In re: STEPHEN NORMAN WEISS, Debtor.
CASE NO.: 21-10514 (SLM)
UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEW JERSEY
March 15, 2022
STACEY L. MEISEL, UNITED STATES BANKRUPTCY JUDGE
CHAPTER 7; FOR PUBLICATION
Daniel Brian Weiss, Esq.
90 Prospect Terrace
Tenafly, NJ 07670
Counsel to Debtor, Stephen Norman Weiss
Jesse M. Weiss, Esq.,
Admitted Pro Hac Vice
79 Midwood Road
Glen Rock, NJ 07452
Counsel to Debtor, Stephen Norman Weiss and Non-Debtor Spouse, Roberta Gail Weiss
Scott S. Rever, Esq.
Genova Burns, LLC
110 Allen Road, Suite 304
Basking Ridge, NJ 07920
Counsel to Chapter 7 Trustee, Donald V. Biase
John V. Baranello, Esq.
Jessica K. Bonteque, Esq.,
Admitted Pro Hac Vice
Alan E. Gamza, Esq.,
Admitted Pro Hac Vice
Moses & Singer LLP
405 Lexington Avenue
New York, NY 10174
Counsel to Creditor, Moses & Singer LLP
OPINION
The Bankruptcy Code and state law often intertwine. One area in which this occurs is when debtors elect to utilize state law exemptions rather than federal exemptions. While the Bankruptcy Code permits debtors to utilize state law exemptions—that permission comes with certain requirements. Specifically,
JURISDICTION AND VENUE
The Court has jurisdiction over this matter pursuant to
FACTUAL AND PROCEDURAL BACKGROUND
THE REAL PROPERTY EXEMPTION
Stephen Norman Weiss (the “Debtor“) filed a voluntary petition for bankruptcy under Chapter 7 of Title 11 of the United States Code (the “Bankruptcy Code“) on January 22, 2021.
The Debtor owns the Property with his non-debtor spouse, Roberta Gail Weiss (“Mrs. Weiss“). ECF No. 45-1 at 2. The Debtor and Mrs. Weiss acquired the Property by deed conveying the property to “Stephen Norman Weiss, and Roberta Gail Weiss, his wife,” dated and recorded September 7, 1989. Id. at 2-3. The Debtor and Mrs. Weiss own the property as tenants by the entirety. ECF Nos. 45-1 at 2 and 124-1 at 2. The Debtor values the Property at $1,130,000.00, subject to two mortgages totaling approximately $130,000.00. ECF Nos. 7 at 12 and 124-1 at 1. The Debtor, by relying on New Jersey law, seeks to shield his interest in the Property. ECF Nos. 45 at 1-3 and 124-1 at 1. Based upon the information provided by the Debtor, after deducting the
THE DEBT OWED TO MOSES & SINGER LLP
Besides the two mortgage holders, the Debtor lists Moses & Singer LLP (“M&S“) as his only other secured creditor. ECF No. 7 at 12-13. On November 16, 2012, the Debtor executed a Demand Note (the “Note“) in favor of M&S for an original principal amount of $1,173,000.00. Claims Register, Proof of Claim No. 2-2. On the same day, the Debtor also granted M&S a security interest in certain accounts receivable. Id. The Debtor‘s petition indicates that M&S has a claim of $1,902,150.85, secured by $2,000,000.00 of accounts receivable listed on the Debtor‘s petition as owed to the Debtor for performing legal services. ECF No. 7 at 13.
On May 17, 2021, M&S filed a Proof of Claim for an unknown amount.3 Claims Register, Proof of Claim No. 2-1. The next day, M&S amended its claim from an unknown amount to $1,913,195.01. Claims Register, Proof of Claim No. 2-2. Then, on the same day, M&S filed a second claim, which appears to modify the amended claim, by stating that $1.00 of the $1,913,195.01 is a secured claim. Claims Register, Proof of Claim No. 3-1. Before the Debtor‘s bankruptcy, M&S tried to collect on the Note when the Debtor failed to repay the Note. Claims Register, Proof of Claim Nos. 2-2. Because the Debtor failed to pay the Note, M&S filed a Motion for Summary Judgment in Lieu of Complaint against the Debtor in New York Supreme Court. Id. The New York Supreme Court entered an order granting M&S summary judgment on January 21, 2021. Id. The next day, the Debtor filed this bankruptcy case. ECF No. 1.
