Cleda D. Bush v. Alvin G. Taylor and Barbara F. Taylor

893 F.2d 962, 11 Employee Benefits Cas. (BNA) 2566, 22 Collier Bankr. Cas. 2d 218, 1990 U.S. App. LEXIS 321, 20 Bankr. Ct. Dec. (CRR) 120, 1990 WL 1177
CourtCourt of Appeals for the Eighth Circuit
DecidedJanuary 11, 1990
Docket88-2145
StatusPublished
Cited by14 cases

This text of 893 F.2d 962 (Cleda D. Bush v. Alvin G. Taylor and Barbara F. Taylor) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eighth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Cleda D. Bush v. Alvin G. Taylor and Barbara F. Taylor, 893 F.2d 962, 11 Employee Benefits Cas. (BNA) 2566, 22 Collier Bankr. Cas. 2d 218, 1990 U.S. App. LEXIS 321, 20 Bankr. Ct. Dec. (CRR) 120, 1990 WL 1177 (8th Cir. 1990).

Opinions

ARNOLD, Circuit Judge.

The issue in this case is whether Alvin G. Taylor, a debtor under Chapter 7 of the Bankruptcy Code, is entitled to a discharge of his ongoing obligation under a state-court divorce decree to remit to his former wife one-half of the payments he receives under a pension plan. The Bankruptcy Court denied the discharge, on the grounds that the prospective obligation to turn over a percentage of the pension payments was not a “debt” subject to discharge, and, in any event, Taylor held his ex-wife’s portion of the pension only as a constructive trustee. The District Court affirmed. We believe that the obligation to remit a portion of pension payments falls within the broad and flexible definition of debt under the Code. In this case, the obligation arises from a property settlement, a species of debt Congress has not chosen to except from discharge. We also believe that no constructive trust arose in this case. Accordingly, we reverse the judgment of the District Court.

I.

Taylor and appellee Cleda D. Bush were divorced in Pierce County, Washington, upon entry of a decree of dissolution of marriage in 1975. Bush was awarded, as her “sole and separate property,” one-half of Taylor’s benefits under an employment pension plan.

The parties returned to court when Taylor failed to send Bush her share of the monthly pension payments as he received them. On July 8, 1982, an agreed judgment and order, along with a covenant not to execute on the judgment, were entered in the Superior Court of Pierce County, Washington. Under the order, Taylor was to pay Bush one-half of the $16,412.52 in benefits he had retained through June 30, [964]*9641982. The order also modified Taylor’s obligation to remit to Bush one-half of the pension benefits; Taylor was ordered to pay $500.00 monthly and one-half of all subsequent increases in the amount of monthly pension benefits he received for the rest of his life.

In the accompanying covenant not to execute, Bush agreed not to execute on the July 8 judgment if Taylor paid her $8,500.00 immediately, made the $500.00 monthly payments, and remitted one-half of all future increases in pension benefits. The covenant not to execute also provided that if Taylor were more than twenty days late in making any of his payments under the agreement, the covenant would automatically terminate, and Bush could employ any legal means necessary to collect the full amount of the agreed judgment and order.

On May 29, 1987, Taylor and his wife, Barbara Taylor, filed the instant Chapter 7 bankruptcy petition. They listed among their debts Bush’s claim to half of the pension benefits. Bush submitted a proof of claim based on her right to a share of the pension benefits, and filed an objection to discharge of this obligation. Following a hearing on the objection, the Bankruptcy Court ruled that Bush was entitled to one-half of all future pension benefits as her separate property. The Court found that the covenant not to execute automatically terminated when (right before filing for bankruptcy) Taylor missed a payment by more than twenty days, so that Bush’s right to her separate property under the dissolution decree was reinstated. It would be an inequitable result to Bush and unjust enrichment to Taylor, the Court concluded, to allow Taylor to reclaim property that belonged solely to Bush.

