Estes v. Titus
| Decision Date | 02 July 2008 |
| Docket Number | Calendar No. 4.,Docket No. 133098. |
| Parties | Jan Kay ESTES, personal representative of the estate of Douglas Duane Estes, Plaintiff-Appellee, v. Jeff Edward TITUS, Defendant-Appellee, and Julie L. SWABASH, formerly known as Julie L. Titus, Appellant. |
| Court | Michigan Supreme Court |
Kreis, Enderle, Callander & Hudgins, P.C. (by Russell A. Kreis, James D. Lance, and Michael J. Toth), Kalamazoo, for Julie L. Swabash.
Speaker Law Firm, P.L.L.C. (by Liisa R. Speaker and Jodi M. Latuszek), Lansing, for amici curiae the Family Law Section of the State Bar of Michigan.
Howard & Howard Attorneys, P.C. (by Lisa S. Gretchko), and Michael W. Bartnik, Bloomfield Hills, Troy, for amici curiae the Business Law Section of the State Bar of Michigan.
Before the Entire Bench.
In this case of first impression, we are asked whether the Uniform Fraudulent Transfer Act (UFTA)1 applies to a transfer of property made pursuant to a property settlement agreement incorporated in a divorce judgment. We hold that it does apply and that a UFTA claim is not an impermissible collateral attack on a divorce judgment. However, property owned as tenants by the entirety is not subject to process by a creditor holding a claim against only one spouse. Such property is not an "asset" under the UFTA. Therefore, its distribution in a divorce judgment does not constitute a "transfer" for purposes of that act.
Because the trial court refused to apply the UFTA in this case, it never addressed whether plaintiff stated a valid cause of action against Julie Swabash under the act. Thus, the question whether plaintiff raised issues of fact concerning Jeff Titus's actual intent to defraud her was not properly before the Court of Appeals. Hence, we vacate the portion of the Court of Appeals judgment that discusses the factual sufficiency of plaintiff's claim of a transfer made with an actual intent to defraud. We affirm in part and vacate in part the judgment of the Court of Appeals.
The relevant facts of this case are as follows. On September 23, 2002, plaintiff Jan Estes filed a wrongful death action against defendant Jeff Titus, the incarcerated murderer of plaintiff's husband.2 Not long after, Titus's wife, now known as Julie Swabash, filed for divorce. A divorce judgment entered on March 23, 2003, providing Swabash with nearly all the marital assets pursuant to the parties' property settlement agreement.3 The judgment explained that the property distribution was unequal because Titus was serving a life sentence in prison and was relieved of any child support obligation for the couple's 17-year-old daughter.
On March 24, 2003, plaintiff sought to intervene in the divorce action. She challenged the distribution of assets to which Titus was entitled in anticipation of obtaining a recovery from him in her wrongful death action. The divorce court denied the motion, and plaintiff did not appeal the denial. Instead, on January 20, 2005, after obtaining a wrongful death award, she moved under MCL 600.6128 to join Swabash in the wrongful death action in an effort to collect the judgment.
Plaintiff contended that the Tituses' property settlement had been a fraudulent transfer within the meaning of the UFTA. The trial court held that it lacked the authority to amend the judgment entered by the divorce court. It declined to add Swabash as a party, dissolved the restraining order, and quashed the discovery subpoena it had issued earlier. Plaintiff appealed.
Judge Markey, writing for the majority in the Court of Appeals, joined by Judge White, held that the UFTA applied to property transfers in divorce cases. The Court of Appeals majority went further, holding that plaintiff had sufficiently established a claim under the UFTA by demonstrating an actual intent to defraud.4 The Court remanded the matter to the trial court so that Swabash could be added as a party defendant to the supplemental proceedings in the wrongful death case.5 Judge O'Connell dissented in part in the belief that the Court of Appeals majority was allowing a collateral attack on the divorce judgment. We granted leave to appeal.6
This appeal presents jurisdictional issues, which we review de novo.7 The interpretation of statutes and court rules is also a question of law subject to de novo review,8 as is the application of legal doctrines, such as res judicata and collateral estoppel.9
In her appeal, Swabash argues that the Legislature did not intend to include property distributions in divorce cases within the purview of the UFTA. We note initially that the language of the act does not exempt from its reach property transferred pursuant to divorce judgments. However, the definition of "asset" in the UFTA does exempt some property held as tenants by the entirety.10 Hence, in a UFTA action, marital property held by the entirety is exempt from the creditor of only one spouse when the property is transferred pursuant to a divorce judgment. But property transferred pursuant to a property settlement agreement incorporated in a divorce judgment is subject to a UFTA action if it meets the definition of an asset.
