IN RE FORMAN

STEPHEN MITCHELL, Bankruptcy Judge

This is an action to determine the dischargeability of certain obligations, in the nature of contribution, arising under a divorce property settlement agreement. A trial was held on February 5, 1999, at which the debtor and his former wife were each represented by counsel. At the conclusion of the trial, the court took the matter under advisement to review the evidence and the applicable law. For the reasons set forth in this opinion, which constitutes the court's findings of fact and conclusions of law under Federal Rule of Bankruptcy Procedure 7052, the court determines that the obligations in question are dischargeable.

Findings of Fact

The defendant, Alien L. Forman ("the debtor") filed a voluntary petition under chapter 7 of the Bankruptcy Code in this court on November 13, 1997, and received a discharge on February 10, 1999. The plaintiff, Ann Robin Paul ("Mrs. Paul"), is the debtor's former wife. They were married in 1970 and had three children, one of whom, Brian, died in 1984.

A discharge had been previously issued to the debtor on February 27, 1998, but was vacated by the court under Fed.R.Civ.P. 60(a), as incorporated by F.R.Bankr.P. 9024, because a timely motion had been filed to extend the time for objecting to the debtor's discharge. Although the extension was granted, no complaint was filed objecting to the debtor's discharge, and the time for objecting has long passed. Accordingly, a discharge was issued at the court's direction. Of course, a discharge extinguishes the debtor's liability only with respect to dischargeable debts, and does not resolve the separate issue of whether particular debts — such as those at issue in this adversary proceeding — have been discharged.

The debtor and Mrs. Paul separated in 1992. On October 29, 1995, they signed a written property settlement agreement. The agreement recited that the children had reached the age of majority. Although no provision was included for periodic child support, the agreement did provide that the debtor and Mrs. Paul would "pay one-half (1/2) each of the education expenses for Glen and Allison though Graduate School, which expenses shall include but not limited to: room and board, books, tuition, food, clothing, transportation, medical and health insurance and other such related expenses." Each party waived all rights to alimony and to equitable distribution. In a section of the agreement captioned "Debts and Obligations," the agreement stated, "To the best of their knowledge and belief there are no outstanding obligations for which the other may be liable except those listed on Attachment A hereto." Attachment A is a hand-written list of 13 debts totaling over $684,800 incurred during the marriage. Although there is no language in the property settlement agreement expressly stating how the debts were to be treated, or for that matter expressly creating a duty of contribution or indemnity, the debtor acknowledged at trial that the understanding of the parties was that he and Mrs. Paul were each to be responsible for one-half of the amount of the listed debts.

The list included the $225,000 mortgage on the then-jointly owned residence. Mr. Forman later deeded his interest in the property to Mrs. Paul. She subsequently sold the house and paid off the mortgage. The list also included an unliquidated "potential of lawsuit arising from operation of Porsche, August 1993." As explained at trial, this was a reference to an incident in which the couple's daughter, Allison, borrowed Mrs. Paul's Porsche without permission and was involved in an accident with another car. Allison has since been sued in the Circuit Court of the City of Alexandria, Virginia, by the insurer of the other car for damages arising from that accident. Unfortunately, the liability insurance on the Porsche had been canceled prior to the accident for nonpayment of the premiums. Contrary to the suggestion of Mrs. Paul's counsel at trial, the court does not find that the debtor was responsible for paying that premium.

The agreement, at least in its final form, was not drafted by counsel. It is also not formally signed by either party, although both parties initialed each page of the typed portion of the agreement. The hand-written attachment is solely in Mrs. Paul's handwriting and is not initialed by the debtor. The debtor, however, does not contest that he agreed to pay one-half of the debts listed on the attachment.

On November 26, 1996, a final decree of divorce was entered by the Circuit Court of Fairfax County, Virginia, at a hearing at which the debtor, although not represented by counsel, was present and advised the court that he did not object to the terms of the property settlement agreement. The divorce decree affirmed, approved, and incorporated the property settlement agreement. The debtor's chapter 7 petition, as noted above, was filed approximately one year later (November 11, 1997). On January 7, 1998, a hearing was held before the circuit court on a rule to show cause with respect to the debtor's failure to pay child support. The circuit court found the debtor in contempt and entered judgment against him, in favor of Mrs. Paul, for $98,114.69, for "sums due and owing for child support and education," together with attorneys fees and litigation expenses of $5,346.71, for a total of $103,461.14. A subsequent show cause hearing was held on July 23, 1998, at which the circuit court again found the debtor in contempt, this time entering judgment against the debtor in the amount of $3,003.25, together with litigation expenses and attorneys fees of $18,973.24, for a total of $21,976.49. In the interim, Mrs. Paul, in an effort to enforce the January 1998 judgment, had garnished the debtor's pay and his Federal government Thrift Savings Plan account. She received $3,243.21 from the pay garnishment and $21,515.60 from the Thrift Savings Plan. On July 23, 1998, the circuit court entered an order allowing the debtor to purge himself of contempt by making payments of $1,500.00 per month. As long as Allison remains in school, $1,103.00 of that amount would be credited to her current support, while $397.00 would be credited against the arrearage. Thereafter, the entire $1,500 will be credited against the arrearage. The $1,500 per month is being paid by an allotment from the debtor's Federal pay.

