NO. 95-575

IN THE SUPREME COURT OF THE STATE OF MONTANA

1996

IN RE MARRIAGE OF

REBECCA JEAN YATES,

Petitioner and Respondent,

and

JUSTIN GREG YATES,

Respondent and Appellant.

APPEAL FROM: District Court of the Thirteenth Judicial District,

In and for the County of Yellowstone,

The Honorable Russell G. Fagg, Judge presiding.

COUNSEL OF RECORD:

For Appellant:

Richard 0. Harkins; Attorney at Law;

Ekalaka, Montana

For Respondent:

Joan Meyer Nye; Nye & Meyer;

Billings, Montana

Submitted on Briefs: November 21, 1996

Filed:

C'EC 1 9 Tg$j Decided: December 19, 1996
Justice Terry N. Trieweiler delivered the opinion of the Court.

Justin Greg Yates filed a petition pursuant to Chapter 7 of

the Bankruptcy Code on September 6, 1994, in the United States

Bankruptcy Court in the District of Montana, in which he named his

ex-wife, Rebecca Jean Yates, as a creditor. In response, Rebecca

filed an adversarial proceeding in Bankruptcy Court, in which she

objected to the discharge of Justin's obligations to her. On

January 12, 1995, the Bankruptcy Court entered an order in which it

abstained from the proceeding and remanded the question of

dischargeability to the District Court for the Thirteenth Judicial

Court in Yellowstone County. Following a hearing, the District

Court issued an order in which it concluded that, pursuant to

11 U.S.C. 5 523(a) (5), Justin's debts to Rebecca for maintenance

and property settlement are not dischargeable. Justin appeals the

District Court's order. We affirm in part and reverse in part the

order of the District Court.

We address three issues on appeal:

1 . Did the District Court have jurisdiction to decide the

issue of dischargeability, pursuant to 11 U.S.C. § 523?

2 . Did the District Court err when it concluded that

Justin's maintenance obligation is not dischargeable?

3 . Did the District Court err when it concluded that

Justin's property settlement obligation is not dischargeable?

FACTUAL BACKGROUND

The marriage of Justin and Rebecca Yates was dissolved by

decree on June 30, 1992. The dissolution decree required Justin to

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pay Rebecca the amount of $23,171.50 for property settlement, and

maintenance in the amount of $300 per month for twenty-four months

or until full-time employment or remarriage.

As of 1994, Justin had not paid any of the amount owed to

Rebecca for property settlement or maintenance. Following a

hearing on August 11, 1994, the District Court entered an order in

which it found that Justin had property and income sufficient to

make some payments on the two obligations to Rebecca. The court

therefore found Justin to be in contempt and ordered him to sell

certain items of property and to sign a partial assignment of wages

to purge himself of contempt. Justin did not appeal the District

Court's order.

On September 6, 1994, Justin filed a petition pursuant to

Chapter 7 of the Bankruptcy Code in the United States Bankruptcy

Court and sought a discharge from his property division and

maintenance obligations. In response, Rebecca filed an adversarial

proceeding in which she claimed that Justin's debts to her were not

dischargeable. On January 12, 1995, the Bankruptcy Court issued an

order of abstention and remanded the case to the Thirteenth

Judicial District Court for a determination of dischargeability.

The District Court held a hearing to consider the issue of the

dischargeability of Justin's two debts to Rebecca on October 27,

1995. 1n its findings of fact, conclusions of law, and order,

entered November 15, 1995, the court concluded that, pursuant to

11 U.S.C. 5 523(a) (5), neither Justin's maintenance obligation nor

his property settlement obligation are dischargeable. The court

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therefore ordered Justin to comply with its contempt order of

August 23, 1994

STANDARD OF REVIEW

Our review of a district court's order is two-fold. First, we

review the district court's findings of fact to determine whether

they are clearly erroneous. Dairies v. Knight (19951, 269 Mont. 320,

324, 888 P.2d 904, 906. Second, we review a district court's

conclusions of law to determine whether the court's interpretation

of the law is correct. Carbon Counly v. Union Reserve Cod Co. ( 19 9 5 ) , 2 7 1

Mont. 459, 469, 898 P.2d 680, 686.

ISSUE 1

Did the District Court have jurisdiction to decide the issue

of dischargeability, pursuant to 11 U.S.C. § 523?

In this case, the United States Bankruptcy Court in the

District of Montana entered an order in which it abstained from the

issue of the dischargeability of Justin's debts and transferred the

issue to the Thirteenth Judicial District Court in Yellowstone

County. The Bankruptcy Court reasoned that the proper forum for

the issue of the discharge of a support claim in a divorce action

is the state district court. In support of its conclusion, the

court relied on InreRough(Bankr. Mont. 1986), 3 Mont. B.R. 1, 3, in

which the same court stated:

It is a well settled rule that the Bankruptcy Court

has concurrent jurisdiction, as opposed to exclusive

jurisdiction to determine the dischargeability of a debt

under Section 523(a) (5). In re Aldrich, 34 B.R. 776, 780

(BAP 9th Cir. 1983); State of Montana ex rel. Rouqh v.

