533 B.R. 735
Bankr. C.D. Ill.2015Background
- Penny and David McLain married in 1970 and divorced in 2010, with five adult children and Penny largely a homemaker.
- Penny earned limited income as a part-time beautician; David earned significantly more during the marriage and later retired from State Farm, then worked as a security guard with pension/401(k) distributions.
- The Judgment for Dissolution incorporated a Marital Settlement Agreement (MSA) from August 2010, including provisions on property division, equalization payments, and future pension division via QDRO.
- Article II of the MSA requires David to make monthly equalization payments to Penny ($2,176 through July 2015, plus a final $3,500 in July 2015), contingent on David’s continued State Farm employment and subject to modification if employment ends.
- Article II also provides that Penny will receive $926.50 per month from David’s State Farm pension beginning July 2015, with maintenance waived by both parties, and the MSA states debts are to be treated as support for bankruptcy purposes.
- In 2014 a McLean County circuit court found David in indirect civil contempt for failing to pay the equalization payments, resulting in judgments for unpaid amounts and Penny’s attorney fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the equalization payments domestic support obligations? | McLain argues the payments are property settlement, not support. | McLain contends the payments are intended as support to equalize future incomes. | Equalization payments are domestic support obligations. |
| Are the equalization payments nondischargeable and priority under 523(a)(5) and 507(a)(1)? | Paced as support, the payments should be nondischargeable with priority. | Characterization as property settlement precludes nondischargeability. | Payments nondischargeable under 523(a)(5) and entitled to priority under 507(a)(1). |
| Does the Hollister real estate expense constitute a non-support obligation under 523(a)(15)? | Expenses relate to marital debts, not ongoing support. | Expense allocation reflects a property distribution rather than support. | Real estate expense falls under 523(a)(15), not 523(a)(5). |
Key Cases Cited
- In re Phegley, 443 B.R. 154 (8th Cir. BAP 2011) (burden on debtor to prove domestic support obligation)
- In re Nugent, 484 B.R. 671 (Bankr. S.D. Tex. 2012) (liberal construction of discharge exceptions in favor of recipient)
- In re Trentadue, 527 B.R. 328 (Bankr. E.D. Wis. 2015) (look behind divorce order to determine true nature of obligation)
- In re Smith, 586 F.3d 69 (1st Cir. 2009) (intent and surrounding circumstances determine DSO character)
- Kohler v. Leslie Hindman, Inc., 80 F.3d 1181 (7th Cir. 1996) (judicial admissions bound by unequivocal factual statements)
- McCaskill v. SCI Mgm’t Corp., 298 F.3d 677 (7th Cir. 2002) (scope of judicial admissions in separate proceedings)
- In re Adamson and Cosner, 308 Ill.App.3d 759 (2d Dist. 1999) (maintenance vs. property settlement under Illinois law)