The Trustee and M&S (together the “Objectors“) each objected to the Debtor‘s real property exemption. ECF Nos. 19 and 27. On March 8, 2021, Donald V. Biase, the Chapter 7 Trustee (the “Trustee“), filed the Trustee‘s Objection to Debtor‘s Claimed Exemptions and Request for Extension of Time to Determine if Personal Property Subject to Lien is of Consequential Value to the Bankruptcy Estate (the “Trustee‘s Objection“). ECF No. 19. The Trustee asserts that even though the Property is held in a tenancy by the entirety, it cannot be exempt from the bankruptcy estate under section 522(b)(3)(B) because it is not exempt from process under New Jersey law. ECF No. 19 at 2; A/P ECF No. 11-3. Shortly thereafter, on March 18, 2021, M&S also filed an objection to the Debtor‘s claimed exemptions titled Moses & Singer LLP‘s Objection to Debtor‘s Claimed Exemptions (“M&S‘s Objection“), which incorporated the Trustee‘s Objection and expanded the arguments. ECF No. 27.
The Debtor filed an opposition to both objections. ECF No. 45. The Debtor argues, contrary to the Objectors, it is precisely because the Property is held in a tenancy by the entirety, that it is exempt from the bankruptcy estate under New Jersey law. Id. at 1-2. First, the Debtor contends that
The Court held a hearing and heard oral argument. The Court closed the record and reserved.4 ECF No. 112 at 88.
DISCUSSION
The primary issue before the Court is whether the Debtor‘s interest in the Property is exempt from process under
THE DEBTOR‘S CLAIMED EXEMPTIONS
In this case, the 341(a) meeting was held on February 18, 2021. The Trustee filed the Trustee‘s Objection on March 8, 2021. ECF No. 19. M&S filed its objection on March 18, 2021. ECF No. 27. No one disputes that the Objectors timely filed their objections. The issue is whether the Objectors met their burden of demonstrating that the Debtor‘s exemption of the Property is invalid under
Here, the Debtor asserts an exemption under
After reviewing New Jersey law in conjunction with
THE ACT EXPRESSLY PROVIDES THAT THE DEBTOR POSSESSES DUAL INTERESTS IN THE PROPERTY
The Debtor alleges that there is only a single interest in entireties property i.e., the joint shared interest. The Debtor correctly recognizes that there is also a right of survivorship in entireties property. Yet the Debtor argues, so long as the tenancy by the entirety is intact, the undivided joint interest and the right of survivorship are one and the same. Under the Debtor‘s theory, a tenancy by the entirety is comprised solely of the individual interests merged with the undivided interest. The Debtor interprets the Act to say that “there is not a separate property interest,” only a joint shared interest. ECF No. 112 at 74. Alternatively, the Debtor contends that if there is a separate survivorship interest, “it only exists as an inchoate future interest that is separate from a debtor‘s interest in entireties property.” A/P ECF No. 7-1 at 8 n.3. The Court disagrees with the Debtor on both theories.
A tenancy by the entirety is a form of joint ownership created “when property is held by a husband and wife with each becoming seized and possessed of the entire estate.” N.T.B. v. D.D.B., 442 N.J. Super. 205, 218 (App. Div. 2015) (quoting Capital Fin. Co. of Del. Valley, Inc. v. Asterbadi, 389 N.J. Super. 219, 227 (Ch. Div. 2006). Spouses, as tenants by the entirety, are provided a “means of protecting marital assets . . . and . . . security for one spouse on the death of the other.” N.T.B., 442 N.J. Super. at 218 (internal citations omitted). Entireties property is “an undivided tenancy in common for the joint lives of the spouses subject to the right of survivorship of each.” Id. at 219; see
The Court‘s analysis of
The Debtor Possesses A Joint Interest In The Property
The Court considers the operative words and construction of
Here, neither the Debtor nor Mrs. Weiss executed a writing permitting their joint interest in the Property to be subject to any creditors’ rights, which means their joint undivided interest is
The Debtor Possesses An Individual Interest In The Property
As the New Jersey Appellate Division determined and the Act recognizes, a tenant by the entirety also holds a separate individual interest in entireties property—the right of survivorship. See
A LEVY IS A COMPONENT OF PROCESS IN NEW JERSEY
Neither the Bankruptcy Code, New Jersey statutes nor case law define the term “process.” Process is generally understood to be the steps a creditor takes to attach a lien and levy upon a debtor‘s property. For example, in New Jersey, a judgment creditor automatically has a lien against all the debtor‘s property in the state once a creditor dockets a judgment. See N.B. Sav. Bank v. Markouski, 123 N.J. 402, 412 (1991). The procedure to execute upon such a judgment lien involves several steps—which together comprise “process“:
[a]fter obtaining and docketing a money judgment pursuant to
N.J.S.A. 2A:16-1 , a creditor delivers a writ of execution to the sheriff. SeeN.J.S.A 2A:17-10 . The sheriff is first required to levy on the goods and chattels in the county,N.J.S.A. 2A:17-1 , and if insufficient, to levy on the real property held by the debtor.
