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Docket Number

Bankruptcy No. 82-1173. Related Case: 82-02334.

Attorney(S)

Dominic M. Bruno, Toledo, Ohio, for plaintiff. Jerry P. Purcel, Toledo, Ohio, for defendant.

Acts

Bankruptcy — Creditors, The Debtor, And The Estate — Debtor’S Duties And Benefits — Exceptions To Discharge

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Smart Summary

United States Bankruptcy Court, N.D. Ohio (W.D.) — Memorandum Opinion and Order (March 18, 1983)

Factual and Procedural Background

The debtor (Husband, Jerry Donald Smotherman) and the plaintiff (former spouse, Anna A. Smotherman) were married in 1968, had two children, and entered into a separation agreement on August 20, 1981 that was incorporated into a decree of dissolution on October 26, 1981. Article IV of the separation agreement required the Husband to "pay all outstanding obligations of the marriage not otherwise specifically mentioned," and attached an itemized list of debts (notes, mortgages, consumer obligations, and medical debts). Specific provisions: the Husband was to convey his interest in the residence at 4741 Elmhurst to the Wife and continue to make payments on the mortgage held by Toledo Trust; the Wife was to receive titles and rental income for properties at 1152 Buckingham and 1762 Bigelow but be responsible for their outstanding debts; the 1980 American Motors Eagle was reserved to the Wife and the Husband was to pay the debt secured by it; the swimming pool purchase created a note assigned to Ohio Citizens Bank and appeared on Exhibit A; medical debts to Dr. Multani and Dr. McKail were apparently for treatment of the children. The Debtor filed a Chapter 13 proceeding on November 3, 1982. The adversary proceeding before the Court required a determination of the dischargeability of the debts listed in the separation agreement; the parties agreed to decide the matter on pleadings, briefs, and exhibits.

Legal Issues Presented

Whether the debts enumerated in the separation agreement are dischargeable in bankruptcy, specifically whether those debts constitute alimony, maintenance, or support within the meaning of 11 U.S.C. § 523(a)(5).

Arguments of the Parties

Plaintiff's (Wife's) Arguments

The Wife's affidavit asserts the swimming pool was purchased and used primarily for the daughter's therapy, supporting the contention that payment on the pool debt is in the nature of support/maintenance (i.e., for a medical benefit to the child).
The Wife contends the medical debts are for treatment of the couple's children (support-related).
The Wife's rights to possession/use of the 1980 automobile and its role in her employment were described to show necessity for support and maintenance (transportation for daily needs and employment income generation).

Defendant's (Husband's) Arguments

The Husband's affidavit asserts the pool was built primarily for the family's recreational enjoyment and that it was constructed in 1979, before the daughter's diagnosis in 1980—supporting the contention that the pool debt is not primarily for support or medical treatment.
The Husband's affidavit notes the physician prescribed only special gym classes (not a pool prescription), and there was no physician's prescription for a pool nor a medical tax deduction for the pool, undermining the claim that the pool debt is a medical/support obligation.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Matter of Jensen, 17 B.R. 537 (Bkrtcy.Mo. 1982)	That the court must examine the nature of the debt sought to be discharged to determine whether the obligation is for upkeep of the former family.	The Court cited Jensen to justify analyzing the substantive nature of each obligation rather than relying solely on labels in the separation agreement.
In re Hoover, 14 B.R. 592 (Bkrtcy.N.D.Ohio 1981)	That the Bankruptcy Court must look beyond the four corners of the divorce decree to determine if a debt is actually for support or a resolution of property rights.	The Court relied on Hoover to support its approach of examining surrounding circumstances and evidence rather than treating the decree's labels as conclusive.
In re Brace, 13 B.R. 551 (Bkrtcy.N.D.Ohio 1981)	That debts unassociated with the support and maintenance of a spouse and children do not fall within § 523 and are dischargeable.	The Court cited Brace for the proposition that obligations which are not in the nature of support are dischargeable and applied that principle to certain debts (e.g., unspecified consumer debts) here.
In re Ferradino, 14 B.R. 196 (Bkrtcy.Nev. 1981)	That mortgage payments necessary for a former wife's security and support are nondischargeable.	The Court applied Ferradino to hold that the mortgage obligation on the residence (4741 Elmhurst) is nondischargeable because providing a home is within the concept of maintenance/support.
In re Bradley, 17 B.R. 107 (Bkrtcy.Tenn. 1981)	That medical treatment required to preserve the health of the debtor's family falls within the contemplation of § 523(a)(5).	The Court cited Bradley as authority for holding medical debts incurred for treatment of the children to be nondischargeable.
Matter of Bailey, 20 B.R. 906 (Bkrtcy.W.D.Wis. 1982)	That the moving party bears the burden of proving facts establishing nondischargeability of a debt.	The Court applied Bailey to find the Wife had failed to carry the burden of proof as to the nature of certain consumer debts (e.g., VISA and Sears) and therefore those debts were dischargeable.

