Archive for October, 2009

Enforcement of Child Support Arrears and Chapter 13 Bankruptcy

Sunday, October 25th, 2009
Support Magistrate determined that respondent willfully failed to pay $7,814.90 in child support arrears, and referred matter to Family Court for confirmation. Respondent’s commencement of Chapter 13 bankruptcy stays all actions and proceedings to collect pre-petition claims against debtor and his property. See, 11 USC § 362[a][1]. Although Family Court is precluded from exercising its enforcement powers pursuant to FCA § 454 to recover arrears while Chapter 13 bankruptcy plan is in effect, Family Court finds that it is not prohibited to confirm finding of willful violation already made by Support Magistrate and hold enforcement in abeyance pending completion of the Chapter 13 bankruptcy plan.
In the Matter of a Support Proceeding Marcia T., Petitioner,
v.
Raymond W., Respondent.
F-01769-08/08A
Family Court, Albany County
Decided on September 1, 2009
CITE TITLE AS: Matter of Marcia T. v Raymond W.
Marcia T., Matter of, v Raymond W., 2009 NY Slip Op 51883(U). Parent and Child-Support-Bankruptcy Proceedings Not Bar to Recovery of Arrears under Prior Determination of Support Magistrate. (Fam Ct, Albany County, Sept. 1, 2009, Maney, J.)
APPEARANCES OF COUNSEL
Bixby, Crable & Stiglmeier, PLLC (Carol Stiglmeier of counsel) for Marcia T.
Jeffrey S. Berkun, Esq. for Raymond W.
OPINION OF THE COURT
Gerard E. Maney, J.
By order dated January 14, 2009, the Support Magistrate determined that respondent Raymond W. willfully failed to obey an order of the Court pursuant to Family Court Act § 156 by failing to pay $7,814.90 in child support arrears. The matter was referred to this Judge for confirmation in accordance with Family Court Act § 439 (a).
Counsel for respondent maintains that because respondent filed for Chapter 13 Bankruptcy relief in November 2008, the confirmation hearing must be stayed. Counsel argues that the bankruptcy code contains an automatic stay provision that provides that the filing of a bankruptcy petition operates as a stay of actions or proceeding to recover a claim against the debtor that arose prior to the commencement of the case. Although certain exceptions to the automatic stay provisions exist, counsel argues that none apply in the instant family court proceeding.
The court agrees with counsel that the commencement of a case under Chapter 13 of the United States Bankruptcy Code stays all actions and proceedings to collect pre-petition claims *2 against the debtor and his property (11 USC §362 [a] [1]) or to obtain possession and control of property of the estate (11 USC §362 [a] [3]). The property of the estate, which is broadly defined, specifically includes “earnings” (11 USC §541 [a] [6]; §1306 [a];). Because payments to creditors must come from the debtor’s post-petition earnings, those earning are property of the Chapter 13 estate (11 USC §1306 [a] [2]). Thus, “[t]he claimant seeking to collect arrearages in support obligations is not free to pursue the Chapter 13 debtor’s post-petition earnings” (Margaret Howard, A Bankruptcy Primer for the Family Lawyer, Family Law Quarterly, Volume 31, Number 3, Fall 1997, at 380).
Although the court finds that it is precluded from exercising its enforcement powers pursuant to Family Court Act §454 to recover arrears while the Chapter 13 bankruptcy plan is in effect, it does not find that it is prohibited by the bankruptcy laws from confirming the finding of a willful violation already made by the Support Magistrate and holding its authority to enforce such finding in abeyance pending completion of the Chapter 13 bankruptcy plan.
It is this court’s understanding that petitioner has filed a claim in the bankruptcy proceeding for the support arrears and that such arrears will be payable under the bankruptcy plan. If the payment of arrears is not satisfied when the Chapter 13 bankruptcy plan is closed, petitioner may move to restore the matter to the family court calendar to have the court exercise its enforcement powers to compel the payment of arrears.
Accordingly, after examination and inquiry into the facts and circumstances of the case and after hearing the proofs and testimony offered in relation thereto and based on evidence that a lawful order of support was in effect and respondent had the ability to pay but willfully failed to do so, it is
ADJUDGED that Raymond W. failed to obey the order of this court for the support of his children , A. W. and S. W., and that such failure was willful;
ORDERED that the determination of the Support Magistrate pursuant to Family Court Act § 156 made herein that Raymond W. willfully failed to obey an order of the court is hereby confirmed; and it is further
ORDERED that if the payment of arrears as set forth in the Support Magistrate’s January 14, 2009 order is not satisfied when respondent’s Chapter 13 bankruptcy plan is closed, petitioner may move to restore the matter to the family court calendar to have the court exercise its enforcement powers pursuant to Family Court Act §454.