Markouski, 123 N.J. at 412. Once a levy occurs, the execution must first be made against the judgment debtor‘s personal property. N.J. Court Rule 4:59-1(d) (Process to Enforce Judgments). If the personal property is insufficient to satisfy the lien, the creditor must then make a motion to sell the judgment debtor‘s real property. Id. Simply, judgment creditors are paid first from personalty then from real property.
The Debtor contends the Act completely shields his interest in the Property from process. Specifically, the Debtor argues that a creditor of only one spouse is precluded from levying upon entireties property in New Jersey.
The New Jersey Supreme Court was the first court to cite
In Freda, a husband and wife owned their marital home as tenants by the entirety. Freda, at 38-39. Unbeknownst to the wife, the husband forged the wife‘s signature while executing a mortgage on the marital home to secure a loan for his struggling business. Id. The couple later divorced. Id. The wife received the marital home as part of equitable distribution of the marital assets. Id. Several years later, the ex-wife discovered the forgery when her former husband defaulted on the mortgage and filed bankruptcy. Id. at 39.
The mortgagee conceded that the non-debtor wife‘s interest in the marital home was not affected by the mortgage. Id. at 38. The Freda court, however, had to determine whether the equitable distribution of the marital home extinguished the mortgage lien on the debtor husband‘s interest after he conveyed the marital home to the wife. Id. at 38, 40. The Freda court held that “after equitable distribution to the non-debtor spouse of the debtor spouse‘s interest in a tenancy by the entirety, the mortgage continues as a lien on that interest, subject to the non-debtor spouse‘s right of survivorship.” Id. at 38 (emphasis added). The Freda court permitted a lien on the
Seven years later, the New Jersey Appellate Division faced a similar issue to the one in the Freda case. See Vander Weert v. Vander Weert, 304 N.J. Super. 339 (App. Div. 1997). The debtor in Vander Weert unilaterally mortgaged entireties property during divorce proceedings to cover legal expenses associated with the divorce. Id. at 342. The Vander Weert court examined the effect, if any, the mortgage had on the equitable distribution of marital assets. Id. at 345. The Vander Weert court explained that
Applying common law principles, the Vander Weert court held that the mortgage lien extends only to the portion of the entireties property awarded to the mortgagor by way of equitable distribution. Id. at 342. In so holding, the Vander Weert court indicated that the issue would not arise with respect to tenancies by the entirety created after the effective date of the Act because
In 2018, the New Jersey Appellate Division became the first New Jersey court to fully examine and apply
the prohibition on either spouse severing, alienating, or otherwise affecting their interest in the tenancy by the entirety during marriage without the written consent of both spouses evidences the legislature‘s intent to preserve the entireties estate and to elevate the interests of a married couple in the protection of their entireties property over the interest of a creditor of a single spouse in executing upon such property.
Id.
In Wanish, the debtor sought to exempt a mobile home from the bankruptcy estate under
The Wanish court relied on the “unanimous holding of all the cases issued after the enactment of the NJ Statute which analyzed the NJ Statute” to support exempting entireties property from process. Wanish, 555 B.R. at 499-500. The Objectors correctly state that at the time Wanish was decided, while other cases may have discussed the Act, Montemoino was the only case that examined
The Jimenez court mentions that its interpretation of
The Jimenez court held that
But, the Jimenez holding is a narrow one. While the Jimenez court precluded the ability of a creditor to force the partition and sale of the spouses’ shared interest, it never curtailed other creditor rights. Specifically, and of the utmost importance to this case, the Jimenez court recognized—even post the Act—creditors may still levy on a tenant‘s individual right of survivorship. Id. at 436. However, like Montemoino and Wanish, the Jimenez court never specifically mentioned
Here, the Debtor ignores that a levy occurred in Jimenez, which was accepted by the court without issue. See id. at 434-36. The levy was the precursor to whether the creditor could obtain the remedy of partition and sale. See id. The Jimenez court never questioned the levy and simply acknowledged its existence. See id. at 437-39. The levy already occurred. See id. The only question that remained for the Jimenez court was whether, after the levy, the creditor could obtain the remedy of partition and sale. Id. The Jimenez court could have found the levy unlawful if the entireties property was not subject to process. The Jimenez court never made that finding. Instead, the levy remained. See id. The Jimenez court held that only partition and sale are precluded by the Act—and nothing else. Id. The Jimenez court, while favorably mentioning Montemoino and Wanish, never adopted the over-expansive protection afforded by them. See Jimenez, 454 N.J. Super at 437-39. In other words, the Jimenez court, by ruling the way it did, acknowledged that the Debtor‘s individual interest in entireties property is subject to process. It is only the Debtor‘s shared interest that is not.