Court's Reasoning and Analysis

The Court framed the dispute under 11 U.S.C. § 523(a)(5) and proceeded to determine whether each obligation imposed by the separation agreement was "in the nature of alimony, maintenance, or support" or instead a property settlement/other obligation. The Court followed controlling analytical steps reflected in the cited authorities:

Examine the nature and purpose of each listed obligation rather than accept labels in the separation agreement as dispositive (citing Matter of Jensen and In re Hoover).
Determine whether the obligation is connected to the upkeep, security, or health of the former spouse and children (citing In re Ferradino and In re Bradley for housing and medical treatment principles).
Require the moving party to carry the burden to prove nondischargeable circumstances; where proof is insufficient, hold the debt dischargeable (citing Matter of Bailey).

Applying these principles to the undisputed facts and the evidence presented, the Court made the following specific determinations (stated succinctly):

Residence mortgage (4741 Elmhurst, Toledo Trust, $30,000): Residence provision equates to maintenance/support. The Husband's obligation to continue mortgage payments was found necessary to provide a place to live for the Wife and children and therefore nondischargeable under § 523(a)(5) (applying In re Ferradino).
Medical debts (Dr. Multani $200; Dr. McKail $50): The record indicated these debts were for treatment of the couple's children and, following the authorities that medical treatment for the family's health falls within § 523(a)(5), the Court held these debts nondischargeable.
Automobile debt (DuPont Credit Union, 1980 American Motors Eagle, $5,000): The car was the Wife's only means of transportation for essential activities and employment that augmented support; providing and paying for the vehicle therefore enhanced the Wife's ability to support herself and the children and was held nondischargeable.
Consumer debts (Ohio Citizens Bank check loan $300; VISA $1,100; Sears $100): These debts were not itemized or shown to be incurred for support or medical purposes. The Wife failed to meet her burden to show they were in the nature of support; accordingly, these debts were held dischargeable (citing Matter of Bailey).
Swimming pool note (Ohio Citizens Bank, $3,745): The parties presented conflicting affidavits. The record contained a transfer instrument dated September 16, 1980 and delivery acknowledged September 20, 1980, which could support the Wife's contention that the pool related to therapy. However, the Court noted there was no physician's prescription specifically for a pool, no medical deduction claimed, and the physician's records reflected only prescribed special gym classes. Considering these indicators and the Defendant's affidavit that the pool was built primarily for recreation (and possibly before the diagnosis), the Court concluded the pool was not purchased primarily for the child's maintenance/medical treatment and therefore the pool debt was dischargeable.
Properties at 1152 Buckingham and 1762 Bigelow: Title would rest solely in the Wife and she would be responsible for the debts; because the Debtor had been relieved of those debts by the separation agreement, the Court deemed any issue concerning the Debtor's obligations to the mortgagee for those properties moot.

Holding and Implications

Final Ruling: The Court issued specific determinations as to which obligations were nondischargeable and which were dischargeable under 11 U.S.C. § 523(a)(5).

Nondischargeable debts (held to be in the nature of alimony/maintenance/support):

Note and Mortgage to Toledo Trust for 4741 Elmhurst Road — $30,000.00 (nondischargeable).
Note to DuPont Credit Union for 1980 Eagle — $5,000.00 (nondischargeable).
Debt to Dr. Multani — $200.00 (nondischargeable).
Debt to Dr. McKail — $50.00 (nondischargeable).

Dischargeable debts (held not to be in the nature of alimony/maintenance/support):

Check loan to Ohio Citizens Bank — $300.00 (dischargeable).
Debt to Ohio Citizens Bank for VISA — $1,100.00 (dischargeable).
Note to Ohio Citizens Bank for the swimming pool — $3,745.00 (dischargeable).
Debt to Sears — $100.00 (dischargeable).

Implications: The direct effect is that the Debtor remains personally liable for the nondischargeable obligations listed above despite the bankruptcy filing; the listed dischargeable obligations may be discharged under the bankruptcy proceeding. The opinion applies existing case law and statutory standards to the facts and does not announce a new legal rule beyond applying § 523(a)(5) and the cited authorities. The Court expressly noted it considered all evidence presented.

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In re Jerry Glendora SMOTHERMAN, Debtors. Anna A. SMOTHERMAN, Plaintiff, v. Jerry Donald SMOTHERMAN, Defendant.

MEMORANDUM OPINION AND ORDER

RICHARD L. SPEER, Bankruptcy Judge.

This cause came before the Court as an adversarial proceeding to determine the dischargeability of certain debts belonging to the Debtor. The parties have agreed to have the Court decide the issues in this case based upon the pleadings, briefs, and exhibits submitted on behalf of the respective parties.