I have previously written about several different situations involving interaction between New York’s Family Law and bankruptcy.  The basics of divorce and bankruptcy were addressed in this post,  the issues related to the bankruptcy court’s handling of domestic support obligations were addressed in this post, and the issues related to attorneys fees and bankruptcy were addressed in this post.  Because of the complexity of the issues involved, New York courts continue to decide cases were the family law and bankruptcy law interact.  A recent case of Marcia T. v. Raymond W., 24 Misc.3d 1245(A) (Fam. Ct. Monroe Co. 2009), addressed whether Chapter 13 bankruptcy stay prevented recovery of child support arrears and a finding of willful failure to pay.

Respondent father filed for Chapter 13 Bankruptcy relief in November 2008.  Petitioner mother brought a willful violation petition based upon the father’s failure to pay several thousand dollars in child support arrears.  Support Magistrate determined that respondent willfully failed to pay $7,814.90 in child support arrears, and referred matter to Family Court for confirmation in accordance with Family Court Act § 439(a).  Respondent’s lawyer argued that because of Chapter 13 filing, the confirmation hearing must be stayed since automatic stay prevents recovery of any claims that arose prior to the commencement of the bankruptcy case.

The Family Court held that respondent’s commencement of Chapter 13 bankruptcy and resulting automatic stay stops all actions and proceedings to collect pre-petition claims against debtor and his property.   Because payments to creditors must come from the debtor’s post-petition earnings, those earning are property of the Chapter 13 estate, pursuant to 11 U.S.C. §1306 (a)(2).  Thus, the claimant seeking to collect arrearages in support obligations is not free to pursue the Chapter 13 debtor’s post-petition earnings.  It further held that although Family Court is precluded from exercising its enforcement powers pursuant to FCA §454 to recover arrears while Chapter 13 bankruptcy plan is in effect, Family Court found that it is not prohibited to confirm finding of willful violation already made by Support Magistrate and hold enforcement in abeyance pending completion of the Chapter 13 bankruptcy plan.

The court further noted that petitioner has filed a claim in the bankruptcy proceeding for the support arrears and that such arrears will be payable under the bankruptcy plan. If the payment of arrears is not satisfied when the Chapter 13 bankruptcy plan is closed, petitioner may move to restore the matter to the family court calendar to have the court exercise its enforcement powers to compel the payment of arrears.

The above is an excellent illustration of how a Chapter 13 bankruptcy can be utilized to prevent serious problems that a finding of willful violation may present.  Further, since the typical Chapter 13 plan lasts for 5 years, this allows the party paying child support to extend payment of child support arrears over 5 years.  A family law lawyer needs to be familiar with bankruptcy law issues since it is not uncommon for these areas of law to interplay.

Divorce, Equitable Distribution and Wasteful Dissipation

Sunday, October 18th, 2009
“Wasteful dissipation”
(i.e., DRL 236 (B)(5)(d)(11), hereinafter referred to as “Factor
11”) is a term of art that has never been defined with any real
precision, however. It can apparently consist of gambling and
poor business judgment, as well as other forms of economic
misconduct. Given the absence of appellate leadership in
establishing a reliable equation to which we practitioners can
refer, what may or may not constitute marital waste remains as
much a mystery as how that waste will ultimately affect equitable
distribution.
Until an ambitious Appellate Court commits itself to developing
a more reliable methodology for sniffing out marital waste, the
lower courts can be assured that the litigious will continue to
make a stink. Conclusion: Attorneys seeking to avoid being a
waste of marital funds themselves tend to mine any negative
impact on the marital estate that can be traced to the dubious
conduct of the other spouse. Hopeful that an adjustment to a
client’s equitable entitlement might be sparked by blaming the
other spouse for a decline in the overall value of the marital
estate, an unpredictable Factor 11 claim all too frequently becomes
an opportunity to leverage an outcome on a whim or whiff.Wife’s Inability to Testify with Specificity as to How She Spent the Proceeds of Loan Suggested She Dissipated Marital Assets in Contemplation of Divorce.
In Abrams v Abrams, — N.Y.S.2d —-, 2008 WL 5376644 (N.Y.A.D. 2 Dept.) the Appellate Division pointed out that “The overriding purpose of a maintenance award is to give the spouse economic independence, and it should be awarded for a duration that would provide the recipient with enough time to become self-supporting”. It held that the trial court properly awarded the former wife maintenance, but it improvidently exercised its discretion in extending the duration of the maintenance award beyond five years, and concluded that an award of $2,500 per month for five years was appropriate. It also found that the former husband correctly contended that he was entitled to a portion of the proceeds of a home equity loan that the wife obtained with respect to certain investment residential property, especially in light of the wife’s inability to testify with specificity as to how she spent the proceeds of that loan. This suggested that the wife dissipated these marital assets in contemplation of divorce. The judgment was modified to award the husband a credit which represented his share of the proceeds of that loan, after accounting for the taxes paid by the wife on both the marital residence and the investment residential property. It noted that a parent has no legal obligation to provide for or contribute to the support of a child over the age of 21 Therefore, the court erred

One issue that tends to come up in divorce case is wasteful dissipation.  While I mentioned it in the past, this post will address it in greater detail.

