Wiggains v. Reed (In re Wiggains)
Decision Date | 06 April 2015 |
Docket Number | ADVERSARY NO. 14-03064-SGJ,CASE NO. 13-33757-SGJ-7 |
Court | U.S. Bankruptcy Court — Northern District of Texas |
Parties | IN RE: JEREMY WIGGAINS, Debtor. TANYA WIGGAINS, Plaintiff, v. DIANE G. REED, CHAPTER 7 TRUSTEE, Defendant. |
The above-referenced Adversary Proceeding (herein so called) involves a large and valuable Texas homestead (the "Texas Homestead") formerly owned by the Chapter 7 Debtor (the "Debtor") and his non-debtor spouse (the "Non-Filing Spouse"). The Texas Homestead wassold by a Chapter 7 Trustee (the "Trustee") during the above-referenced bankruptcy case for $3.4 million, netting $568,668.41 of cash proceeds after payment of all liens, claims, and encumbrances (the "Homestead Net Sale Proceeds"). This Adversary Proceeding presents a battle over the Homestead Net Sale Proceeds. The court is reminded of Le Corbusier's saying that "the home should be the treasure chest of living." However, a battle over homestead sale proceeds in a bankruptcy case was surely not what the famous architect had in mind.
In any event, in the days before Congress's enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA")1, the disputes presented in this Adversary Proceeding would never have arisen-for the Debtor and the Non-Filing Spouse would have simply been entitled to the entire $568,668.41 of Homestead Net Sale Proceeds without controversy. Why? Because the Debtor elected to exempt the Texas Homestead under the state law of his domicile, pursuant to section 522(b)(3)(A) of the Bankruptcy Code and section 41.001(c) of the Texas Property Code. And Texas State law provides for an essentially unlimited homestead exemption-that is an exemption that is capped only as to acreage allowed (not applicable in the case at bar), and is not limited by dollar value.2 However, in this post-BAPCPA world, there were two events that happened involving the Texas Homestead that are now relevant.
This Adversary Proceeding was commenced with the Non-Filing Spouse's filing of a complaint ("Complaint") against the Trustee, seeking a declaratory judgment, pursuant to 28 U.S.C. § 2201, as to the relative rights between her and the Trustee concerning the Homestead Net Sale Proceeds, by virtue of the Partition Agreement. The Trustee responded with an answer and counterclaims ("Answer and Counterclaims") of fraudulent transfer against the Non-Filing Spouse10-asserting that the Debtor's entry into the Partition Agreement immediately prior to the bankruptcy filing (purporting to recharacterize the Texas Homestead from community property into one-half his separate property and one-half her separate property) constituted a voidable transaction committed with an actual intent to hinder and delay creditors, pursuant to section 548(a)(1)(A) of the Bankruptcy Code11 and pursuant to section 24.005(a)(1) of the TexasBusiness & Commerce Code (TUFTA), which is available to the Trustee pursuant to section 544 (b) of the Bankruptcy Code.12
In summary, this Adversary Proceeding is ultimately about whether: (a) an otherwise valid marital partition agreement, (b) executed on the eve of a husband's bankruptcy case, (c) that purports to recharacterize a community property Texas homestead into one-half husband's separate property and one-half wife's separate property, (d) when such homestead will be subject to the section 522(p) cap in the husband's bankruptcy case, (e) can effectively deprive the bankruptcy estate from realizing half of the net proceeds from the sale of the homestead, or, rather (f) can the marital partition agreement be avoided if it is found to have been made with actual intent to hinder or delay creditors, and if it had the effect of depriving the creditors of part of what would have been available to them pursuant to sections 541(a)(2) and 522(p) and possibly even section 363(j) of the Bankruptcy Code?13
The court has determined that it has subject matter jurisdiction over this Adversary Proceeding pursuant to 28 U.S.C. §§ 1334 and 157. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), (C), (H), and (O). The bankruptcy court additionally believes that it has Constitutional authority to enter a final judgment in this Adversary Proceeding, considering the holdings of Stern v. Marshall14 and Executive Benefits.15 Although a review of the Claims Register in this case does not reflect that the Non-Filing Spouse filed any proof of claim in the underlying bankruptcy case, she has essentially made a claim against the estate through the filingof the Adversary Proceeding in which she asserts an interest in the Homestead Net Sale Proceeds;16 moreover, the Trustee's fraudulent transfer claims are essentially intertwined with and constitute a defense against the Non-Filing Spouse's claims. Additionally, this is a dispute that could only arise in a bankruptcy case.
The court held a trial on the Complaint and Answer and Counterclaims on October 21, 2014 (the "Trial").17 The parties submitted certain post-Trial legal briefing thereafter.18 The court has concluded that the Partition Agreement constituted a fraudulent transfer, pursuant to section 548(a)(1)(A) of the Bankruptcy Code, entered into with the actual intent to delay and hinder creditors, which, if not avoided, has the effect of depriving the creditors of the bankruptcy estate of as much as $284,334.21 of value to which they would have otherwise been entitled.19 This Memorandum Opinion constitutes the court's findings of fact and conclusions of law pursuant to Federal Rules of Bankruptcy Procedure 7052 and 9014. Where appropriate, a finding of fact will be construed as a conclusion of law and vice versa.
Plaintiff, the Non-Filing Spouse, is the spouse of Jeremy Wiggains (the "Debtor"), debtor in the above-referenced bankruptcy case (the "Bankruptcy Case"), which was filed on July 29,2013 (the "Petition Date").20 The Non-Filing Spouse and Debtor lived together as a married couple since 2007; together they have three young children.21 Prior to the Bankruptcy Case, the Non-Filing Spouse worked as a homemaker.22 During the relevant time period, Debtor owned a local automobile dealership in the Dallas/Fort Worth area named Straight Line Automotive Group, LLC ("SLAG"), as well as other similar companies.23 SLAG also filed a Chapter 7 bankruptcy petition on July 13, 2013, and its bankruptcy case is pending.24
On or about November 27, 2012, less than 1,215 days prior to the Petition Date, Debtor and the Non-Filing Spouse acquired an interest in the property located at 6520 Northaven Road, Dallas, Texas 75230 (the "Texas Homestead"), which Debtor and the Non-Filing Spouse claim was their homestead as of the Petition Date, without evidence or dispute to the contrary.25 The Texas Homestead and proceeds from its sale are at the core of this dispute. Debtor and the Non-Filing Spouse purchased the Texas Homestead as an investment, with the intent to make money from its sale.26 The Non-Filing Spouse and Debtor27 performed valuable improvements to theTexas Homestead in the months leading up to the Bankruptcy Case, including adding a home theatre and light fixtures, vaulting a ceiling in the living room, renovating cabinets in the kitchen and master bathroom, painting, and gating the Texas Homestead.28
On the Petition Date, prior to filing the Bankruptcy Case,...
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