FACTS

A review of the case find that the following facts are not in dispute:

1.) The Plaintiff and the Defendant were married on January 20, 1968. Two children were born in that marriage. On August 20, 1981, the parties entered into a separation agreement which contained the language:

ARTICLE IV: Husband is to pay all outstanding obligations of the marriage not otherwise specifically mentioned.

1. Note and Mortgage, Toledo $30,000.00 Trust Company secured by 4741 Elmhurst

2. Note and Mortgage, People's 11,300.00 Savings Association, secured by 1152 Buckingham

3. Note and Mortgage, People's 16,500.00 Savings Association, secured by 1762 Bigelow

4. Note, DuPont Credit Union, 5,000.00 secured by 1980 American Motors Eagle

5. Ohio Citizens Bank, check 300.00 loan

6. Ohio Citizens Bank, VISA 1,100.00

7. Ohio Citizens Bank, note for 3,745.00 pool

8. Dr. Multani 200.00

9. Dr. McKail 50.00

10. Sears 100.00

The separation agreement was incorporated in a decree of dissolution which was rendered on October 26, 1981.

2.) On May 29, 1980, the parties' daughter, Lori, was diagnosed as suffering from a "slight lumbar scoliosis", a condition that can be treated with physical therapy and exercise.

3.) On September 16, 1980, the parties entered into a contract for the purchase of a swimming pool. The promissory note used in the purchase was assigned to Ohio Citizens Bank and is one of the debts listed on Exhibit A of the separation agreement. This is one of the debts for which the Husband-Debtor is responsible.

4.) The Plaintiff-Wife and the two minor children currently reside in the residence at 4741 Elmhurst Road. Toledo Trust holds the first mortgage against that property for the approximate debt of Thirty Thousand and no/100 ($30,000.00). The separation agreement specifies that the Husband shall convey all interest in that property to the Wife, and shall continue to make payments on that debt. Peoples Savings Association holds the first mortgage on the properties at 1152 Beckingham and 1762 Bigelow. The separation agreement specifies that the Wife is to receive the titles to these properties and the monies generated by renting them. She shall be responsible for the outstanding debts owed to this mortgagee.

5.) The outstanding debts owed to Dr. McKail and Dr. Multani were apparently incurred for the treatment of the couple's children.

6.) Currently, the Plaintiff has an annual income of approximately Six Thousand and no/100 Dollars ($6,000.00), and the Plaintiff approximately Twenty-six Thousand and no/100 Dollars ($26,000.00).

7.) The rights to possession and ownership of the 1980 American Motors Eagle are reserved to the Wife by express terms within the Separation Agreement. This automobile secures a debt owed to the DuPont Credit Union. According to the terms of the agreement, this car is used by the Wife in her part-time employment as a real estate salesman, and shall be paid for by the Defendant.

8.) The Debtor-Husband filed a Chapter 13 proceeding on November 3, 1982.

LAW

The questions raised by this proceeding are whether or not these debts are dischargeable by the Debtor in a bankruptcy proceeding. Specifically, the question is whether or not these debts constitute alimony, maintenance or support within the meaning of the Bankruptcy Code.

11 U.S.C. § 523 states, in pertinent part:

"(a) A discharge under sections . . . 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 both spouse and child, in connection with a separation agreement, divorce decree, 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 . . ."

The intent of this section requires the Court to examine the nature of the debt sought to be discharged and to determine whether or not the obligation placed on the Debtor by the Separation Agreement is for the upkeep of his former family. Matter of Jensen, 17 B.R. 537 (Bkrtcy.Mo. 1982).

The Bankruptcy Court is not required to accept as determinative those statements in the divorce decree that particular debts are in the nature of alimony or property settlement. Rather, the Court must look beyond the four corners of the decree and determine whether under the circumstances surrounding a debt, the debt is actually for the support of the prior family or the resolution of property rights. In re Hoover, 14 B.R. 592 (Bkrtcy.N.D.Ohio 1981). If the debts are unassociated with the support and maintenance of the spouse and children they do not come within the intent of Section 523 and thus are dischargeable. In re Brace, 13 B.R. 551 (Bkrtcy.N.D.Ohio 1981).

A review of the facts finds that the Plaintiff-Wife and the children currently reside at 4741 Elmhurst Road. The provision of a place in which to live falls easily within what the Bankruptcy Code intends as maintenance and support of a debtor's family. Where a debtor's obligation under a divorce decree is to make mortgage payments that are necessary for his former wife's security and support, such a debt will not be dischargeable. In re Ferradino, 14 B.R. 196 (Bkrtcy.Nev. 1981). Therefore, a requirement calling for the Debtor to be obligated to pay for such a place would not be dischargeable in bankruptcy pursuant to 11 U.S.C. § 523(a)(5).