Wasteful dissipation is one of the statutory factors that must be considered by a trial court upon rendering a determination of the equitable distribution of marital assets as set forth in Domestic Relations Law §236(B)(5)(d):

(1) the income and property of each party at the time of marriage, and at the time of the commencement of the action; (2) the duration of the marriage and the age and health of both parties; (3) the need of a custodial parent to occupy or own the marital residence and to use or own its household effects; (4) the loss of inheritance and pension rights upon dissolution of the marriage as of the date of issolutio;(5) any award of maintenance under subdivision six of this part; (6) any equitable claim to, interest in, or direct or indirect contribution made to the acquisition of such marital property by the party not having title, including joint efforts or expenditures and contributions and services as a spouse, parent, wage earner and homemaker, and to the career or career potential of the other party; (7) the liquid or non-liquid character of all marital property; (8) the probable future financial circumstances of each party; (9) the impossibility or difficulty of evaluating any component asset or any interest in a business, corporation or profession, and the economic desirability of retaining such asset or interest intact and free from any claim or interference by the other party; (10) the tax consequences to each party; (11) the wasteful dissipation of assets by either spouse; (12) any transfer or encumbrance made in contemplation of a matrimonial action without fair consideration; (13) any other factor which the court shall expressly find to be just and proper.

“Wasteful dissipation” is a term commonly used to describe a spouse’s unnecessary or unjustified use of marital money to justify a disproportionate equitable distribution. What makes wasteful dissipation problematic from a lawyer’s point of view is that its definition is vague and imprecise.  It can consist of gambling and poor business judgment, as well as other forms of financial or economic misconduct.  While the appellate courts have not given a precise definition of what actions by a spouse fall within the scope of wasteful dissipation, the trial courts and divorce attorneys deal with this issue frequently.  This also provides a significant opportunity for prolonging divorce litigation.  At times, a party will look for situations where any negative impact on the marital estate can be traced to the imperfect conduct of the other spouse.  Divorce lawyers may seek to improve their clients’ equitable distribution award may blame the other spouse for a decline in the overall value of the marital estate.

With respect to a business, wasteful dissipation may occur if a party fails to recoup a value from an unsuccessful business or “it necessarily is a wasteful dissipation of assets to fail to recoup the value of a profitable business, such as plaintiff’s masonry business. “ Scala v. Scala, 59 A.D.3d 1042 (4th Dept. 2009).  Failure to take care or repair a marital property also may amount to a wasteful dissipation.

In a recent decision, Abrams v. Abrams, 57 A.D.3d 809 (2nd Dept. 2008), the Appellate Division held that the wife’s inability to testify with specificity as to how she spent the proceeds of loan suggested she dissipated marital assets in contemplation of divorce. The Appellate Division pointed out that “the former husband correctly contended that he was entitled to a portion of the proceeds of a home equity loan that the wife obtained with respect to certain investment residential property, especially in light of the wife’s inability to testify with specificity as to how she spent the proceeds of that loan. This suggested that the wife dissipated these marital assets in contemplation of divorce. The judgment was modified to award the husband a credit which represented his share of the proceeds of that loan, after accounting for the taxes paid by the wife on both the marital residence and the investment residential property.”

A party’s use of marital assets to pay for “basic living expenses” does not constitute wasteful dissipation.  Damas v. Damas, 51 A.D.3d 709 (2nd Dept. 2008).

If a party makes financial decisions and acts in such way that the marital estate is diminished, that party should be ready to provide a legitimate explanation for his or her actions. The client is well advised to make a full disclosure of all such activities to the divorce lawyer and to provide a detailed explanation for the course of action taken.

Division of Pension, Personal Injury Compensation and Separate Property

Sunday, October 11th, 2009
The court effectively delegates to a pension plan administrator the obligation to apportion a disability pension plan between the separate property component of compensation for injury and the marital property portion related to deferred compensation for past services.
2. The court holds that the economic loss component (compensation for lost wages) of an award from the 9-11 Victim Compensation Fund is separate property just as is the non-economic loss component for pain and suffering.

A recent decision of the Appellate Division, Second Department, Howe v. Howe, 2009 N.Y. Slip Op. 06804 (2nd Dept. 2009), addressed some of the issues dealing with equitable distribution of personal injury compensation.  Mr. Howe was a New York City firefighter who was injured as a result of the events of 9/11 and subsequently retired on a disability pension.  As a result of his injuries, he also received September 11th Victim Compensation Award.

