In re Jones

556 B.R. 219, 2016 Bankr. LEXIS 3077, 2016 WL 4447152
United States Bankruptcy Court, E.D. North Carolina·Decided August 22, 2016·No. CASE NO. 15-02044-5-SWH·Published·Cited by 5 cases

Opinion

ORDER DENYING MOTION TO CONFIRM STAY IS NOT IN EFFECT

Stephani W. Humrickhouse, United States Bankruptcy Judge

The matter before the court is the Motion to Confirm the Automatic Stay is Not in Effect, filed by Cheryl A. Jones (“Ms. Jones”). A hearing was held on July 13, 2016 in Wilmington, North Carolina, at the conclusion of which, the court took the matter under advisement pending additional briefing by the parties.

BACKGROUND

The debtor and Ms. Jones were formerly married, and are currently parties to a divorce proceeding in New Hanover County District Court in which a claim for equitable distribution was made. The parties were granted a divorce on November 22, 2013. On April 13, 2015, the debtor filed a petition under chapter 13 of the Bankruptcy Code, at which time, the equitable distribution claim remained pending. On June 15, 2015, the parties consented to modifying the automatic stay for the limited purpose of liquidating the property distribution claims in state court, but reserved enforcement and administration of such claims to the bankruptcy court. On July 23, 2015, the New Hanover County District Court entered an order on equitable distribution (“Equitable Distribution Order”), which, inter alia, awarded to Ms. Jones $63,736.00 of the debtor’s local government employee’s retirement (“LGER”) account and $116,182.00 of the debtor’s 401(k). Equitable Distribution Order, Jones v. Jones, File No. 13 CVD 3564, at 10-12 (New Hanover Co., N.C., July 23, 2015).

On the same day as the Equitable Distribution Order was entered, Ms. Jones filed a Motion for Relief from the Automatic Stay in this court seeking to modify the stay to allow her to enforce the Equitable Distribution Order against the debt- or’s LGER account and 401(k). Ms. Jones filed a Motion to Determine Domestic Support Obligations 'on November 25, 2015. On March 21, 2016, this court entered an Order Regarding Motion to Determine Nature of Debtor’s 401(k) and Retirement Account Obligations and Motion to Lift Stay (“Order Partially Lifting Stay”). In that order, this court held that the 401(k) obligation was a -property distribution and not a domestic support obligation, and thus was dischargeable, and that the debtor’s LGER account qualified as a domestic support obligation, and thus, pursuant to 11 U.S.C. § 523(a)(5),1 it was not dischargea-ble. The court modified the automatic stay [221] to allow Ms. Jones to enforce her rights in the debtor’s LGER account in light of the non-dischargeable nature of her claim, but denied relief from the stay as to her dis-chargeable claim against the debtor’s 40100.

On March 30, 2016, Ms. Jones filed a formal notice of appeal of the Order Partially Lifting Stay. On June 23, 2016, Ms. Jones filed the present motion seeking a determination that the stay was never in effect as to the 401(k). Ms. Jones argues that the 401(k) is excepted from application of the automatic stay pursuant to § 362(b)(2)(A)(iv), which provides that the automatic stay does not apply to an action or proceeding “for the dissolution of a marriage, except to the extent that such proceeding seeks to determine the division of property that is property of the estate.” § 362(b)(2)(A)(iv). Since the 401(k) is exempt property, and thus is not property of the bankruptcy estate, Ms. Jones contends that the stay does not apply. Ms. Jones’ logic entails two assumptions. First, equitable distribution is part and parcel to “the dissolution of a marriage,” and thus is excepted from the automatic stay. Second, the qualifier to this exception — that proceedings seeking to determine the division of property of the estate are not immune from the stay (put simply, the exception to the exception) — applies only to property of the estate. Under Ms. Jones’ view, since the statute specifies that the automatic stay is in place with respect to divisions of property of the estate, the converse must also be true: the automatic stay is not in place as to property that is not property of the estate.

The debtor raises three counter arguments. First, he argues that under § 362(b)(2)(A)(iv), “dissolution of a marriage” relates solely to the divorce itself, not the division of property. Second, he contends that Ms. Jones’ interpretation of § 362(b)(2)(A)(iv) that the stay is not in effect as to property that is not property of the estate is improper because it depends upon an unreasonable inference from the language of the statute. And finally, the debtor argues that Ms. Jones had multiple opportunities to assert that the stay is inapplicable, but failed to do so, and thus she waived this argument and is judicially and equitably estopped from attempting to raise it now.

DISCUSSION

The filing of a petition operates as a stay of most proceedings and actions against the debtor, his property, and property of the bankruptcy estate. 11 U.S.C. § 362(a). However, exceptions to the automatic stay are set out in 11 U.S.C. § 362(b). In pertinent part, § 362(b)(2)(A)(iv) provides that the automatic stay does not apply to a proceeding “for the dissolution of a marriage, except to the extent that such proceeding seeks to determine the division of property that is property of the estate.” § 362(b)(2)(A)(iv).

The court first turns to the meaning of “dissolution of a marriage.” Relying on North Carolina statutes, the debtor maintains that equitable distribution and divorce are not reliant upon one another, and in fact may be granted separately. The debtor cites to N.C. Gen. Stat. §§ 50-21, 50-6, 50-11 and 50-13, and highlights that the “dissolved/dissolution” language appears only in connection to absolute divorce. Further, the statutory procedures for equitable distribution only require that the parties be separated, not divorced. N.C. Gen. Stat. § 50-21. The court agrees with the debtor, and finds that “dissolution of a marriage” is separate relief from a division of property.

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In re Jones, 556 B.R. 219, 2016 Bankr. LEXIS 3077, 2016 WL 4447152 (N.C. 2016).

556 B.R. 219 (In re Jones) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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