The account contained $24,239.55, but $2,723.95 was withheld for Federal taxes.

Allison is in her senior year of college and would normally graduate in May 1999. However, she is currently hospitalized and has not completed her course work for the fall semester, although Mrs. Paul testified that she is taking classes and submitting papers over the Internet. No evidence was presented as to whether she is likely to go on to graduate school.

The debtor is a 57-year old engineer who is employed by the Army Corps of Engineers at a base salary of $50,876.80 per year. With overtime, he earned $56,092.35 in 1998. His monthly take-home pay (after taxes, social security, health insurance, mandatory retirement contributions, and the $1,500 allotment to pay off the two support judgments) is $1,038.57.

For many years, the debtor has worked a second job. At one time, he worked as a hardware store clerk for approximately 20 hours per week, starting at minimum wage and working up to approximately $8.00 per hour. In 1994, he began working for himself as a "home handyman," doing minor fix-up work on customer's houses. Initially, he worked as an independent contractor, but subsequently incorporated the business under the name of "Home Improvement Handyman Services, Inc." His annual income from the home handyman work has fluctuated considerably. In 1996, his best year, he earned a profit of $7,225, while in 1997 he posted a loss of $3,415. The four-year average for 1994 through 1997 was $3,956.00. The loss in 1997 appears to have been atypical, in that during that year the debtor was heavily distracted by ongoing litigation with Mrs. Paul and was being treated by a psychiatrist for depression, as a result of which, he testified, he was unable to work as many hours as he had in the past and ended up seriously underbidding several jobs. Although he is still under psychiatric treatment, he expects his 1998 earnings from the business to be approximately $7,000. Given that 1997 was exceptional and that the figures for 1998 are not yet final, the court determines that the most probative evidence of likely future annual earnings from self-employment would be the average for the three-year period 1994 through 1996. This comes to $6,414 per year, or $534 per month before taxes. Assuming a 33% burden for Federal and Virginia income taxes, the net income after taxes would be $358 per month. Accordingly, the court determines that the net cash available to the debtor on a monthly basis to pay living expenses is $1,396.

Although the entire loss is shown on the Form 1020S filed by the corporation, only $168 is reflected on Mr. Forman's individual return, apparently because Mr. Forman's basis in the corporation was only $168.

The debtor's current monthly living expenses are as follows:

Rent 754.15 Renter's insurance 15.38 Home maintenance 3.22 Furniture 3.22 Electricity 36.69 Telephone 34.73 Groceries 161.00 Lunch, dinner 161.00 Gasoline 53.67 Auto repairs 21.47 Auto insurance 47.01 Personal property tax 18.79 Registration/decals 14.53 Clothing 10.73 Cleaning and laundry 0.00 Medical 218.96 Gifts 4.29 Entertainment 10.73 Newspapers and magazines 4.29 Personal grooming 4.29 Legal 198.46 TOTAL 1,776.61

I have adopted the figures shown on Mr. Forman's schedule of monthly expenses filed in this adversary proceeding, with the exception that I have reduced the personal property tax to account for the 1998 scheduled 12.5% rebate, part of the recently-enacted gradual phase-out of automobile personal property taxes in Virginia.

The debtor has no savings or other liquid assets other than $50 in a checking account. His only motor vehicle is a 1989 Dodge Caravan with 180,000 miles which failed its most recent pollution inspection and needs a rebuilt engine. He owns no real estate and has no other significant assets that could be sold. In addition to the approximately $100,679 he owes to Mrs. Paul on the two child support judgments, he owes the IRS somewhere between $37,000 and $53,000 in unpaid Federal income taxes for 1993, 1994, 1995, and 1996 and the Commonwealth of Virginia approximately $1,380. He is currently paying the IRS and the Virginia Department of Taxation each $100 per month on account of those arrearages.

The total of the two judgments is $125,438. The garnishments resulted in credits of $24,759, leaving $100,679 to be paid with interest at the Virginia judgment rate of 9%. The current credit of $397 per month against the arrearage from the $1,500 allotment is less than the interest ($755 per month) accruing on the judgments.