District Court, [218 Mont. 499, 502, 710 P.Zd 47, 491, 42

St. Rep. 1773, 1775 (1985); 3 Collier on Bankruptcy,

523.15(6), pp. 108-109 (15th edition).

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The District Court accepted concurrent jurisdiction and concluded

that (1) Justin's maintenance obligation is not dischargeable,

pursuant to 11 U.S.C. 5 523(a) (5), and that (2) Justin's property

settlement obligation is not dischargeable, pursuant to 11 U.S.C.

5 523(a) (5).

It is well established that a state district court has

concurrent jurisdiction with a federal bankruptcy court to

determine the issue of the dischargeability of debts pursuant to

11 U.S.C. § 523(a) (5). Stateexrel.Roughv.Dis~ictCourt (1985), 218 Mont.

499, 502, 710 P.2d 47, 49. Therefore, we hold that the District

Court in this case had jurisdiction, following the Bankruptcy

Court's abstention, to decide the issue of the dischargeability of

Justin's maintenance and property division obligations pursuant to

§ 523(a) (5).

ISSUE 2

Did the District Court err when it concluded that Justin's

maintenance obligation is not dischargeable?

The parties' decree of dissolution, entered on June 30, 1992,

required Justin to pay Rebecca the amount of $23,171.50 as the

value of her interest in marital property, and maintenance in the

amount of $300 per month for twenty-four months or until full-time

employment or remarriage. In support of its award of maintenance,

the District Court made a finding that:

Rebecca had no skills or job training at the time of

separation. She has embarked on a plan of vocational

training, and she needs some financial assistance to

complete that so that she can become self-supporting. She

is receiving financial assistance during her training by

reason of a PELL grant. Justin's living expenses are

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very low because he lives on his parents' ranch and is

able to contribute something to Rebecca's reasonable

maintenance . . Commencing July lst, 1992 Justin

should pay Rebecca $300 per month until she obtains full

employment or remarries, but in any event not to exceed

24 months.

Justin did not appeal the District Court's order which awarded

Rebecca maintenance

In determining the issue of the dischargeability of Justin's

debt, the District Court concluded that its original ma.intenance

award is not dischargeable pursuant to 11 U.S.C. 5 523(a

11 U.S.C. 5 523(a) (5) excepts from discharge a debt

to a spouse, former spouse, or a child of the debtor,

,) (5).

for

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

child, in connection with a separation agreement, divorce

decree or other order of a court of record, determination

made in accordance with State or territorial law by a

governmental unit, or property settlement agreement

. .

Section 523(a) (5) (B) provides that the exception does not extend to

a debt to the extent that

such debt includes a liability designated as alimony,

maintenance, or support, unless such liability is

actually in the nature of alimony, maintenance, or

support.

In this case, Justin maintains that the District Court's award

of maintenance is not "in the nature of . . maintenance,"

pursuant to 11 U.S.C. § 523(a) (5) (B), and is thus dischargeable.

Specifically, Justin alleges that Rebecca became self-supporting in

mid-September 1992, so that the District Court's maintenance award

was no longer necessary after that date. Justin therefore

maintains that "[tlhe portion payable after Rebecca became selfsupporting . should be discharged."

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The determination of whether a debt to a former spouse

qualifies as nondischargeable support pursuant to 11 U.S.C.

§ 523(a) (5) (B) is a matter of federal law. In ye Gianakas (3d Cir

1990), 917 F.2d 159, 762. Federal courts have held that "[t]he

critical question in determining whether the obligation is, in

substance, support is 'the function served by the obligation at the

time of divorce.'" InreSampson(10th Cir. 1993), 997 F.2d 717, 725.

Factors relied on by bankruptcy courts in making such a

determination include:

(1) Whether the obligation under consideration is

subject to contingencies, such as death or remarriage;

(2) Whether the payment was fashioned in order to

balance disparate incomes of the parties;

(3) Whether the obligation is payable in installments or

a lump sum;

(4) Whether there are minor children involved in a

marriage requiring support;

(5) The respective physical health of the spouse and the

level of education;

(6) Whether, in fact, there was a need for spousal

support at the time of the circumstances of the

particular case.

InreRobinson (Bankr. N.D. Ga. 1996), 193 B.R. 367, 372. See also In YE

Bowsman (Bankr. M.D. Fl. 1991), 128 B.R. 485, 487; InreGraves (Bankr.

S.D. Fla. 1987), 69 B.R. 626, 628.