Similarly, medical treatment which is required in order to preserve the health of the debtor's family falls within contemplation of Section 525(a)(5). See, In re Brace, supra; In re Bradley, 17 B.R. 107 (Bkrtcy.Tenn. 1981). The complaint alleges that these debts are owed to the respective physicians for treatment of the Debtor's son. Since there is nothing which contradicts these allegations, the debts must be held nondischargeable.

The facts also show that the 1980 automobile, constitutes the Plaintiff's only means of transportation. This means use for grocery shopping, school, recreation, medical emergencies, and so forth. It is also used in her employment as a real estate salesman to transport prospective buyers from place to place. Accordingly, she is required to have a car that is in good repair. Her employment generates a modest income that augments what is paid by the Defendant in alimony and child support. Without this supplemental income it appears that the Plaintiff would not be able to maintain herself and her two children on what is paid pursuant to the separation agreement. Therefore, the Defendant's provision of a motor vehicle enhances the Plaintiff's ability to care for herself and the children. Again, such a debt would fall within the scope of what the Code intends as support and maintenance of family and would be nondischargeable.

However, the debts to Ohio Citizens Bank (VISA and check loan) and the debt to Sears are not itemized so as to reflect how and for what they were incurred. The burden is on the moving party to demonstrate facts which give rise to nondischargeable circumstances. The Plaintiff has failed to satisfy her burden of proof as to the nature of these debts. Accordingly, they must be found to be dischargeable. Matter of Bailey, 20 B.R. 906 (Bkrtcy.W.D.Wis. 1982).

The record shows that title to the properties located at 1152 Buckingham and 1762 Bigelow will rest solely in the Plaintiff, and that she will be responsible for the debts owed on them. She is also entitled to any rentals which are generated from the ownership of these parcels. Inasmuch as the Debtor has been already relieved of these debts by virtue of the separation agreement, the issue as to the Debtor's obligations to the mortgagee of these properties is moot.

The most difficult determination to be made in this case is whether or not the debt for the swimming pool falls within the scope of Section 523. The Plaintiff suggests in her Affidavit that the swimming pool was purchased and used primarily for her daughter's therapy. This suggestion is made to support the assertion that payment on the debt is in the nature of support and maintenance because it provides a medical benefit. Diametically opposing the view, the Defendant avers in his Affidavit that the pool was built primarily for the family's recreational enjoyment. He also contends that it was built in 1979, one (1) year prior to the diagnosis of the scoliosic condition.

The "Notice of Transfer of Note and the Assignment of Security Agreement" is dated September 16, 1980, and bears the signatures of both parties acknowledging delivery of the pool on September 20, 1980. This fact supports the Plaintiff's contention as to the date of purchase. However, the record also reflects that no prescription from a physician for a swimming pool was made, and that no tax deduction was taken for the pool as a medical expense. The Plaintiff attempted to explain that a deduction was not taken "because of other deductions".

While these factors are not necessarily dispositive of the issue, they are indicative of the intent which the parties maintained when they decided to purchase a pool. As pointed out in the Defendant's Affidavit, at the time the physician prescribed therapy for Lori, he set forth only special gym classes. He did not prescribe a pool, swimming classes, or other similar treatment. At best, the records suggests that the physician may have indicated that swimming would be good therapy. This would lead to the conclusion that while the pool may have been purchased with Lori in mind, it was not purchased primarily for her use. This conclusion requires the subsequent conclusion that the debt was not incurred primarily for the maintenance and support of the Debtor's child.

In reaching this decision, the Court has considered all of the evidence presented, whether or not specifically referred to in this Opinion.

Accordingly, it is ORDERED that the following debts are found not to be dischargeable:

1) Note and Mortgage, to Toledo Trust for the property at 4741 Elmhurst Road in the amount of Thirty Thousand and no/100 Dollars ($30,000.00);

2) Note to DuPont Credit Union for the 1980 Eagle in the amount of Five Thousand and no/100 Dollars ($5,000.00);

3) Debt to Dr. Multani in the amount of Two Hundred and no/100 Dollars ($200.00); and,

4) Debt to Dr. McKail in the amount of Fifty and no/100 Dollars ($50.00).

It is FURTHER ORDERED that the following debts are found to be dischargeable:

1) Check loan to Ohio Citizens Bank in the amount of Three Hundred and no/100 Dollars ($300.00);

2) Debt to Ohio Citizens Bank for VISA in the amount of One Thousand One Hundred and no/100 Dollars ($1,100.00);

3) Note to Ohio Citizens Bank for the swimming pool in the amount Three Thousand Seven Hundred Forty-five and no/100 Dollars ($3,745.00); and,

4) Debt to Sears in the amount of One Hundred and no/100 Dollars ($100.00).

IN RE SMOTHERMAN, (Bankr.N.D.Ohio 1983)