Court Opinion

ID: 883807
Source: CourtListenerOpinion
Date Created: 2013-06-05 02:38:29.403365+00
Date Added: 2024-06-11T12:43:29.239700
License: Public Domain

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
           C'EC 1 9 Tg$j                         Decided:    December 19, 1996
Filed:
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

                                     2
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

                                          3
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 ) ,   271
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).

                                      4
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

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

        to a spouse, former spouse, or a 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
        .      .

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 self-

supporting           .   should be discharged."

                                             6
         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

                                             7
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

                                               8
     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).

                                   9
                                        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

                                           10
     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   was

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

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.

                                   11
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

                                                 12
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
14