IN RE: WALTER KEVIN DOWNS CASE NO. 97-50341

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

IN RE:

WALTER KEVIN DOWNS CASE NO. 97-50341

ALISA DOWNS

DEBTORS

WALTER K. DOWNS PLAINTIFF

VS. ADVERSARY NO. 97-5057

NANCY L. BEARD DEFENDANT

MEMORANDUM OPINION

The issue is whether a debt in the amount of $2,696.49 owed by the plaintiff debtor to his former spouse, the defendant Nancy L. Beard, is excepted from discharge under title 11 U.S.C. § 523(a)(5) as a debt for alimony and maintenance. The plaintiff debtor contends the debt, which he assumed under the terms of the parties’ Property Settlement Agreement, is a property settlement obligation and is not a debt in the nature of support or maintenance. The court rejects this contention.

FINDINGS OF FACT:

The parties were married in 1986. At the time of their marriage the defendant Nancy L. Beard was the managing editor of the Herald News of Hardinsburg, Kentucky, a weekly newspaper owned and published in Meade County, Kentucky by the defendant’s mother. The defendant’s salary at that time was $13,000 per year.

The plaintiff debtor also worked for defendant’s mother as a farm hand on a farm known as Blue Star Stables, which the defendant’s mother operated in partnership with another person. The plaintiff, who prior thereto had worked at odd jobs, earned $3.50 per hour.

In 1990 the plaintiff obtained a job doing landscape work for Wilkins Landscape Company. By 1992 he was earning $13,000 per year, or approximately the same salary as the defendant.

On May 7, 1991 the parties purchased a house and lot in Irvington, Breckinridge County, Kentucky for $3,000. The house was an old, two-bedroom farmhouse. Prior thereto they had resided in a mobile home.

During the short period of their occupancy of the marital residence the property was improved. The plaintiff debtor did much of the work involved in making the improvements. He installed a new roof, new vinyl flooring, and new drywall. The new roof cost between $1,700 and $2,000. They also purchased a new stove and new refrigerator. The money for the improvements was provided in the form of a $10,000 Christmas gift from the defendant’s mother.

The controversy in this matter involves a debt to Mid-West Federal Bank (successor in interest to First Indiana Bank) in the original amount of $6,700.00 which the parties incurred on January 27, 1993 for installation of siding on their home, which was secured by a mortgage, and which was the only encumbrance on the marital residence. The payments on this debt were $149.78 per month commencing in April 1993. From April 20, 1993 through January 25, 1994, the parties made ten payments on this debt before the defendant herein instituted marriage dissolution proceedings.

The parties separated on November 18, 1993. On January 26, 1994 Nancy L. Downs commenced a marriage dissolution proceeding in the Meade Circuit Court. The marriage was dissolved by decree of the Meade Circuit Court entered on April 21, 1994.

The Domestic Relations Commissioner’s report approved the Property Settlement Agreement entered into by the parties and found the agreement should be incorporated in the decree of the court. The decree of dissolution incorporated the Domestic Relations Commissioner’s report in its entirety. The decree also restored the maiden name of the debtor’s former spouse, to wit: Nancy Louise Beard, the defendant herein.

Pursuant to the terms of the Property Settlement Agreement the defendant former spouse was awarded the marital residence, the house and lot and improvements thereon. The personal property was divided as agreed by the parties.

With respect to the marital indebtedness of the parties the Property Settlement Agreement provides:

4. MARITAL INDEBTEDNESS: The parties shall assume and shall be awarded the following marital debts:

A. Petitioner: Kentucky Finance @ $187.02, on lawnmower/air conditioner; American General @ $174.60 on console television; First State Bank on Ranger Truck @ $10,576.00, Lucas Brothers Hardware @ $150.00 on washer; and Allstate Insurance @ $300.00 on 1993 Ford Ranger.

B. Respondent: Mid-West Federal @ $7,489.00 on siding and First State Bank @ $1,613.67 on 1988 Dodge Daytona. Respondent shall also reimburse Petitioner $293.70 for insurance paid on his vehicle which sum shall be paid within ninety (90) days or shall thereafter bear interest at the legal judgment rate until paid. In the event Respondent shall default in payment of any indebtedness herein assumed and awarded to him to pay, and in the event Respondent shall file for bankruptcy or other insolvency procedure, the Petitioner shall be awarded an amount equal to the unpaid balance of said indebtedness awarded Respondent in paragraph 4 hereinbefore with interest at the legal judgment rate thereon until paid in full as alimony and maintenance which shall be nondischargeable in bankruptcy.

5. MAINTENANCE: Other than as set forth in Paragraph 4 hereinabove, no other maintenance or alimony shall be awarded either party.

. . .

8. COST AND ATTORNEY’S FEES: The Respondent shall pay the court costs incurred in filing this divorce. The Respondent shall pay Petitioner’s attorney’s fees incurred in this matter in the amount of $350.00 which shall be considered as part of the indebtedness awarded Respondent in paragraph 4 hereinabove and shall also be nondischargeable in bankruptcy.