In this case, an evaluation of the terms of the dissolution

decree in light of 11 U.S.C. § 523(a) (5) (B) and federal bankruptcy

factors clearly supports the District Court's finding that the

original maintenance award was in the nature of support, and

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therefore nondischargeable pursuant to 11 U.S.C. § 523(a)(s). As

set forth above, the award was payable in monthly installments for

a period of up to twenty-four months and was made contingent upon

remarriage or full-time employment. Furthermore, the award was

based on the court's finding that Rebecca had no skills or job

training at the time of the couple's separation and therefore

needed financial assistance for vocational training. Finally, the

award referred to the couple's disparate incomes and found that

Justin had the means to contribute to Rebecca's reasonable

maintenance. Based on the foregoing factors, we hold that the

District Court's conclusion that Justin's maintenance obligation

was not dischargeable is correct.

Furthermore, we reject Justin's contention that the District

Court was required to re-evaluate the original maintenance award in

light of Rebecca's subsequent employment. The majority of federal

bankruptcy courts holds that an inquiry into whether a maintenance

award is in the nature of support, pursuant to 11 U.S.C.

§ 523(a) (5), should not include an examination of the present

situation of the parties. See, e.g., Forsdickv. Turgeon (2d Cir. 1987) , 812

F.2d 801, 803; InreHarrell (11th. Cir. 1985), 754 F.2d 902, 907; Boyle

v. Donovan (8th Cir. 1984), 124 F.2d 681, 683; InreStone (Bankr. D.Md.

1987), 79 B.R. 633, 639. The Second Circuit Court of Appeals, in

fact, addressed the same issue and held:

As a secondary position the husband argues that even

if the . award was in the nature of alimony and hence

was nondischargeable under 5 523(a) (5), the bankruptcy

court should have taken notice of the alleged "changed

circumstances" of the parties and held that because the

wife apparently no longer requires the support granted to

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her by the state court decision, the obligation is

dischargeable despite the language of § 523(a) (5) . .

.

There is no support in the language of s 523(a) (5)

for the husband's position. As the eleventh circuit

noted in Harrell, 754 F.2d at 906, ti [tl he language does not

suggest a precise inquiry into financial circumstances to

determine precise levels of need or support; nor does the

statutory language contemplate an ongoing assessment of

need as circumstances change." To be exemot from

discharge an award of alimonv or support does not have to

conform exactly to some level that a bankruptcv iudqe

might deem necessarv for maintenance of a former spouse

or children; it merelv has to be "in the nature of"

alimonv or support. In short, there is no warrant for a

federal bankruptcv court to evaluate the state court's

alimonv award asainst the needs of the former spouse to

whom it was sranted.

Forsdick, 812 F.2d at 803-04 (emphasis added) (citation omitted).

In this case, then, the circumstances of Rebecca's employment

after the decree of dissolution are clearly irrelevant to a

determination of the dischargeability of Justin's maintenance

debts. If Justin had chosen to contest Rebecca's award of

maintenance, he could have appealed the District Court's original

dissolution decree or petitioned that court for a modification of

the decree. It is a matter of federal law, however, that the

proper forum for a determination of "changed circumstances" is not

a federal bankruptcy court or a state court sitting as a bankruptcy

court.

We therefore hold that the District Court did not err when it

declined to consider the changed circumstances of the parties. We

affirm the District Court's holding that Justin's maintenance debt

was not dischargeable, pursuant to 11 U.S.C. § 523(a) (5).

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ISSUE 3

Did the District Court err when it concluded that Justin's

property settlement obligation is not dischargeable?

The District Court, in its "Order of Nondischargeability,"

concluded that Justin's obligation to pay Rebecca the amount of

$23,171.50 for settlement of her interest in the marital property

is not dischargeable pursuant to 11 U.S.C. § 523(a) (5), which

provides that debts which constitute alimony, maintenance, or

support are excepted from discharge. On appeal, Justin maintains

that the $23,171.50 obligation is not a debt for alimony,

maintenance, or support of Rebecca, and is thus dischargeable as a

debt for the division of marital property.

It is well established that:

An indebtedness for a former spouse for alimony,

maintenance, or support of the spouse or the couple's

children which is memorialized in the divorce decree is

not dischargeable in bankruptcy. 11 U.S.C. § 523(a) (5).

An indebtedness in the divorce decree that merelv divides

the marriase property, however, is discharseable.

Stafeexrel.Roughv.DistrictCourt (19851, 218 Mont. 499, 503, 710 P.2d 47,

49 (quoting InreCoil (7th Cir. 1982), 680 F.2d 1170, 1171). see also

InreMorel (8th Cir. 1992), 983 F.2d 104, 105; In reBrody (Zd Cir.

