled and valued his property at $1,400; that he listed his debts as totalling more than $900,000, including the unsecured debt owed to Janet; and that he scheduled his net take home pay at $2,878.34 per month and his monthly expenditures at $2,960.
At the trial before the Bankruptcy Court, it was established that Joseph's compensation was in the nature of a recoverable commissions draw based on sales produced through his work as a senior accounts manager. Joseph had monthly draw increases twice in 1995 for gross draws of $5,000 and $6,000. Janet projected, and still projects, Joseph's monthly budget to include a net income of $5,333.18 and necessary living expenses totaling $2,239.00, with a resulting monthly surplus of $3,094.18. It was further established at trial that, just prior to the filing of his bankruptcy, Joseph moved into a larger, more expensive apartment; that, in February 1995, Joseph purchased a new car; and that, for the tax year, 1995, Joseph contributed roughly $6,000.00 to his 401(k) retirement account.
In marked contrast, Janet's post-dissolution income was, and is, many multiples of Joseph's. Janet's business — a business which unquestionably has been very profitable for Janet — involves contracting computer programmers as consultants. Her confidential personal financial statement as of July 1, 1995 showed her to be a relatively well-to-do individual, and it is undisputed that Janet's financial condition remains far superior to Joseph's.
On May 2, 1995, Janet filed a timely adversary complaint with the Bankruptcy Court objecting to the dischargeability of her claim against Joseph pursuant to 11 U.S.C. § 523(a)(15), which provides:
In its Memorandum Opinion of January 23, 1996, the Bankruptcy Court first determined that Joseph's debt to Janet is not dischargeable under § 523(a)(15)(A), as Joseph does not lack the ability to pay the debt over time. Specifically, Bankruptcy Judge Squires found:
By the time the complaint was filed, and thereafter at the time of trial, Joseph\'s income had substantially increased, he had moved into a larger and more expensive apartment, and he had bought a new car. His total monthly income now exceeds his monthly living and business expenses and he is able to channel approximately 10% of his income into a retirement plan. He still cannot pay Janet\'s claim in one lump sum, but he could pay it in installments. The Court rejects Joseph\'s argument that he does not have the ability to pay the debt from his future income. Therefore, the Court rejects Joseph\'s position that he lacks the ability to pay the debt for purposes of § 523(a)(15)(A).
(1/23/96 Mem.Op. p. 12).
This conclusion notwithstanding, the Bankruptcy Court discharged the subject debt under § 523(a)(15)(B) because, in Bankruptcy Judge Squires' considered opinion, the benefit to Joseph resulting from a discharge would far outweigh the detrimental consequences to Janet:
In light of the relative economic and financial situations of the parties, it is clear that the economic benefit to Joseph of not excepting the debt from the fresh start afforded by his discharge outweighs the psychological detriment and the economic loss suffered by Janet in not being able to collect the debt from him. Moreover, the policy favoring discharge and narrowly construing and applying discharge exceptions is further served by the Court finding in Joseph\'s favor under § 523(a)(15)(B). Joseph is restarting the rest of his life and discharging the debt provides him a benefit, which under the totality of the evidence, outweighs the detrimental consequences to Janet of his nonpayment.
(1/23/96 Mem.Op. p. 12).
In reviewing the Bankruptcy Court's decision, this Court must apply the "clearly erroneous" standard to the Bankruptcy Court's findings of fact, while conclusions of law are reviewed de novo. Mixed questions of law and fact or questions pertaining to the application of facts to the law are similarly reviewed de novo. In re Ebbler Furniture and Appliances, Inc., 804 F.2d 87, 88 (7th Cir.1986); In re Bonnett, 73 B.R. 715, 717 (C.D.Ill.1987). Here, Bankruptcy Judge Squires' findings of fact were based on the stipulations of the parties; hence, the parties register no substantive disagreements with the facts as set forth by the Bankruptcy Court. Rather, Janet contends that Bankruptcy Judge Squires' interpretation and application of § 523(a)(15)(B) was erroneous; as this objection pertains to an issue of law, rather than to issues of pure fact, this Court reviews the Bankruptcy Court's decision de novo.
As correctly noted by the Bankruptcy Court, the party asserting an exception to the discharge of a debt bears the burden of establishing the exception by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 286-87, 111 S.Ct. 654, 659-60, 112 L.Ed.2d 755 (1991); In re Martin, 698 F.2d 883, 887 (7th Cir.1983). To further the policy of providing the debtor a fresh start in bankruptcy, exceptions to discharge are construed strictly against the creditor and liberally in favor of the debtor. Meyer v. Rigdon, 36 F.3d 1375, 1385 (7th Cir.1994); In re Zarzynski, 771 F.2d 304, 306 (7th Cir.1985).
Janet maintains that she has satisfied her burden of proof by establishing that Joseph has the ability to pay...
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