9. HOLD HARMLESS AND INDEMNITY: Each party agrees to hold the other party harmless from any indebtedness herein assume and awarded against him or her, and should any demand or claim be made upon the other for the payment of same, said party shall indemnify the other party for all costs and attorney’s fees incurred in defending or representing him or her in any said action.

 

It is stipulated by the parties that the amount of the debt to Mid-West Federal on siding at the time the Property Settlement was entered into was not $7,489.00 as set out in the agreement but rather was $5,875.30, which is the amount the debtor was obligated to pay under the Property Settlement Agreement.

From February 21, 1994 through February 24, 1995 the plaintiff debtor made regular and timely payments of $149.78 to the bank (for 13 months); he missed the payment due on March 22, 1995 but tendered it on April 3, 1995. Thereafter, he made an additional 24 payments either late or irregular (in timeliness and amount) through December 16, 1996. The plaintiff’s last payment on December 16, 1996 was in the amount of $50.00, bringing the outstanding balance of the loan down to $2,213.24. The loan payment history reflects that the plaintiff made a total of 37 payments.

According to the testimony of the defendant Nancy L. Beard, after she and the debtor separated she was required to make the payments to Kentucky Finance on a lawnmower and air conditioner, to American General Finance Company on a console television set, to First State Bank on a 1993 Ford Ranger truck, to Lucas Brothers Hardware on a washer, and to Allstate Insurance Company for insurance on the Ford Ranger.

In order to assist her in making these payments her mother increased the defendant Nancy L. Beard’s salary as Managing Editor of the newspaper to $26,000 per year. This increase in salary occurred in early 1994 at approximately the time the defendant herein commenced the marriage dissolution proceedings in the Meade Circuit Court.

The plaintiff debtor and his current wife, Alisa Downs, filed this chapter 7 bankruptcy case on February 18, 1997.

After the commencement of this bankruptcy proceeding, the defendant, Nancy L. Beard, made a payment of $1,729.01 on October 21, 1997 to Mid-West Federal on the debt for siding in order to bring the account current with the bank. The defendant thereafter made four payments of $149.78 for the November and December 1997 and January and February 1998 payments. She made a final payment on the account to the bank of $368.36 in April 1998. The parties have stipulated that the calculation of defendant’s damages is incorrect. The defendant’s damages are correctly calculated as $2,696.49.

In his testimony the debtor acknowledged he understood that under the terms of the Property Settlement Agreement he was to make the payments on the debt for siding and on the debt to First State Bank on the 1988 Dodge Daytona which was awarded to him.

After the parties separated the debtor lived in a hotel room and then an apartment with his present wife, the joint petitioner, Alisa Downs. The debtor and Alisa were married in 1995 and now have two small children, a son who was 15 months old and a daughter one-month old on the date of the filing of their joint bankruptcy petition on February 18, 1997.

At the time the debtor remarried he was still employed by Wilkins Landscape Company where he was earning approximately $15,000 per year. He is now employed full time by Hillenmeyer Nursery in Lexington. He earns $9.50 per hour. His take-home pay is $547 biweekly or approximately $1,094 per month. His gross salary is in excess of $15,000 per year.

The debtors now reside in Richmond, Kentucky in an apartment. Their rent is $425 per month. The wife does not work. They receive $280 monthly in food stamps.

The schedules to the debtors’ joint bankruptcy petition indicate the debtors intended to redeem the 1988 Dodge Daytona from the lien of American General Finance, but in his testimony the debtor stated the vehicle had been repossessed by American General.

The schedules to the joint petition indicate the debtors own a 1988 Ford Escort valued at $1,100 which has been set apart to them as exempt.

Obviously the debtors are barely getting by, but the circumstances of the debtor’s former spouse, the defendant herein, appear to have deteriorated as well.

In 1997 the defendant’s mother sold the newspaper for which defendant works. Defendant now works only 20 hours per week at $10.00 per hour. Her gross earnings are $200 per week or $10,400 per year, substantially less than the $13,000 per year and later $26,000 per year which she earned while her mother owned the newspaper.

The defendant Nancy L. Downs no longer owns the 1993 Ford Ranger awarded to her in the Property Settlement Agreement, on which she was making payments to First State Bank. She traded the Ranger in on a Ford Explorer on which her employer is making the payments. In a sense this is a perquisite in the nature of additional income.

Subsequent to the dissolution of the marriage the defendant’s father gave each of his children a tract of land. She received a 23-acre unimproved tract. She has not farmed the property. It is non-income producing.

With respect to the marriage dissolution proceeding the debtor contends the defendant did not ask for maintenance or alimony in the complaint. That is not accurate. The complaint asks that the Property Settlement Agreement be incorporated into the final decree dissolving the parties’ marriage. The Property Settlement Agreement contains the contested provision designating any unpaid portion of the debt for siding as a debt for maintenance and alimony.

