Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-91-08072/USCOURTS-ca10-91-08072-0/pdf.json

Parties Involved:
Jill Palm
Appellee
Michael Jay Palm
Appellant

Document Text:

FOR THE TENTH CIRCUIT AUG O 5 1992 

ROBERT L. HOEC¥..Br.. 

IN RE: MICHAEL JAY PALM, 

Debtor. 

MICHAEL JAY PALM, 

Appellant, 

v . 

JILL PALM, 

Appellee. 

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C!erl: 

No. 91-8072 

(D.C. No. 89-CV-0033-J) 

(D. Wyo.) 

ORDER AND JUDGMENT* 

Before MOORE, BARRETT, and BRORBY, Circuit Judges. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34 . 1.9. 

submitted without oral argument. 

The case is therefore ordered 

Debtor-appellant Michael Jay Palm appeals from an order of 

the district court affirming the bankruptcy court's decision that 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

Appellate Case: 91-8072 Document: 010110259055 Date Filed: 08/05/1992 Page: 1
certain obligations of Debtor to Appellee Jill Palm, his former 

spouse, pursuant to a divorce settlement, were alimony, 

maintenance, or support and therefore were nondischargeable under 

11 u.s.c. S 523(a)(5). Debtor argues that (1) the bankruptcy 

court erred as a matter of law by 

standard in its determination 

nondischargeable and (2) Appellee 

principles of judicial estoppel, 

applying the incorrect legal 

that the obligations were 

is barred, pursuant to the 

from asserting a position in 

bankruptcy court contrary to the position she previously asserted 

in the state court. We affirm. 

In 1983, the parties obtained a divorce. Their Property 

Settlement Agreement was incorporated into the Divorce Decree. In 

relevant part, Debtor agreed to pay Appellee child support and 

$900.00 per month "alimony for ten years or until remarriage or 

cohabitation with another man" and to hold Appellee harmless for 

joint debts incurred for Debtor's business which he retained. In 

1986, Debtor's business failed, and he filed for bankruptcy. 

Subsequently, Debtor filed a Petition to Modify the Divorce Decree 

in Wyoming district court seeking to reduce his child support and 

alimony obligations. Appellee objected to the modification on the 

ground that the obligations were actuall y part of a property 

settlement and thus not modifiable in Wyoming. The Wyoming 

district court reduced the child support obligation, but refused 

to reduce the alimony obligation, finding that the alimony was 

actually a property settleme nt not subject to modification, see 

Wyo. Stat. S 20-2-116. 

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Appellate Case: 91-8072 Document: 010110259055 Date Filed: 08/05/1992 Page: 2
Subsequently, Debtor commenced an adversary proceeding in the 

bankruptcy court to determine whether the obligations to Appellee 

were discharged. Appellee asserted the obligations were alimony 

and not dischargeable. The bankruptcy court held that the $900.00 

per month obligation was support and the obligation to hold 

Appellee harmless for the joint debts was in the nature of support 

because it protected the other support provisions in the divorce 

decree . The bankruptcy court believed that it was the intent of 

the parties that Debtor pay the debts relating to the business 

which he retained. Accordingly, the bankruptcy court held the 

obligations were not dischargeable. The district court affirmed. 

"We review the bankruptcy court's decision under the same 

standard used by the district court .. " Citizens Nat'l Bank & 

Trust v. Serelson (In re Burkart Farm & Livestock), 938 F.2d 1114, 

1115 (10th Cir. 1991). We review the bankruptcy court's legal 

conclusions de novo and factual findings under the clearly 

erroneous standard. See Unioil v. Elledge (In re Unioil, Inc.), 

962 F.2d 988, 990 (10th Cir. 1992) . 

On appeal, Debtor first 

applied an incorrect legal 

I. 

A. 

argues that the bankruptcy court 

standard to determine that Debtor's 

obligations were nondischargeable under§ 523(a)(S). He believes 

that because the state court rendered its decision while the 

bankruptcy proceeding was pending, the state court's determination 

as to the nature of the $900.00 obligation should not have been 

ignore d. Because, based on the language of the agreement, the 

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Appellate Case: 91-8072 Document: 010110259055 Date Filed: 08/05/1992 Page: 3
state court found a property settlement, Debtor 

bankruptcy court should have made the same finding. 

argues the 

He further 

suggests the word "alimony" was used to disguise the payment of an 

equitable portion of his business to Appellee in a tax deductible, 

modifiable manner. 

