Court Opinion

ID: 3023706
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:29:34.56561+00
Date Added: 2024-06-11T11:47:38.396983
License: Public Domain

United States Bankruptcy Appellate Panel
                                FOR THE EIGHTH CIRCUIT

                                         ______

                                      No. 99-6060SI
                                         ______

In re:                                       *
                                             *
Louis A. McLain,                             *
                                             *
         Debtor.                             *
                                             *
Julie Sue Scholl,                            *
                                             *
         Plaintiff-Appellant,                *         Appeal from the United States
                                             *         Bankruptcy Court for the
                v.                           *         Southern District of Iowa
                                             *
Louis A. McLain,                             *
                                             *
         Defendant-Appellee.                 *

                                         ______

                                Submitted: October 29, 1999
                                 Filed: November 30, 1999
                                          ______

Before KRESSEL, WILLIAM A. HILL, and DREHER, Bankruptcy Judges.
                                 ______

KRESSEL, Bankruptcy Judge.

       The debtor, Louis McLain, filed his Chapter 7 petition on December 8, 1998. Julie
Scholl, the debtor’s ex-wife, filed a complaint to determine the dischargeability of the
debtor’s debt to her arising from an obligation resulting from their divorce decree. Scholl
argued that the debt is nondischargeable pursuant to 11 U.S.C. § 523(a)(5) because it is in
the nature of alimony, support, or maintenance. The bankruptcy court held a trial on the
matter on June 4, 1999, and entered a memorandum of decision and order on July 27, 1999,
finding that the debt to Scholl was not in the nature of alimony, support, or maintenance and
therefore not excepted from discharge under § 523(a)(5). We reverse.

                                       BACKGROUND
       Scholl and the debtor were divorced by a consent decree of dissolution of marriage
ordered by the Iowa District Court for Adair County on October 21, 1996. Both parties were
represented by counsel in the divorce proceedings. In its findings of fact, the Iowa district
court provided that, “[t]he parties have executed a Stipulation which the Court has reviewed
and accepted and incorporated herein.” Based upon the court’s findings of fact, it ordered,
adjudged and decreed the terms of the stipulation between the debtor and Scholl and the
dissolution of their marriage.

       The stipulation provided, among other things, an agreement regarding the payment
of child support from the debtor to Scholl:

          4.     Louis shall pay the sum of $425.00 per month for the support of
                 the minor children, Luke Austin McLain and Jacob Sawyer
                 McLain. The first ½ of the child support payment is due
                 October 1, 1996, and the second ½ is due October 15, 1996, and
                 thereafter on the 1st and 15th day of each succeeding month until
                 the support obligation terminates. Said support payments are to
                 be paid through the Adair County Clerk of Court, or through the
                 Collection Service Center in Des Moines, Iowa. Said support
                 payments shall continue until the children shall (1) complete
                 their high school education or attain the age of eighteen (18)
                 years, whichever shall occur later, or (2) marry, enter the armed
                 forces or become otherwise emancipated, whichever of these
                 two sets of circumstances first occurs. However, said support
                 shall continue pursuant to the provisions of Chapter 598.1(2) of
                 the Code of Iowa provided said children are in school as
                 provided by said Code Section. Any party required to make
                 support payments is hereby notified of the Immediate Income
                 Withholding Provisions of Chapter 252D.8 of the Code of Iowa.
                 Such party is advised that in a support order issued or modified
                 on or after January 1, 1994, whether services are being provided
                 by the Child Support Recovery Unit or not, the income of a

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          support obligor is subject to withholding, on the effective date
          of the Order, regardless of whether support payments by the
          obligor are in arrears. The Child Support Recovery Unit or this
          Court may enter an Order simultaneously with this Order for an
          immediate withholding of income. The specified sum shall be
          deducted from obligor’s earning, trust income, or other income
          sufficient to pay the support obligation. The amount withheld
          pursuant to an assignment of income shall not exceed the
          amount specified in 15 U.S.C. 1673(b). The child support
          amount is less than the Child Support Guidelines currently in
          effect for the reasons set forth in Paragraphs 10 and 12 hereof.

(Emphasis added).