The debtor testified he and his former spouse met with the lawyer at the Meade County Courthouse. The lawyer explained to them briefly the provisions of the Property Settlement Agreement.

The Property Settlement Agreement which the debtor signed recites:

WHEREAS, Petitioner and Respondent respectfully (sic) represent and warrant to each other, and each has carefully read and understands this entire Agreement, is fully cognizant of the terms hereof, has been fully advised of her or his rights and obligations in respect to all rights by this agreement, by counsel of her or his own selection, and has mutually agreed upon the terms hereof without any coercion, duress, or undue influence on the part of either of the parties hereto against the other party thereto….

The plaintiff debtor acknowledges he signed the Property Settlement Agreement. He testified he just wanted to sign the agreement and leave.

CONCLUSIONS OF LAW:

The facts of this case are distinguishable from those in the Chism and Sorah cases relied on by the debtor. In any event the decision in the Sorah case has been reversed by the court of appeals. In re Sorah, 163 F.3rd 397 (6th Cir. 1998).

In this case the parties agreed the debtor was obligated to continue making payments on the debt for siding, which was secured by a mortgage on the marital residence awarded to the defendant former spouse in the Property Settlement Agreement. They further agreed that if the debtor defaulted on the payments on the mortgage any amount remaining due on the debt would be transposed into a debt for alimony and maintenance and would be nondischargeable in bankruptcy. Clearly, from the outset, the parties intended this debt to be payable by the debtor as a debt for alimony and maintenance.

The hold harmless agreement in paragraph 9 of the Property Settlement Agreement, with respect to this debt, reinforces rather than undercuts the conclusion that it was the intention of the parties that the debt was to be a nondischargeable debt in the nature of alimony and maintenance. Thus, although in its Findings of Fact the court has memorialized the present circumstances of the parties, their relative financial condition is not grounds for disregarding the intent of the parties as evidenced by the provisions of the Property Settlement Agreement. The relative circumstances of the parties was weighed in In re Calhoun, 715 F.2d 1103 (6th Cir. 1993) because the Division of Property Agreement pursuant to which the debtor assumed certain marital debts and agreed to hold his former spouse harmless with respect thereto did not characterize his obligation to pay those debts as being an obligation in the nature of alimony or maintenance. Where the agreement designates payments as alimony or support, the "present needs test" cannot be invoked as grounds for holding such an obligation to be nondischargeable in bankruptcy. In re Fitzgerald, 9 F.3rd 517 (6th Cir. 1993).

At the time the agreement was made each of the parties had approximately the same income. The former spouse assumed greater proportion of the marital indebtedness than did the debtor. Although the Property Settlement Agreement fixes the debt to Mid-West Federal on siding incorrectly in an amount higher than the actual amount, the amount of the obligation which the defendant seeks to have declared nondischargeable is now only $2,696.49.

The court finds that this debt should be declared nondischargeable by the debtor in this bankruptcy case. The court also finds that pursuant to the terms of paragraph 9 of the Property Settlement Agreement the plaintiff debtor must pay the attorney fees of the defendant in an amount to be fixed by the court.

Neither the fact that subsequent to the commencement of the marriage dissolution proceeding the defendant’s mother doubled defendant’s salary to compensate for the loss of the debtor’s income nor the fact that defendant subsequently inherited a 23-acre tract of non-income producing farm land is relevant in determining the intent of the parties at the time they entered into the Property Settlement Agreement.

There was no testimony with respect to the transgressions of the debtor that precipitated the marriage dissolution proceedings, and the court agrees that whether the debtor was somehow at fault is not relevant and has not been considered by the court in reaching its conclusion that the debt in question is nondischargeable in bankruptcy.

The "present needs test" is not applicable in this case. Even if that test were applicable, requiring the plaintiff debtor to pay this debt of $2,696.49 plus interest and attorney fees is not unreasonable in light of the present comparative circumstances of the parties.

Dated:

By the court –

________________________________
JOE LEE, U.S. BANKRUPTCY JUDGE

Copies to:

Addison Parker, Esq.

W. Thomas Bunch, II, Esq.

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

 

IN RE:

WALTER KEVIN DOWNS CASE NO. 97-50341

ALISA DOWNS

DEBTORS

WALTER K. DOWNS PLAINTIFF

VS. ADVERSARY NO. 97-5057

NANCY L. BEARD DEFENDANT

 

ORDER

 

In conformity with the memorandum opinion of the court this day entered, IT IS ORDERED the plaintiff debtor’s complaint to have a debt in the amount of $2,696.49 owed to his former spouse, the defendant herein, declared to be dischargeable in bankruptcy is DENIED.

This is a final and appealable order.

Dated:

By the court –

________________________________
JOE LEE, U.S. BANKRUPTCY JUDGE

Copies to:

Addison Parker, Esq.

W. Thomas Bunch, II, Esq.