1993), 3 F.3d 35, 38. This Court has adopted a test for the

determination of whether an alleged property settlement is intended

for a spouse's support:

In determining whether an obligation is intended for

support of a former spouse, the court must look beyond

the language of the decree to the intent of the parties

and to the substance of the obligation . If an

agreement fails to provide explicitly for spousal

support, a court may presume that a so-called "property

settlement" is intended for support when the

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circumstances of the case indicate that the recioient

spouse needs support . . . . Factors indicating-that

support is necessary include the presence of minor

children and an imbalance in the relative income of the

parties . . Similarly, if an obligation terminates on

the death or remarriage of the recipient spouse, a court

may be inclined to classify the agreement as one for

support . . . . A property settlement would not be

affected by the personal circumstances of the recipient

spouse; thus, a change in those circumstances would not

affect a true property settlement, although it would

affect the need for support. The court will look also to

nature and duration of the obligation to determine

whether it is intended as support. Support payments tend

to mirror the recipient spouse's need for support. Thus,

such payments are generally made directly to the

recipient spouse and are paid in installments over a

substantial period of time.

Rough, 218 Mont. at 503-04, 710 P.2d at 50 (quoting Shaverv.Shaver (9th

Cir. 1984), 736 F.2.d 1314, 1316-17).

In this case, the District Court made no finding that the

amount awarded for division of the couple's marital property was

actually in the nature of support. In fact, a review of the decree

of dissolution makes clear that the $27,171.50 obligation

solely intended as a division of the couple's marital estate.

the decree, the District Court entered the following finding:

The court finds that . . the net estate of the parties

at the time of separation is $61,855 ($54,099 [cattle and

other assets1 + $3,450 C.D. + $1,600 state income refund

+ $2,706 federal income refund). Accordingly, each party

should receive $30,927.50 as that party's one-half share

of the net marital estate . . . . Justin shall transfer

to Rebecca said certificate of deposit in the amount of

$3,450 and transfer to her by endorsement of the check,

or otherwise, the federal and state income tax refund in

the amount of $4,306, which, when deducted from her share

of the marital estate, leaves a balance due her of

$23,171.50; said amount shall be paid Justin to Rebecca

as soon as practicable, and in any event, not later than

60 days from the date of entry of judgment herein.

was

In

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Based on the Rough factors, the District Court's property division

does not qualify does not qualify as an order in the nature of

support. First, the award was not dependent upon Rebecca's

personal circumstances and was thus not terminable upon Rebecca's

death or remarriage. Second, the award was not payable in

installment payments over a substantial period of time, but instead

was to be paid in one lump sum within a period of sixty days.

Finally, the dissolution decree provided separately for Rebecca's

support in the form of an award of maintenance, which, as set forth

above, clearly addressed Rebecca's need for support in light of the

disparity in the couple's income.

Because the property division award was not in the nature of

alimony, maintenance, or support, it is not a nondischargeable debt

pursuant to 11 U.S.C. § 523(a) (5). On appeal, however, Rebecca

contends that even if Justin's debt is not dischargeable pursuant

to 11 U.S.C. § 523(a) (5), this Court may still affirm the District

Court's "Order of Nondischargeability" on the ground that Justin's

debt is not dischargeable pursuant to 11 U.S.C. 5 523(a) (6).

In this case, the District Court did not address the issue of

the dischargeability of Justin's debts pursuant to 11 U.S.C.

§ 523(a) (6), which provides that a debtor may not be released from

a debt "for willful and malicious injury by the debtor to another

entity or to the property of another entity." The District Court's

failure to address that issue was, however, correct. A claim

pursuant to 11 U.S.C. § 523(a) (6), unlike § 523(a) (5), "may not be

pursued in the state court as a result of the exclusive

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jurisdiction granted to the bankruptcy courts by the bankruptcy

code." InreAldrich (Bankr. App. 1983), 34 B.R. 776, 781. See also In re

Martinez (Bankr. N.D. 111. 1990), 110 B.R. 353, 355; InreHolt (Bankr.

S.D. Ohio 1989), 102 B.R. 116, 119; In ye f’etrotdo (Bankr. W.D.N.Y.

1983), 33 B.R. 750, 751. Because the dischargeability of a debt

pursuant to 11 U.S.C. 5 523(a) (6) is within the exclusive

jurisdiction of a federal bankruptcy court, the District Court in

this case clearly did not have jurisdiction to determine whether

Justin's debt for property division was dischargeable pursuant to

that section.

We hold that the District Court erred when it concluded that

Justin's debt for property division is not dischargeable pursuant

to 11 U.S.C. § 523(a) (5). We further hold that the District Court

did not have jurisdiction to address the issue of the

dischargeability of that debt pursuant to 5523(a) (6). We therefore

reverse that portion of the court's "Order of Nondischargeability"

which concluded that Justin's $23,171.50 debt was not dischargeable

and affirm that portion of the District Court's order which

concluded that Justin's maintenance obligation was not

dischargeable.

/

ustice

Chief'Justice
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