In re LaForce
577 B.R. 908
Bankr. S.D. Ala.2017Background
- Raymond LaForce (debtor/husband) and Candace LaForce (wife/creditor) divorced after a 27-year marriage; most marital assets were titled in debtor's name when wife filed for divorce in 2011.
- Domestic Relations Court entered orders preserving the marital estate and later, after hearings, issued a Judgment of Divorce (Jan. 20, 2016, amended Apr. 7, 2016) allocating marital assets (Wife 39%, Husband 61%) and awarding specific property to each party.
- Debtor filed an individual Chapter 11 petition on Sept. 11, 2014; the domestic relations action predated the bankruptcy.
- Bankruptcy Court granted relief from stay to allow the state court to enter a final divorce decree but retained jurisdiction over enforcement to the extent it affected the bankruptcy estate; case later converted to Chapter 7.
- Wife moved to enforce the property-division provisions of the divorce judgment, arguing a pre-petition constructive trust arose in her favor and thus her equitable interests should not become property of the bankruptcy estate.
- Bankruptcy Court granted Wife’s motion, holding the pre-petition divorce filing created a constructive trust for Wife and that under sections 541(d) and post-BAPCPA priorities the Wife’s equitable interest does not enter the bankruptcy estate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether filing a divorce action before bankruptcy created a constructive trust in favor of Wife that prevents the marital assets from becoming property of the bankruptcy estate | LaForce: the pre-petition divorce converted Debtor into a trustee of marital assets; Wife’s equitable interest therefore is not estate property | Trustee/Debtor: marital assets titled in Debtor became part of the bankruptcy estate and trustee can administer them | Held: Yes — the court found a constructive trust arose at the divorce filing and Wife’s equitable interests did not enter the estate. |
| Whether 11 U.S.C. § 541(d) or trustee’s strong-arm powers under § 544(a) control when a constructive trust exists pre-petition | LaForce: § 541(d) prevents equitable interests (trust assets) from entering the estate; trustee cannot use § 544 to defeat that trust | Trustee: § 544(a) allows the trustee, in a hypothetical outsider’s shoes, to avoid interests and bring such property into the estate (majority view) | Held: § 541(d) controls; the court adopted the minority view that constructive-trust beneficiaries retain their interests and § 544(a) cannot defeat a pre-petition constructive trust in this context. |
| Whether the Judgment of Divorce constitutes a domestic support obligation entitled to special treatment under BAPCPA | LaForce: the divorce judgment (including property division and alimony) qualifies as a domestic support obligation and should receive priority/favored treatment | Trustee: (implicitly) the bankruptcy estate’s distribution rules govern and may override state-law allocations | Held: The court treated the judgment as a domestic support obligation under BAPCPA and applied the post-2005 priority scheme favoring such obligations. |
Key Cases Cited
- Davis v. Barnfield, 833 So.2d 58 (Ala. Civ. App. 2002) (describing constructive trust as an equitable device to prevent unjust enrichment)
- Sledge v. Sledge, 630 So.2d 461 (Ala. Civ. App. 1993) (definition and circumstances for imposing a constructive trust)
- In re Poffenbarger, 281 B.R. 379 (Bankr. S.D. Ala. 2002) (discussing interplay of § 541 and constructive trusts under Alabama law)
- In re General Coffee Corp., 828 F.2d 699 (11th Cir. 1987) (analyzing conflict between § 541(d) and § 544(a))
- Georgia Pacific Corp. v. Sigma Service Corp., 712 F.2d 962 (5th Cir. 1983) (noting estate holds property subject to beneficiaries’ outstanding equitable interests)
- In re Gonzalez, 832 F.3d 1251 (11th Cir. 2016) (discussing congressional objectives behind BAPCPA and domestic support priorities)