The debtor’s ex-wife’s interest in the marital residence did not enter the bankruptcy estate even though the property was titled to the debtor, where their dissolution agreement gave her half interest and the debtor was prohibited from unilaterally disposing of the property. But the debtor’s ex-wife did not show that his failure to comply with the dissolution agreement generally, was an indication that he undertook the debts created by the agreement by fraud where the evidence did not support her contention that he never intended to comply. Williams v. Williams, No. 18-1197 (Bankr. D. Colo. Jan. 8, 2021).
In their dissolution agreement, the debtor and his ex-wife agreed that they would sell their marital residence and divide the proceeds equally, that Ms. Williams would receive $900/month of rental income from the property, and that the two would divide the debtor’s 401(k) account within thirty days of selling the property. Ms. Williams filed a notice of lis pendens with the county clerk representing her interest in the residential property.
The debtor did not comply with the dissolution agreement. As a result of his non-cooperation, the county district court awarded Ms. Williams an additional $24,800 to come out of the sale of the property prior to division of the remaining proceeds. Ms. Williams was also awarded $7,121.50 representing her share of the 401(k), and $4,500.00 representing the rental income she should have received. Finally, the court ordered that the debtor pay past-due child support and maintenance out of the proceeds from the sale of the residence. Instead of selling the property, however, the debtor moved back in, and the court assigned a broker to take over the sale. The debtor filed for bankruptcy.
The case went to trial in the bankruptcy court on three issues: 1. Ms. Williams’ ownership interest in the residence, 2. whether the judgments entered by the county court were nondischargeable, and 3. whether Ms. Williams violated the automatic stay with respect to return of domestic support payments the debtor made to the county.
Addressing the first issue, the court found Ms. Williams had an ownership interest in the residential property. Section 541(d) provides that estate property does not include property where the debtor holds title but only partial equitable interest, “to the extent of any equitable interest in such property that the debtor does not hold.” Here, Ms. Williams’ inchoate interest in the marital property while she and the debtor were married, became a vested interest after the dissolution and the court orders granting her $24,800 and half the proceeds from the sale. When she filed the lis pendens, her interest became “an encumbrance of record” preventing the debtor from unilaterally disposing of the property. “The anti-alienation powers coupled with Ms. Williams’s vested interest powers constitute an equitable interest in the Property that Debtor does not hold.” The court concluded that Ms. Williams’ interest in the property did not become part of the debtor’s bankruptcy estate.
The court turned to whether the other judgments by the county court were nondischargeable under section 523(a)(2)(A) because they were based on debts incurred by false representation, false pretenses, or fraud. To satisfy this provision, Ms. Williams had to establish that the debtor entered into the dissolution agreement with no intention of complying with its terms.
False representation, false pretenses and fraud, while contemplating different misleading conduct on the part of the debtor, all require that the debtor incur debts with no intention of repaying them, and that the creditor rely on the debtor’s misrepresentations. Here, the court found that the debtor’s initial cooperation with efforts to sell the property contradicted Ms. Williams’ argument that he lied when he agreed to that provision. Also, her contention that he lied about the particulars of his 401(k) failed in the face of his having given her a copy of the account statement prior to the dissolution. Nor would any dishonesty as to the amount of the 401(k) have detrimentally affected Ms. Williams as her share would be half in any case.
Ms. Williams additionally claimed that the debtor never intended to pay her the $900 in rental income as required by the dissolution. The court found this claim was effectively countered by the debtor’s evidence that because of payments to the management company and the mortgagee, there was no rental income to be passed along. The court found that, at worst, the debtor’s understanding of his obligation under the dissolution agreement may have been incorrect.
For these reasons, the court found the monetary judgments unrelated to the sale of the property were dischargeable.
In a counterclaim against Ms. Williams, the debtor argued that she violated the automatic stay by causing the County Child Support Enforcement System and Family Registry to refuse to return $4,359.72 in domestic support payments he had made. The court found that the record showed that the county, not Ms. Williams, controlled the payments and return of domestic support. The court therefore found in favor of Ms. Williams on the counterclaim.
The case is on debtor’s appeal to the BAP for 10th Cir., No. 21-2.
Williams Bankr D Colo Jan 2021
Tags: Property of Estate, automatic stay, dischargeability