The debtor did not file his returns for those years until 1998, and the amounts shown on the IRS payment demands and deficiency notices introduced into evidence total $52,468.45, a significant portion of which consists of late filing and late payment penalties plus interest. Mr. Forman testified that he does not agree with the IRS's figures and believes that he owes only $29,779 and that the business owes $7,225, for a total of $37,004.

Conclusions of Law and Discussion I.

This court has subject-matter jurisdiction under 28 U.S.C. § 1334 and 157(a) and the general order of reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. Under 28 U.S.C. § 157(b)(2)(I), this is a core proceeding in which final orders or judgments may be entered by a bankruptcy judge. Venue is proper in this district under 28 U.S.C. § 1409(a). The defendant has been properly served and has appeared generally.

II.

A chapter 7 discharge does not discharge an individual debtor from two types of divorce-related debts. The first such category consists of debts "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[.]" § 523(a)(5), Bankruptcy Code. The second consists of debts, other than child support and alimony,

incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record . . . unless —

(A) the debtor does not have the ability to pay such debt from income or property of the debtor not reasonably necessary to be expended for the maintenance or support of the debtor or a dependent of the debtor and, if the debtor is engaged in a business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business; or

(B) discharging such debt would result in a benefit to the debtor that outweighs the detrimental consequences to a spouse, former spouse, or child of the debtor.

§ 523(a)(15), Bankruptcy Code. The result is that alimony or child support debts are nondischargeable regardless of the circumstances, while other types of divorce-related obligations, although presumptively nondischargeable, may be discharged if the debtor does not have the financial ability to pay the debt or if the benefit to the debtor from discharging the debt outweighs the detriment to the nondebtor party. The debtor bears the burden of proof, by preponderance of the evidence, both as to his inability to pay or that the benefit to him of discharge outweighs the detriment to the nondebtor spouse. Craig v. Craig (In re Craig), 196 B.R. 305, 308-09 (Bankr. E.D. Va. 1996); but see Collins v. Hesson (In re Hesson), 190 B.R. 229 (Bankr. D. Md. 1995) (nondebtor spouse has burden to prove that detriment outweighs benefit of discharge). Because § 523(a)(15) is phrased in the disjunctive, a debtor need prove only one of the two possible grounds for discharging the debt. Craig, 196 B.R. at 309. With regard to ability to pay, the test is not whether the debtor has the ability to pay the debt as of a particular time — such as the date of trial or the date the complaint is filed — but whether the debtor can pay the debt over time. Id. at 310.

III.

The debtor in this case does not contest that the college-education expenses the Fairfax County Circuit Court has ordered him to pay are in the nature of child support and therefore nondischargeable. The present dispute concerns only the debtor's liability, in the nature of contribution, to his former wife for one-half of the joint debts listed on Attachment A to the property settlement agreement. At trial, these had been narrowed to 8 debts for which Mrs. Paul was seeking contribution. The debts in question, and the debtor's half share, are as follows:

Sonja J. Shockey $42,500 Aron Linda Glasman 4,654 Maurice Edkiss 5,500 Allison Glen Forman 60,000 First Virginia Bank VISA 1,200 Lawsuit against Allison 12,500 Allison Glen Forman 33,000 Congregation Olan Tikvah 1,250 TOTAL $160,604

Although Mrs. Paul's counsel suggested in argument that one of those — the claim arising from Allison's accident in the Porsche — was in the nature of child support and therefore nondischargeable under § 523(a)(5), Bankruptcy Code, the court concludes that tort liability arising from an automobile accident does not — particular/ where the use of the car was not authorized — constitute an "education expense," even given the broad definition of that term in the property settlement agreement. Accordingly, any liability on the part of the debtor to share with Mrs. Paul in defending or indemnifying Allison is excepted from discharge, if at all, only under § 523(a)(15).

A.