Paragraph 10 of the stipulation provides:

   10.    Louis and Julie shall be liable in the amount set forth below for
          the following debts in the approximate amounts listed:

                 (a) Merchants Bank           $ 153.55
                 (b) Choice VISA              $ 2,083.04
                 (c) Advanta                  $ 2,610.00
                 (d) ATT Universal Card       $ 1,534.00
                 (e) Mastercard               $ 980.00
                 (f) BB&T                     $ 1,750.00
                 (g) MBNA                     $ 1,900.00
                 TOTAL                        $ 11,010.59

           Louis shall pay $230.64 per month to Julie, by wage assignment,
   for his share of the abovementioned debts beginning October 15, 1996
   and continuing thereafter on the 15th day of each succeeding month
   until the 15th day of September, 1999 at which time his obligation shall
   cease and Julie shall be fully responsible for any unpaid balances on
   the above debts. Louis agrees to notify his current employer of this
   arrangement as well as any subsequent employer and provide for the
   wage assignment effective October 15, 1996. If Louis fails to pay this
   amount, Julie shall have a judgment against Louis for $7,200.00 plus
   interest at the rate of 9.5% per annum beginning October 15, 1996, less
   credit for any payments made. As long as Louis makes his monthly
   payment of $230.64, Julie shall be responsible for paying the above

                                      3
          creditors and shall hold Louis harmless from any further liability
          thereon. This obligation from Louis to Julie shall be considered a
          nondischargeable support obligation under 11 U.S.C. 523(A)(5).

       (Emphasis added).

       Paragraph 12 of the stipulation provides:

          12.    Louis shall maintain health insurance coverage on the minor
                 children of the parties, and Louis shall pay ½ of the uncovered
                 medical costs, including dental and optical costs. Again, Louis’
                 obligation to maintain health insurance and pay ½ of the
                 uncovered medical costs and ½ of the dental and optical costs
                 is an integral part of this Court Order concerning child support.
                 These obligations as well as the child support obligation of
                 $425.00 per month should be considered nondischargeable child
                 support obligations under 11 U.S.C. 523(A)(5).

       (Emphasis added).

       The Iowa district court expressly reviewed and accepted the stipulation between the
debtor and Scholl and incorporated the stipulation into the court order and decree of
dissolution. Its order contained provisions identical to paragraphs 4, 10, and 12 of the
stipulation.

       The debtor made many of the monthly $230.64 payments to Scholl for his liability on
the mutual credit card debts according to the terms of paragraph 10 for a total of $4,459.00.
Based on the 9.5% amortized schedule of those payments as ordered by the state court, the
debtor still owed Scholl $3,843.96 as of December 9, 1998, the date that the debtor filed his
Chapter 7 petition.

       The debtor was granted his discharge on March 10, 1999. Scholl filed a complaint
arguing that the debtor’s debt to her under paragraph 10 is a nondischargeable debt pursuant
to 11 U.S.C. § 523(a)(5). The bankruptcy court entered judgment in favor of the debtor and
Scholl appeals.

                                             4
                                       DISCUSSION
        We review the bankruptcy court’s legal determinations de novo and its factual
findings for clear error. See Yankton Sioux Tribe v. Gaffey, 188 F.3d 1010, 1015 (8th Cir.
1999); Alexander v. Jensen-Carter, 239 B.R. 911, 913 (B.A.P. 8th Cir. 1999). In particular,
whether a debt arising out of a dissolution of marriage constitutes an award of alimony,
support, or maintenance for purposes of § 523(a)(5) is a question of fact subject to review
under the clearly erroneous standard. See Holliday v. Kline (In re Kline), 65 F.3d 749, 750
(8th Cir. 1995); Morel v. Morel (In re Morel), 983 F.2d 104, 105 (8th Cir. 1992).

      Section 523(a)(5) provides:

          (a)    A discharge under section 727, 1141, 1228(a), 1228(b), or
                 1328(b) of this title does not discharge an individual debtor
                 from any debt —

                 (5)    to a spouse, former spouse, or child of the debtor, 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, but not to the extent that –

                        (B)    such debt includes a liability designated as
                               alimony, maintenance, or support, unless such
                               liability is actually in the nature of alimony,
                               maintenance, or support.

11 U.S.C. § 523(a)(5). “Thus, under § 523(a)(5), a debt that is ‘actually in the nature of
alimony, maintenance or support of a spouse, former spouse, or child of the debtor’ is
nondischargeable in bankruptcy.” Moeder v. Moeder (In re Moeder), 220 B.R. 52, 54
(B.A.P. 8th Cir. 1998). It is the actual nature of a debt, not its label, which determines
whether it is dischargeable or not. Scholl bears the burden of proof on this issue. See
Grogan v. Garner, 498 U.S. 279, 287 (1991), cited in In re Shea, 221 B.R. 491, 497 (Bankr.
D. Minn. 1998).

