Shеri L. Phegley; David C. Stover, Plaintiffs - Appellees, v. John Joseph Phegley, Defendant - Appellant.
No. 10-6063
United States Bankruptcy Appellate Panel FOR THE EIGHTH CIRCUIT
January 25, 2011
Submitted: January 11, 2011
John Phegley appeals the bankruptcy court’s1 memorandum and order dated August 3, 2010, and the judgment pursuant thereto dated August 9, 2010, which determined that Mr. Phegley’s debts for monthly maintenance payments and attorney’s fees pursuant to a state court marriage dissolution proceeding are exceptеd from discharge pursuant to
BACKGROUND
John J. Phegley (“John”) and Sheri L. Phegley (“Sheri”) were married on May 9, 1998, and lived in Missouri. On June 3, 2009, the Circuit Court of Jackson County Missouri entered a Judgment and Decree of Dissolution of Marriage (“Decree”) that dissolved the marriage of John and Sheri. The Decree provided, inter alia, that the parties were awarded joint physical and legal custody of the two minor children of the marriage. John was ordered to pay child support to Sheri in the amount of $325.00 per month.
The Decree further provided that John shall pay to Sheri:
[T]he sum of one thousand two hundred fifty and 00/100 dollars ($1,250.00) per month as and for contractual maintenance for a period of forty-eight (48) months beginning on the 1st day of July, 2009 and continuing on the 1st day of eaсh month until the final payment is due at which time [John’s] maintenance obligation shall terminate; provided, however, that such maintenance may earlier terminate upon [Sheri’s] remarriage or the death of either party.
In addition, John and Sheri were each awarded certain specified items of marital property and John was ordered to pay Sheri $32,371.98 as equalization of property. Finally, the Decree provided that Jоhn “shall pay a portion of [Sheri’s] attorney’s fees in the amount of nine thousand one hundred seventy-eight and 69/100 dollars ($9,178.69) . . . .”
On September 2, 2009, John filed a Chapter 13 bankruptcy petition. Subsequently, Sheri filed a complaint to determinе dischargeability of indebtedness pursuant to
The bankruptcy court found that the maintenance payments and attorney’s fees awarded in the Decree are nondischargeable as domestic support obligations pursuant to
STANDARD OF REVIEW
The determination of whether an award arising out of marital dissolution рroceedings was intended to serve as an award for alimony, maintenance, or support, or whether it was intended to serve as a property settlement is a question of fact to be decided by the bankruptcy court. Tatge v. Tatge (In re Tatge), 212 B.R. 604, 608 (B.A.P. 8th Cir. 1997) (citing Holliday v. Kline (In re Kline), 65 F.3d 749, 750 (8th Cir. 1995); Adams v. Zentz, 963 F.2d 197, 200 (8th Cir. 1992); Williams v. Williams (In re Williams), 703 F.2d 1055, 1056 (8th Cir. 1983)). We review the bankruptcy court’s findings of fact for clear error and its conclusions of law de novo. First Nat‘l Bank of Olathe v. Pontow (In re Pontow), 111 F.3d 604, 609 (8th Cir. 1997); Sholdan v. Dietz (In re Sholdan), 108 F.3d 886, 888 (8th Cir. 1997);
In its opinion, the bankruptcy court correctly identified the general legal principles applicable to this matter as follows:3
Pursuant to
[A] debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruрtcy law notwithstanding any other provision of this title, that is –
(A) owed to or recoverable by –
(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or
. . .
(B) in the nature of alimony, maintenance, оr support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;
(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of –
(i) a separation agreement, divorce decree, or property settlement agreement;
. . .
(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative for the purpose of collecting the debt.
This definition was enacted by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) and has an impact throughout the Bankruptcy Code on issues of disсharge, the automatic stay, priorities, exemptions, the means test, and the calculation of disposable income in a Chapter 13 case. See In re Braun, 2008 WL 2130313, 2 (Bankr. D. Neb. 2008). For purposes of the case at hand, discharge is at issue. Domestic support obligations are not discharged in Chapter 13 cases. See
The BAPCPA amendments that added
Whether a particular debt is a support obligation or part of a property settlement is a question of federal bankruptcy law, not state law. See Williams, 703 F.2d at 1056. A divorce decree’s characterization of an award as maintenance or alimony does not bind a bankruptcy court but is however a starting point for the determination of the award’s intended function. Id.; In re Hamblen, 233 B.R. 430, 435 (Bankr. W.D. Mo. 1999) (due deference should be given to the state court’s characterization of the award). The burden of proof under
Factors considered by the courts in making this determinatiоn include: the language and substance of the agreement in the context of surrounding circumstances, using extrinsic evidence if necessary; the relative financial conditions of the parties at the time of the divorce; the respective employment histories and prospects for financial support; the fact that one party or another receives the marital property; the periodic nature of the рayments; and whether it would be difficult for the former spouse and children to subsist without the payments. Morgan v. Woods (In re Woods), 309 B.R. 22 (Bankr. W.D. Mo. 2004); In re Tatge, 212 B.R. 604, 608 (B.A.P. 8th Cir. 1997); Schurman v. Schurman (In re Schurman), 130 B.R. 538, 539 (Bankr. W.D. Mo. 1991) (citing In re Gianakas, 917 F.2d 759 (3d Cir. 1990)).
Exceptions from discharge for spousal and child support deserve a liberal construction, and the policy underlying
After correctly describing the above legal standards, the bankruptсy court then proceeded to apply those standards to the facts of this case. First, in determining that the monthly maintenance payments awarded by the Decree did constitute domestic support obligations excepted from discharge pursuant to
John’s primary argument on appeal is that the Decree granted the “maintenance” рayments to Sheri only because John was awarded the marital asset referred to as “renewal premiums.” As a former insurance agent, John was entitled to receive additional income if and when
At oral argument, John’s attorney took the position that the Eighth Circuit Court of Appeals was wrong in Williams and its progeny when it said that the court should look to the function the award was intended to serve when assessing whether an award was intended as support. Instead, he argues that the better approach is to look at the “source of the funding” for the award, rather than at the intent or function of the award. Even if we could entertain such an argument, we disagree that such an approach is the better way to proceed. In any event, this court simply cannot ignore the long-standing precedent from the Eighth Circuit Court of Appeals in Williams.
The bankruptcy court’s determination that the function and purpose of the maintenance payments were to provide support to Sheri is amply supрorted by the record and will not be overturned.
The bankruptcy court also found that the attorney fee award was in the nature of support. The disparities in the parties’ education, training, employment history, and earning capacity all led the bankruptcy court to find that the attorney fee award was made to balance those disparities and was, therefore, intended as support. The record supports the bankruptcy court’s finding.
Accordingly, we affirm the decision of the bankruptcy court.
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