As an initial matter, the court notes that both parties in their testimony attempted to portray the other as the one primarily responsible for the family's debts. However, fault plays no role in the § 523(a) (15) analysis. The test is simply whether the debtor can afford to pay or whether the economic benefit of discharge outweighs the detriment to the other party. To the extent, however, that the court had to make a determination, the court could only conclude that the parties consistently lived far beyond their means while married, and that any blame for the mountain of debt must be shared equally. The court likewise rejects the argument of Mrs. Paul's counsel — unsupported by the language of the statute or by any case authority — that discharge of the property settlement agreement debt should be denied on the ground it would "reward" the debtor for not paying his child support and taxes. As noted above, the children were no longer minors at the time the property settlement agreement was signed, and the support that the debtor agreed to pay consisted of their college education expenses. Whether the ultimate amount of those expenses — in excess of $200,000 to date — was or could have been foreseen at the time is unclear, but there can be little question that they far exceeded the debtor's ability to pay on a current basis. In short, there is no evidence that the debtor thumbed his nose at his responsibility as opposed to simply being unable to pay. With respect to the taxes, the debtor testified that he assumed that Mrs. Paul — who has a law degree from Stanford University and who had sole signatory authority over the couple's bank accounts — would prepare the returns. The reasonableness of this assumption is corroborated by the property settlement agreement, which expressly provided that the couple would file joint income tax returns for 1995. In any event, Mrs. Paul did not prepare or file joint returns with the debtor for any of the years after they separated in 1992. The debtor's withholdings were apparently premised in part on the expectation that joint returns would be filed. Whatever the reason, the withholdings were not sufficient to pay the taxes that were actually owed for 1993 through 1996 based on his filing status of single or of married filing separately. Although it seems clear from the evidence that the debtor has always been poor at managing his finances, fiscal mismanagement alone does not constitute egregious or inequitable conduct. Accordingly, even if § 523(a)(15)(A) could be read as including an implied requirement that the debtor's inability to pay not arise from circumstances amounting to bad faith, the evidence in this case does not show bad faith. See, Morris v. Morris (In re Morris), 197 B.R. 236, 243 (Bankr. N.D. W. Va. 1996) (equitable factors do not figure into court's analysis of debtor's ability to pay).

It does seem clear that Mr. Forman was not aware, prior to signing the property settlement agreement, of the full extent to which Mrs. Paul had borrowed from friends and the children's rust funds to finance the family's lifestyle.

B.

Based on the evidence as to the debtor's financial circumstances, the court has little difficulty in concluding that the debtor does not have the ability at the present time to pay the $160,604 for which Mrs. Paul is seeking payment. He has no non-essential assets that could be liquidated to provide additional funds. The debtor's current living expenses, which can only be characterized as Spartan, exceed his available monthly income by $381, even before the $200.00 per month he is paying to the IRS and the Virginia Department of Taxation on his back taxes. It is true that a portion of the claimed living expenses — $198.46 per month for legal fees and costs related to the divorce litigation — are not permanent, but even eliminating that expense would still leave the debtor with a monthly deficit.

That situation, moreover, is likely to continue for the foreseeable future. Even assuming that Allison does not go to graduate school, so that the full $1,500 monthly allotment would be applied to the $100,678 due on the two support judgments (which accrue interest at the rate of 9% per annum), it will take 94 months — almost 8 years — to pay the judgments in full. The debtor is currently 57 years old. By the time the judgments are paid off, he will be 64 years old. In addition to the support judgments, the debtor has approximately $54,000 in unpaid Federal and state income taxes to deal with. Viewed realistically, there is simply no likelihood that he will be able to pay, even over time, the $160,604 for which Mrs. Paul is seeking contribution.

Because the court concludes that the debtor does not have the ability to pay the debt, it is not necessary to determine whether the benefit to the debtor from discharging the debt would outweigh the resulting detriment to Mrs. Paul. The factors usually considered in making that determination include the income and expenses of both parties, whether the nondebtor spouse is jointly liable on the debts, the number of dependents, the nature of the debts, the reaffirmation of any debts, the nondebtor spouse's ability to pay, and whether the debt can actually be collected from the nondebtor spouse. Craig, 196 B.R. at 309 (determining that there was no detriment to debtor's former wife because her liability on the joint debts had already been discharged in her own bankruptcy case). The evidence concerning Mrs. Paul's present financial circumstances was at best sketchy, but based on her trial testimony it would appear that she and her present husband, like the debtor, have monthly expenses that exceed their combined incomes. It is possible that her financial situation is such that she would be better off filing her own chapter 7 petition despite her professed "horror" at the prospect. See, Hill v. Hill (In re Hill), 184 B.R. 750, 755-56 (Bankr. N.D. Ill. 1995) (where parties were equally unable to pay marital debt, and nondebtor spouse was eligible for chapter 7 relief, benefit of discharge outweighs detriment) (dicta). But since this court does not have to reach that issue, the court declines to do so.

IV.

For the foregoing reasons, the court determines that the debtor does not have the ability to pay his half-share of the unpaid liabilities set forth on Attachment A to the property settlement agreement. Accordingly, a separate judgment will be entered determining that the debtor's liability to Mrs. Paul for payment of those sums is dischargeable and has been discharged as a result of the discharge granted to the debtor.