Section 523(a)(5) provides no discharge to an individual 

debtor from a debt owed "to a spouse, former spouse or child ... 

for alimony to, maintenance for, or support of such spouse or 

child in connection with a . divorce decree ..• or property 

settlement agreement " if the debt is "actually in the nature of 

alimony, maintenance, or support. " A determination of what 

constitutes alimony, maintenance, or support is determined under 

bankruptcy, and not state, law. Yeates v. Yeates (In re Yeates), 

807 F.2d 874, 877 (10th Cir. 1986)(citing to legislative history); 

accord Goin v. Rives (In re Goin), 808 F.2d 1391, 1392 (10th Cir. 

1987)(whether an obligation is support is a matter of federal 

law). "Although state court decisions are to be regarded with 

deference, 'bankruptcy courts are not bound by state laws that 

define an item as maintenance or property settlement, nor are they 

bound to accept a divorce decree's characterization of an award as 

maintenance or a property settlement.'" Goin, 808 F.2d at 1392 

(quoting Williams v. Williams (In re Williams), 703 F.2d 1055, 

1057 (8th Cir. 1983)). 

Although the parties' agreement was labeled a Property 

Settlement Agreement, that label does not control. See Sylvester 

v. Sylvester, 865 F.2d 1164, 1166 (10th Cir. 1989). The 

bankruptcy court correctly looked at the parties' intent at the 

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Appellate Case: 91-8072 Document: 010110259055 Date Filed: 08/05/1992 Page: 4
time they entered into the agreement and the substance of the 

obligation rather than just the language of the agreement. Goin, 

808 F.2d at 1392. 

Several factors are pertinent to the bankruptcy 

court's determination of whether the debt is support: 

(1) if the agreement fails to provide explicitly for 

spousal support, the court may presume that the property 

settlement is intended for support if it appears under 

the circumstances that the spouse needs support; (2) 

when there are minor children and an imbalance of 

income, the payments are likely to be in the nature of 

support; (3) support or maintenance is indicated when 

the payments are made directly to the recipient and are 

paid in installments over a substantial period of time; 

and (4) an obligation that terminates on remarriage or 

death is indicative of an agreement for support. 

Id. at 1392-93. 

Applying these factors, we conclude the bankruptcy court's 

determination that the $900.00 per month obligation to Appellee 

was support was not clearly erroneous. See Goin, 808 F.2d at 1393 

(citing Draper v. Draper, 790 F.2d 52, 54 (1986)). At the time of 

divorce, payment of the obligation was necessary for Appellee to 

maintain basic necessities such as housing, food, and 

transportation. See Yeates, 807 F.2d at 879. Debtor testified 

that the $900.00 per month amount was based on the total amount 

needed by Appellee for monthly expenses. Appellee did not work 

outside of the home, and she did not have job skills. Debtor 

supported the family including minor children prior to the 

divorce. Thus, the payments reflected a difference in the 

parties' abilities to earn an income, not compensation for 

property. Additionally, Debtor made and was to make payments to 

Appellee directly over a period of time. See Sylvester, 865 F.2d 

at 1166; accord Shaver v. Shaver, 736 F.2d 1314, 1317 (9th Cir. 

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Appellate Case: 91-8072 Document: 010110259055 Date Filed: 08/05/1992 Page: 5
1984)(support payments generally paid in installments over 

substantial period of time) . The obligation terminated upon her 

remarriage or cohabitation. See Sylvester, 865 F.2d at 1166. The 

bankruptcy court's finding that the $900.00 per month alimony 

obligation was support is not clearly erroneous. 

Debtor contends the bankruptcy court's decision should be 

reversed because there is a presumption that dischargeability is 

favored in bankruptcy. According to Debtor, § 523(a)(5) is in 

conflict with the Bankruptcy Code's fresh start policy. Although 

we recognize the importance of the fresh start policy,§ 523(a)(S) 

is a specific exception to that policy. Sylvester, 865 F.2d at 

1165. It enforces the overriding public policy favoring the 

enforcement of family obligations. Shaver, 736 F.2d at 1316. 

Debtor also contends the bankruptcy court should have 

considered that his ability to pay the $900.00 per month had 

changed from the time of the parties' divorce and agreement. 

Thus, Debtor maintains the bankruptcy court should have considered 

his present ability to pay the obligation. The bankruptcy court 

correctly refused to consider Debtor's present ability to pay and 

considered only the economic circumstances of the parties at the 

time of the divorce decree. See Sylvester, 865 F.2d at 1166. 

B. 