The trial court found the entire pension to be a part of the marital estate and awarded the wife “her Majauskas” share. On appeal, the husband argued that the lack of expert testimony or evidence in the record by which the nondisability portion of the pension can be distinguished from the disability portion is not fatal to his separate property claim, since that distinction can be made by the pension administrator in the same manner as it makes the familiar calculation of the marital pension share under Majauskas.

The manner in which disability pensions are treated for equitable distribution purposes is well established. “[P]ension benefits or vested rights to those benefits, except to the extent that they are earned or acquired before marriage or after [the] commencement of a matrimonial action, constitute marital property”. Dolan v. Dolan, 78 NY2d 463, 466 (1991). However, “[t]o the extent that a disability pension constitutes compensation for personal injuries, that compensation is separate property’ which is not subject to equitable distribution”. Mylett v. Mylett, 163 A.D.2d 463, 464-465  (3rd Dept. 1990). According to the Second Department, the division, into two separate post-marital accounts, of what was the nondisability pension of one spouse during the marriage, is accomplished by the plan administrator, without the intervention of the court, pursuant to a qualified domestic relations order, consistent with Majauskas, which the administrator either prepares or, more frequently, approves. For that order to satisfy the relevant requirement of the Internal Revenue Code, it need only specify “the amount or percentage of the participant’s benefits to be paid by the plan to each such alternate payee, or the manner in which such amount or percentage is to be determined” (26 U.S.C. § 414[p][2][B] [emphasis supplied]).

In addition to his disability pension, the plaintiff received an award from the September 11th Victim Compensation Fund as a result of injuries he suffered. The administrator of that fund specifically designated a portion of that award, in the amount of $127,571, as compensation for economic loss. The Supreme Court held that the economic component of the award constitutes “compensation for personal injuries” within the meaning of Domestic Relations Law § 236(B)(1)(d)(2) and, on that basis, treated the award as the separate property of the plaintiff.

According to the Second Department, the phrase “compensation for personal injuries,” however, is not without ambiguity. It can be read equally clearly as encompassing the entire award in a personal injury action or as limiting the marital share of that award to the portion constituting compensation for the actual injuries, i.e., the pain and suffering component. While a definition of the term separate property as “any recovery in a personal injury action” would be clear, that is not the phrase the Legislature used and viewing the phrase “compensation for personal injuries” as including the economic component of a personal injury award and, therefore, the separate property of the injured spouse is, according to the court, was clearly inconsistent with the logic of the Equitable Distribution Law. While the logic of the Equitable Distribution Law thus suggests the conclusion that the economic portion of a personal injury award should be marital property, however, according to the Second Department, the legislative history compels the contrary result.

This particular finding that the compensation for economic loss is separate property of the party is very significant.  It is also likely to create a new set of issues that lawyers in the Fourth, Third, and First Appellate Divisions will have to address since the existing precedent in those departments runs contrary to this decision.  Because of the apparent conflict between the departments, this issue is also likely to be appealed to the Court of Appeals.

Joint Bank Accounts and Creation of Marital Property

Sunday, October 4th, 2009

One issue that often comes up in divorce cases has to do with transformation of separate property into marital property.  This situation was dealt with by the Appellate Division, Fourth Department, in Bailey v. Bailey, 48 AD3d 1123 (4th Dept. 2008).  In Bailey, the Appellate Division held that although the court properly determined that plaintiff was entitled to retain the amount of $43,000 she had removed from the parties’ joint HSBC checking accounts containing $66,000, the court erred in allocating the entire amount as separate property.  ”The creation of a joint account vests in each tenant a present unconditional property interest in an undivided one half of the money deposited, regardless of who puts the funds on deposit.  The creation of a joint account vests in each tenant a present unconditional property interest in an undivided one half of the money deposited, regardless of who puts the funds on deposit” (Parry v. Parry, 93 A.D.2d 989, 990; see Nasca v. Nasca, 302 A.D.2d 906).  Therefore, each party was entitled to a distributive award of $33,000 from that account.

The issue of transmutation, as the process of changing the status of property from separate to marital is commonly referred to, may appear in many cases and under many different circumstances.  It is not uncommon for such separate property as gifts, inheritances, and personal injury award to lose their status as separate property.  Therefore, if a party has even a suspicion that there may be a divorce in foreseeable future, that party would do well to discuss these issues with a divorce lawyer and to keep that property in an account titled solely in that party’s name.  The alternative is if that property is placed in a joint account for reasons other that convenience, as defined by the courts, that party will likely be making a gift of one half of the property if divorce is commenced.  Any such issues should be discussed with an experienced family law lawyer.  Once transmutation takes place, it is highly unlikely that you would be able to change the property’s status back to separate property, even with a lawyer’s assistance.