More recently, the New Jersey Appellate Division had another opportunity to analyze
As a result of violating the occupancy provision in the deed, the Chancery Division terminated the wife‘s interest in the entireties property. Id. Her right of survivorship was then transferred to the township—a creditor of only the wife. Id. However, the non-debtor husband‘s interest in the entireties property remained unaffected. Id. In its analysis, the Chancery Division determined the township would possess no interest in the entireties property if the wife predeceased the non-debtor husband. Id. Conversely, if the non-debtor husband predeceased the wife, the township would wholly own the property. Id.
On appeal, the Appellate Division determined that the Chancery Division “properly applied the remedy of partition under
Jimenez and Reiter—both New Jersey Appellate Division decisions—agree that a spouse may alienate his or her right of survivorship and a judgment creditor may levy and execute upon that right. See Jimenez, 454 N.J. Super. at 436; Reiter, 2020 WL 224595 at 6. The protections provided in the Act solely apply to the joint interest held by the spouses, not their individual interests. See
Interestingly, the Debtor requests that this Court ignore a New Jersey district court case that specifically analyzes
The Debtor requests that the Court ignore the holding in the Tarquinio case because the Debtor alleges: (1) the Tarquinio court did not analyze
The Debtor also argues that the law cited in Tarquinio is no longer controlling because it was superseded by
THE ACT‘S LEGISLATIVE HISTORY ALIGNS WITH THE BREADTH OF LEGAL AUTHORITY RECOGNIZING THAT SPOUSES POSSESS AN INDIVIDUAL RIGHT OF SURVIVORSHIP
As discussed, the Act is clear and unambiguous. At times, the Debtor seems to agree. But then the Debtor (perhaps in the alternative) directs the Court to the Act‘s legislative history. Even if the Act is ambiguous (and it is not), the legislative history of the Act further supports the Court‘s conclusions. The Debtor alleges that the Act was created to bring New Jersey into the majority view of tenancy by the entirety law and protect one spouse‘s entireties property from the creditors of the other. On that singular point, the Court agrees with the Debtor. The New Jersey Legislature promulgated the Act to provide certain protections to one spouse from the other‘s creditors. The Court, however, disagrees with the Debtor with respect to how much protection the New Jersey Legislature intended to provide. While providing more protection than under common law, the Act did not provide an absolute free pass to a tenant by the entirety to avoid certain processes by which a creditor might collect on an unpaid debt.
The New Jersey Commission on Sex Discrimination in the Statutes (the “Commission“) conducted an extensive review of New Jersey marriage and family law in 1980 and 1981. See STATE OF NEW JERSEY COMMISSION ON SEX DISCRIMINATION IN THE STATUTES: TOWARD ECONOMIC EQUITY, Third Report, at 618 (1985). The Commission made recommendations to the New Jersey Legislature to cure “the inadequacy of economic protection and the absence of
The Commission stated “[t]he majority of states that have retained tenancy by the entirety provide that neither spouse can alienate or encumber entirety property without the consent of the other spouse.” Id. at 622-23. The Commission acknowledged that entireties property, in the majority of states, was “protected from the separate debts of either spouse.” Id. at 623. Importantly, in those states, a creditor of either spouse must “wait to determine which spouse survives and then may only collect on the separate debt if the debtor spouse survives.” Id. Prior to the Act, and unlike in the majority of states, “each spouse held a separate right to one-half interest in entirety property during marriage subject to the survivorship rights of the other spouse” and “either spouse [could] alienate or encumber his or her one-half interest.” Id. Additionally, a creditor of either spouse could seek the partition of entireties property or an accounting to satisfy the debt of one spouse before the Act. Id. Lastly, a creditor was entitled to “the survivorship interest if the debtor survive[d]. If the nondebtor survive[d], the nondebtor [was] entitled to full ownership of the entirety property.” Id.
The legislative history of the Act evinces that the purpose of the Act was to protect a non-debtor spouse from the other spouse‘s creditors. The New Jersey Legislature had plenty of
Yet, the Act continued to recognize the right of survivorship. Neither the Act nor the relevant case law interpreting it curtailed a creditor‘s ability to levy and execute on a spouse‘s individual right of survivorship. The continuance of that right subjects the Debtor‘s interest in the Property to process, which in turn, requires the disallowance of any exemption under
CONCLUSION
The Debtor seeks to shield a substantial amount of equity in the Property from his bankruptcy estate, which could be available for distribution to his creditors. Specifically, the Debtor attempts to exempt the Property from the bankruptcy estate pursuant to
For the foregoing reasons, the Trustee‘s Objection and M&S‘s Objection seeking to disallow the Debtor‘s claimed exemption in the Property are GRANTED. An appropriate Order will be entered by the Court.
Dated: March 15, 2022
Honorable Stacey L. Meisel
United States Bankruptcy Judge