Debtor argues that the hold harmless provision of the 

parties' agreement concerning joint debts was dischargeable. For 

the obligation to be nondischargeable, it too must be in the 

nature of alimony, maintenance , or support. In light of the child 

support and $900.00 per month obligation to Appellee, Debtor 

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maintains the hold harmless provision was in the nature of a 

property settlement, not alimony, maintenance, or support, and, 

thus, should be dischargeable. 

Hold harmless clauses may create nondischargeable obligations 

even though payment is not made directly to the spouse. Troup v. 

Troup (In re Troup), 730 F.2d 464, 466 (6th Cir. 1984); Long v. 

Calhoun (In re Calhoun), 715 F.2d 1103, 1107 (6th Cir. 1983). The 

initial inquiry is whether the state court or divorced parties 

intended to create an obligation for support through the 

assumption of the joint debts. Calhoun, 715 F.2d at 1109. If the 

assumption of the debts was intended as support, it must be 

determined whether the assumption has the effect of providing the 

necessary support to ensure the daily needs of the former spouse 

and children. Distribution or existence of other property may 

make assumption of the joint debts unnecessary for support. Id. 

If a loan assumption is not found necessary to provide support, a 

debtor's obligation to hold the former spouse harmless must be 

discharged. If, however, without the loan assumption the former 

spouse could not maintain daily necessities, the loan assumption 

may be found to be support. Id. 

When the loan assumption has the effect of providing support, 

the bankruptcy court must determine the amount of support 

represented by the assumption is not so excessive that it is 

unreasonable under traditional concepts of support. Id. at 1110. 

Also, if, at the time the debt was assumed, the assumption 

substantially exceeded the debtor's present and foreseeable 

ability to pay, the amount of the assumption which exceeded the 

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debtor's ability to pay should not be characterized as support. 

Id. 

The bankruptcy court determined the hold harmless obligation 

was in the nature of support and not dischargeable. The only 

joint debt assumed by Debtor was a second mortgage on the parties' 

residence. Appellee was awarded the residence in the Property 

Settlement Agreement. The second mortgage was held by the Small 

Business Administration for a loan taken out for the benefit of 

Debtor's business. Thus, the house served as collateral for the 

loan . At the time the loan was obtained, Debtor believed he could 

pay the entire amount of the debt from the income of the business. 

Any payments on the second mortgage by Appellee would affect 

her ability to support herself and her children because every 

dollar paid would not be available to meet current needs. See 

Balvich v . Balvich (In re Balvich), 135 B.R. 327, 336 (Bankr. N.D. 

Ind. 1991), aff'd, 135 B.R. 323 (N . D. Ind. 1991). Thus, the 

obligation actually had the effect of providing support to 

Appellee by enabling her to maintain a home and have monthly 

income. See Sylvester, 865 F.2d at 1166; cf. Yeates, 807 F.2d at 

879 (wife who received home was unable to make mortgage payments; 

thus, payment of mortgage by debtor was support because payment 

was necessary for wife to maintain home). We conclude the 

bankruptcy court's finding that the hold harmless obligation was a 

nondischargeable support obligation is not clearly erroneous. See 

Goin, 808 F.2d at 1393. 

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II. 

Debtor argues that Appellee should have been barred 

to principles of judicial estoppel from 

nondischargeability in the bankruptcy court since she 

pursuant 

asserting 

took an 

opposite position in state court proceedings, arguing the $900.00 

obligation was part of the property settlement. Because we do not 

recognize the doctrine of judicial estoppel, Chrysler Credit Corp. 

v. Country Chrysler, Inc., 928 F . 2d 1509, 1520 n.10 (10th Cir. 

1991); United States v . 49.01 Acres of Land, More or Less, Situate 

in Osage County, 802 F.2d 387, 390 (10th Cir. 1986); see Parkinson 

v. California Co., 233 F.2d 432, 438 (10th Cir. 1956)("[W]e must 

reject the theory that the pleading of a claim under oath, apart 

from equitable considerations which may be deemed in reason to 

operate as an estoppel by conduct, irrevocably freezes the 

contentions of the pleader so that under no circumstances may he 

alter his view in that, or another, case, or assert an 

inconsistent position."), we conclude this argument is without 

merit. 

III. 

Appellee requests costs for this appeal as well as costs for 

the appeal before the district court, pursuant to Bankr. R. 8014 

and Fed. R. App. P. 39. In light of our decision to affirm, under 

these rules Appellee is entitled to costs. 

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The judgment of the United States District Court for the 

District of Wyoming is AFFIRMED. Appellee's request for costs is 

GRANTED. 

Entered for the Court 

James E. Barrett 

Senior Circuit Judge 

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