We reject Swabash's claim that the UFTA can never reach the transfer of property in divorce actions. The UFTA defines "transfer" at MCL 566.31(l) as "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, and creation of a lien or other encumbrance."
A court may provide for the distribution of property in a divorce judgment, and, when it enters, the judgment has the same effect as a deed or a bill of sale.11 A property settlement agreement incorporated in a divorce judgment disposes of the parties' interests in the marital property. As part of the judgment, it effectuates a transfer for purposes of the UFTA when the divorce judgment enters.
We conclude that plaintiff may challenge the Tituses' property settlement agreement incorporated in the divorce judgment as a transfer within the purview of the UFTA.
Swabash's argument that the Legislature did not intend that the UFTA reach property transferred in a divorce action pursuant to a property settlement agreement is correct only with respect to some property held as tenants by the entirety. Only spouses can hold property in that fashion.12
A UFTA action will not reach such property unless both spouses are debtors on the claim that is the subject of the action. This is because a "transfer" under the UFTA includes "disposing of or parting with an asset or an interest in an asset."13 "Asset" is defined in the act as including the "property of the debtor."14 One important exception is "[a]n interest in property held in tenancy by the entireties to the extent it is not subject to process by a creditor holding a claim against only 1 tenant."15 Property held as tenants by the entirety is exempt from the claims of the creditors of only one spouse and is not an asset. Hence, a distribution of such property in a divorce judgment is not a transfer for purposes of the UFTA.
"A judgment lien does not attach to an interest in real property owned as tenants by the entirety unless the underlying judgment is entered against both the husband and wife."16 The Legislature extended that same protection to "[a]ll bonds, certificates of stock, mortgages, promissory notes, debentures, or other evidences of indebtedness" held by a husband and wife.17 Thus, "[p]roperty described in section 1 of 1927 PA 212, MCL 557.151, or real property, held jointly by a husband and wife as a tenancy by the entirety is exempt from execution under a judgment entered against only 1 spouse."18
Therefore, real estate and the financial instruments described in MCL 557.151 held as tenants by the entirety cannot be the subject matter of a UFTA claim if only one spouse is the debtor. This conclusion fits into the larger statutory purpose of avoiding fraudulent transfers because it is difficult to comprehend how disposing of property that a creditor cannot reach could "defraud" that creditor.
This rule applies when property held as tenants by the entirety is disposed of in a divorce judgment, despite the fact that the divorce ends the tenancy by the entirety.19 This is because the spouses hold the property as tenants by the entirety until the marriage is dissolved. Under the UFTA, such property is not an asset, and its distribution pursuant to the divorce judgment is not a transfer.
The dissenting judge in the Court of Appeals opined that plaintiff was precluded from using this case to collaterally attack the Tituses' divorce judgment. According to the dissent, plaintiff's proper remedy was to appeal the divorce court's denial of her motion to intervene in the divorce proceedings.20 The dissent's position is faulty because it presumes that the divorce court had the authority to determine a creditor's property rights within a divorce proceeding. If that had been the case, plaintiff would have been required to appeal the divorce court's denial of her motion to intervene.
This Court has long recognized that the jurisdiction of a divorce court is strictly statutory and limited to determining "the rights and obligations between the husband and wife, to the exclusion of third parties ...."21 When fraud is alleged, third parties can be joined in the divorce action only if they have conspired with one spouse to defraud the other spouse of a property...
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