                                             5
        Whether a particular debt constitutes a maintenance or support obligation is governed
by federal bankruptcy law, not by state law. See Tatge v. Tatge (In re Tatge), 212 B.R. 604,
608 (B.A.P. 8th Cir. 1997), citing Williams v. Williams (In re Williams), 703 F.2d 1055,
1056 (8th Cir. 1983). A state law or divorce decree that characterizes a debt as a support
obligation is not binding upon bankruptcy courts. See Adams v. Zentz, 963 F.2d 197, 199
(8th Cir. 1992), citing Williams, 703 F.2d at 1057. Conversely, the fact that a divorce decree
or stipulation does not call an obligation alimony, support, or maintenance does not prevent
a bankruptcy court from finding it to be so.

       In Boyle v Donovan, 724 F.2d 681, 682-83 (8th Cir. 1984), the debtor had promised,
as part of a property settlement agreement incorporated into his divorce decree, to pay all
college and professional school education expenses for his two minor children. Years later,
he became delinquent in the payments and his ex-wife was awarded a state court judgment
on the debt. The debtor filed bankruptcy and sought to have the debt discharged. The Eighth
Circuit, affirming the bankruptcy court’s determination that the college expenses constituted
support within the meaning of § 523(a)(5), held that “the crucial question is what function
did the parties intend the agreement to serve when they entered into it.” Id. at 683.

       “In deciding whether to characterize an award as maintenance or support ‘the crucial
issue is the function the award was intended to serve.’” Adams, 963 F.2d at 200. “The
crucial issue in making this determination is the intent of the parties and the function the
award was intended to serve at the time of the divorce.” Moeder, 220 B.R. at 55 (citations
omitted).1

        The reviewing court may not “reverse the finding of the trier of fact simply because
it is convinced that it would have decided the case differently.” See Anderson v. City of
Bessemer City, North Carolina, 470 U.S. 564, 573 (1985). Rather, a finding is clearly
erroneous when, “although there is evidence to support it, the reviewing court on the entire

       1
          In Tatge, 212 B.R. at 608, we indicated a number of factors that may be helpful
in determining whether an award arising out of a marital dissolution was intended to
serve as an award for alimony, maintenance or support. See also Moeder, 200 B.R. at 55.
In this case there is very little evidence in the record bearing on many of these factors.

                                              6
evidence is left with the definite and firm conviction that a mistake has been committed.”
See United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948), cited in Adams,
963 F.2d at 200.

        In this case, the state court’s intent and the parties’ intent at the time of the divorce
is patent from the record and there is no evidence sufficient to overcome that plain clarity.
The state court specifically adopted the dissolution stipulation entered into by the debtor and
Scholl, and made the provisions of the stipulation its own findings and order. There is no
reason to suspect that the state court did so lightly or without careful consideration. There
is, moreover, no reason to conclude that the state court possessed any intentions other than
those enumerated by the express terms of its order and the stipulation. The terms are
unambiguous, the words not uncertain. The state court’s order identified the provisions of
paragraphs 4, 10, and 12 as support obligations. That the court intended paragraphs 10 and
12 to order support is manifest by the clear language therein. “This obligation from Louis
to Julie shall be considered a nondischargeable support obligation.” “Again,” the state court
decrees, “Louis’ obligation to maintain health insurance and pay ½ of the uncovered medical
costs and ½ of the dental and optical costs is an integral part of this Court Order concerning
child support.”

       While the language of the decree and the stipulation labeling the paragraph 10
obligation as support is not determinative, the language unequivocally demonstrates the
parties’ and the state court’s intention that the obligation was intended to provide child
support and clearly serves as such. The plain language that compels the conclusion that the
parties intended the obligation to constitute a support obligation is the use of words that
describe the contemplated exchange of obligations for the purposes of ensuring Scholl would
have the means necessary to adequately support the children. The stipulation and order
unequivocally represent that the debtor will pay some of the credit card debt because he will
contribute less formal child support than the child support guidelines would otherwise
require. The debtor’s contribution to the health care expenses of the children are also clearly
in exchange for smaller child support payments. The state court expressly characterized the
debtor’s obligations on the credit card debt and health care expenses as an “integral part” of
the court’s order “concerning child support.”