The Court rejected Bush’s claim to that amount which became overdue between entry of the agreed judgment and the date of the bankruptcy petition. The Court reasoned that this overdue amount constituted a debt for property settlement, which was dischargeable in the Chapter 7 proceedings.

On appeal, the District Court affirmed the judgment of the lower court. Relying on In re Teichman, 774 F.2d 1395 (9th Cir.1985), the Court explained that the payments which had not yet become due and payable to Bush at the time of the petition did not represent debts dischargeable under the Code. See 11 U.S.C. § 727(b) (discharge covers debts arising before order for relief); see also Teichman, 774 F.2d at 1397-98. Additionally, the District Court concluded that Taylor had been placed in a fiduciary position by the Washington divorce court, and later by his own agreement, so that he merely held the pension payments for Bush’s benefit, as a constructive trustee. Finally, the Court stated that, without regard to the Taylors’ needs, it would be inequitable for Bush to be deprived of her “sole and separate property” in the bankruptcy proceedings. This appeal followed.

II.

Courts have not been receptive to attempts by a former spouse to retrieve in bankruptcy an interest in pension payments that has been awarded to an ex-spouse upon divorce.1 Some courts hold that the debtor’s obligation to turn over a share of pension payments does not become a “debt” until the debtor receives each disbursement from the pension fund; therefore, payments to be made to the non-debtor ex-spouse after the filing of the bankruptcy case are postpetition debts, not subject to discharge. See In re Chandler, 805 F.2d 555, 557 (5th Cir.1986), cert. denied, 481 U.S. 1049, 107 S.Ct. 2180, 95 L.Ed.2d 837 (1987); Teichman, 774 F.2d at 1397-98 (because ex-husband was under no obligation to pay former wife until Air Force paid him, debt did not arise until the [965]*965payment was due); In re McNierney, 97 B.R. 648, 651 (Bankr.S.D. Fla.1989). The opinions of the Bankruptcy Court and District Court in this case reflect this view.

A related approach posits that, if there is a “debt,” it rests upon the military or employer pension fund, not the debtor, and hence may not be discharged in the debt- or’s Chapter 7 case. See In re Hall, 51 B.R. 1002, 1003 (S.D.Ga.1985) (although former wife held “claim” for pension benefits, liability for claim rested on Army, which made direct payments, not ex-husband); In re Manners, 62 B.R. 656, 658 (Bankr.D.Mont.1986) (United States, not debtor, liable for pension payments); see also In re Mace, 82 B.R. 864, 868 (Bankr.S. D.Ohio 1987) (ex-husband was merely “conduit” for payments due to former wife from share of pension fund that belonged to her); In re Thomas, 47 B.R. 27, 33 (Bankr.S.D.Cal.1984) (court had no power to modify ex-wife’s interest in her separate property).

Finally, there is some support for the view that an ex-spouse holds pension payments in trust for the spouse to whom a share of such benefits has been awarded. See Teichman, 774 F.2d at 1400 (Fletcher, J., dissenting) (ex-husband invested with control over benefits belonging to wife was responsible for transferring them to ex-wife under divorce decree, so that a trust was created); cf. In re Dahlin, 94 B.R. 79, 81 (Bankr.E.D.Va.1988) (where divorce decree created express trust in favor of wife, debtor-husband bound to remit payments). We turn now to consideration of these arguments against discharge of an obligation to share pension payments.

A.

First, we do not believe these cases provide sufficient reason to treat Taylor’s ongoing obligation as something other than a debt for property settlement, the payment of which is not yet due.

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Bluebook (online)
893 F.2d 962, 11 Employee Benefits Cas. (BNA) 2566, 22 Collier Bankr. Cas. 2d 218, 1990 U.S. App. LEXIS 321, 20 Bankr. Ct. Dec. (CRR) 120, 1990 WL 1177, Counsel Stack Legal Research, https://law.counselstack.com/opinion/cleda-d-bush-v-alvin-g-taylor-and-barbara-f-taylor-ca8-1990.