487 B.R. 302
S.D. Ala.2013Background
- Steele appealed a Bankruptcy Court ruling that her claim to part of Heard’s LABF pension benefits is dischargeable under Chapter 13 as a property settlement debt.
- Heard began LABF benefits in 2006; Steele claimed entitlement under a 1994 Illinois divorce Judgment approving an oral property settlement that directed Heard to pay Steele a portion of pension benefits.
- Paragraph G(9) of the 1994 Judgment stated Heard would pay Steele a computed share of benefits and Steele could garnish if not paid; no self-executing transfer of title occurred.
- The Bankruptcy Court ruled the Pension Settlement is a property settlement debt, not a domestic support obligation, and thus dischargeable under 11 U.S.C. § 523(a)(15); the estate includes Steele’s asserted interests.
- Steele argued Illinois law vested the Pension Settlement in her as sole property and outside the estate, potentially via a QILDRO; Heard refused to consent to a QILDRO, influencing outcome.
- The court conducted de novo review of state-law property interests and held Illinois anti-alienation provisions and the absence of a QILDRO prevent vesting outside the estate; the settlement remains Heard’s debt and part of the estate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Dischargeability of Pension Settlement | Steele argues the Pension Settlement is a non-dischargeable DSO. | Heard contends it is a property settlement dischargeable under 523(a)(15). | Dischargeable as property settlement under 523(a)(15). |
| Estate inclusion of the Pension Settlement | Pension Settlement vested in Steele and is outside the estate. | Pension benefits remain Heard’s, within the estate. | Pension Settlement remains part of Heard’s estate. |
| Constructive trust for Steele | A constructive trust arises to secure Steele’s rights to the Pension Settlement. | No constructive trust exists under Illinois law given the decree’s structure and anti-alienation provisions. | No constructive trust; no equitable ownership transferred. |
| QILDRO/QILDRO viability and effect | If a QILDRO existed, Steele would have a vested, exclusive right to pension payments outside the estate. | Consent to a QILDRO is required under Menken; Heard would not consent; thus QILDRO is not available to vest Steele outside the estate. | QILDRO availability does not vest Steele outside the estate; settlement remains within estate and is dischargeable. |
Key Cases Cited
- Cummings v. Cummings, 244 F.3d 1268 (11th Cir.2001) (intent governs whether a debt is in the nature of support)
- In re McCafferty, 96 F.3d 192 (6th Cir.1996) (pension distribution not meant as spousal support under § 523(a)(5))
- In re Gendreau, 122 F.3d 815 (9th Cir.1997) (dischargeability of pension division in certain contexts)
- In re Marriage of Menken, 268 Ill.Dec. 295, 778 N.E.2d 281 (2 Dist.2002) (consent to QILDRO required for pre-1999 members; anti-alienation concerns)
- In re Marriage of Abma, 308 Ill.App.3d 605, 242 Ill.Dec. 24, 720 N.E.2d 645 (1 Dist.1999) (pension benefits treated as marital property subject to division)
- In re Richardson, 381 Ill.App.3d 47, 319 Ill.Dec. 1, 884 N.E.2d 1246 (1 Dist.2008) (co-ownership interests in pension benefits upon dissolution)