                                               7
        In addition to the fact that the state court’s order demonstrates that its intent and the
intent of the debtor and Scholl was that the obligations ordered by paragraphs 4, 10, and 12
were to provide support, those obligations do, in fact, constitute support for the two minor
children. That the bargained for exchange of more money paid by the debtor on the credit
card debt now in return for a shortfall of child support under the guidelines later ultimately
results in a long-term shortfall of support is of no moment. The parties agreed, and the state
court ordered, a certain set of support obligations. The exchange does not make them less
in the nature of support. The debtor’s payment on the credit card debt frees Scholl’s income
for her to have more funds available to support their children. The “shortfall” in the future
was a decision that Scholl and apparently the state court regarded as a superior arrangement
than no payments or smaller payments by the debtor on the credit card debt, due in some
certain sums at the time of the divorce and in the short-term thereafter.

       The state court’s departure from the child support guidelines is also of no
consequence. The guidelines are simply that: guidelines. The state court was free to deviate
and apparently did so, and not without an arguably compelling basis, the exchange of more
support now for less support later. See Iowa Code § 598.21(4) (that the guidelines determine
the proper amount of support is a rebuttable presumption and that amount may be adjusted
upward or downward if the court finds such adjustment necessary); State ex rel. Miles v.
Minar, 540 N.W.2d 462 (Iowa App. 1995) (child support guidelines are not unassailable and
may be adjusted as necessary depending on the needs of the children, to achieve justice
between the parties, or in light of other circumstances).

        The only evidence which contradicted the overwhelming evidence that the parties and
the court intended these obligations to constitute support was the debtor’s brief, conclusory,
and self serving statement at trial which directly contradicted his stipulation. See Farm
Credit Services v. Heine Feedlot Co. (In re Heine Feedlot Co.), 107 F.3d 622, 624-25 (8th
Cir. 1997) (discussing parol evidence in bankruptcy litigation). Under Iowa law, extrinsic
evidence may “aid interpretation when it throws light on the situation of the parties,
antecedent negotiations, the attendant circumstances, and the objects they were striving to
attain,” and to “ascertain a writing’s actual significance,” but it may not be considered “for
the purpose of changing it.” See Fed. Deposit Ins. Corp. v. Mount Pleasant Prof’l Bldg. (In

                                               8
re Mount Pleasant Bank & Trust Co.), 426 N.W.2d 126, 133-34 (Iowa 1988) (citations
omitted).

        “Construing a contract of debatable meaning by resorting to surrounding and
antecedent circumstances and negotiations for light as to the meaning of the words used is
never a violation of the parol evidence rule.” Id. at 134. However, the writing at issue in this
case, the state court divorce decree (and the parties’ stipulation underlying the state court’s
decree), is not of debatable meaning. We think there is simply one meaning to be given to
paragraphs 4, 10, and 12, and that is its plain meaning: “The child support amount is less
than the Child Support Guidelines currently in effect for the reasons set forth in Paragraphs
10 and 12 hereof.”

        In other words, the debtor’s child support obligation is less because he agreed to be
obligated on credit card debt and medical expenses. The parties exchanged one type of
support for another. It is a matter of distribution of money for support purposes and not a
matter of whether or not the debtor’s obligations under those paragraphs constitute support.
The exchange was clearly contemplated and clearly identified. The language being
unambiguous, there was no reason to give undue consideration to the debtor’s testimony as
to what he thought the language meant or what he and Scholl did or did not intend it to mean.
The agreement leaves no question as to the parties’ intentions. The debtor and Scholl
intended that the debtor’s obligation under paragraph 10 constituted support. Because the
debtor’s obligation on the credit card debts was meant to constitute support, and because it
is, in reality, in the nature of support, it is nondischargeable. We conclude that the
bankruptcy court’s contrary finding is clearly erroneous.

                                       CONCLUSION
       The debtor’s obligation under the Iowa state divorce decree to make payments to
Scholl according to the terms of paragraph 10 of the parties’ stipulation and the state court’s
order is in the nature of support for purposes of § 523(a)(5) and is therefore excepted from
the debtor’s discharge. The decision of the bankruptcy court is reversed.

                                               9
A true copy.

      Attest:

                CLERK, U.S. BANKRUPTCY APPELLATE
                PANEL, EIGHTH CIRCUIT.

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