Klinger v. Hosler (In Re Hosler)

309 B.R. 540, 2004 Bankr. LEXIS 654, 2004 WL 1091782
CourtUnited States Bankruptcy Court, C.D. Illinois
DecidedMay 17, 2004
Docket19-08020
StatusPublished
Cited by2 cases

This text of 309 B.R. 540 (Klinger v. Hosler (In Re Hosler)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, C.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Klinger v. Hosler (In Re Hosler), 309 B.R. 540, 2004 Bankr. LEXIS 654, 2004 WL 1091782 (Ill. 2004).

Opinion

OPINION

LARRY L. LESSEN, Bankruptcy Judge.

This matter came before the Court for trial on March 5, 2004, on Plaintiffs two-count adversary complaint. At the conclusion of the trial, the matter was taken under advisement by the Court. The parties have since submitted their post-trial memoranda.

Plaintiff is the former wife of the Debt- or. The parties were divorced in Macon County, Illinois pursuant to a Judgment of *544 Dissolution of Marriage entered on July 7, 2003.

On September 24, 2003, Debtor filed his voluntary petition under Chapter 7 of the Bankruptcy Code. On December 5, 2003, Plaintiff filed her two-count adversary complaint. In Count I, Plaintiff seeks the denial of Debtor’s discharge in bankruptcy. Plaintiff contends that the Debtor transferred, removed, and/or concealed property within the year before the date of the filing of the petition, as prohibited by Section 727(a)(2)(A) of the Bankruptcy Code. Plaintiff further contends that the Debtor concealed, destroyed, or failed to keep or preserve records from which his financial condition and business transactions might be ascertained, as prohibited by Section 727(a)(3) of the Bankruptcy Code. Finally, Plaintiff contends that Debtor knowingly and fraudulently made false oaths or accounts in connection with his bankruptcy, as prohibited by Section 727(a)(4)(A) of the Bankruptcy Code.

In Count II, Plaintiff seeks a finding that Debtor’s obligation to pay her attorneys fees incurred during the parties’ divorce proceeding is nondischargeable maintenance and/or support pursuant to Section 523(a)(5) of the Bankruptcy Code. Plaintiff also contends that an obligation for Debtor to pay Plaintiff a certain sum of money arising from the Judgment of Dissolution of Marriage is a nondischargeable debt under Section 523(a)(4) of the Bankruptcy Code.

A fairly extensive dissertation of background is required to understand this case. Debtor formerly worked as an electrician for A.E. Staley Manufacturing Co. (“Sta-ley”) in Decatur, Illinois. Shortly after retiring from Staley, he was asked to return as an independent contractor at the Staley plant in Decatur. Debtor and Plaintiff formed a SubChapter S corporation known as Midwest Instrumentation/Electrical Services, Inc. (“MIES”). Although the corporation issued no shares of stock, Debtor’s and Plaintiffs income tax returns for the relevant years indicate that Debtor and Plaintiff each owned one-half of MIES. The business purpose of MIES was to supply labor to Staley. MIES paid the labor an hourly wage and, in turn, Staley reimbursed MIES for the labor costs and, in addition, paid MIES a 20% premium.

Prior to the separation of the parties on or about March 1, 2001, all of the financial matters of MIES were handled by Plaintiff. All of the corporate and financial records of MIES were kept by Plaintiff in the former marital residence of the parties. Immediately after the marital separation, Plaintiff obtained an Order of Protection through the Circuit Court of the Sixth Judicial Circuit, Macon County, Illinois against the Debtor. The Order of Protection, inter alia, prohibited any communication between the Plaintiff and the Debtor and gave the Plaintiff the exclusive use and possession of the former marital residence and the exclusive possession of all of the business and financial records of MIES.

Prior to the parties’ separation, Debtor did not pay himself a salary, although he did take money out of the business to pay his personal expenses. After the parties separated, Debtor began paying himself a salary and continued to do so until MIES was closed.

Plaintiff had three children, none of which was a natural child of the Debtor. The oldest was aged four at the time the Plaintiff and Debtor were married. Shortly after the separation of Plaintiff and Debtor, the oldest child of Plaintiff — • Seth — began attending St. Louis University. During some of the school vacations, Seth resided with the Debtor. The Debtor made many contributions for Seth’s tu *545 ition, room, board, clothing, transportation, and living expenses, both at school and while he stayed in the residence of the Debtor. In addition to the foregoing, the Debtor purchased a computer for Seth for use in conjunction with his college education. On many occasions, the Debtor gave Seth cash to pay for his personal and educational expenses and made purchases with cash and credit cards for the benefit of Seth.

The middle child of Plaintiff — Shawn— moved in with the Debtor approximately two weeks after the Debtor and Plaintiff separated. With the exception of periods of time when Shawn lived in university housing, he continuously resided with the Debtor and was supported by the Debtor after the Debtor and Plaintiff separated. At the time Shawn moved in with the Debtor, he was in high school. Debtor provided all of Shawn’s living expenses and paid his tuition at the private high school Shawn attended. After graduated from high school, Shawn has attended Millikin University. Debtor has contributed funds for room, board, tuition, books, expenses, clothing, and has also bought a computer for Shawn’s use in college. Substantial portions of the money paid for Shawn’s living and educational expenses were paid in cash and many personal and educational expenses for the benefit of Shawn were paid for by the Debtor with cash and with credit cards.

A Judgment of Dissolution of Marriage was entered on July 7, 2003. The Judgment provides in part as follows:

A.Plaintiff was to receive one-half of the net value of MIES as of May 8, 2003. Net value was to be determined by subtracting the liabilities from the assets; nothing was to be paid to Plaintiff for goodwill or the fact that MIES was a going concern.
B. Plaintiff waived any right to maintenance from the Debtor.
C. Debtor was to pay $10,000 toward Plaintiffs attorneys fees.
D. MIES was awarded solely to the Debtor.

After the entry of the Judgment of Dissolution of Marriage, Debtor decided to file a petition in bankruptcy. Debtor testified that he had reached the age of 68 years, he had retired and was receiving pension and social security income, his worsening arthritis was making it more difficult to work, and he felt pressured by the burdens of his personal and business obligations.

Debtor also decided to close MIES and he did so in September, 2003. Debtor transferred to his bookkeeper, Lois Lindsey, the sum of $8,000 for the purpose of paying accrued but unpaid wages of the employees of MIES. Debtor testified that he transferred the money to Ms. Lindsey because he did not want to leave the money in the account of MIES. He was afraid that if he issued checks on that account, the account might be garnished and the employees would not be paid.

Debtor did not sell MIES to Ms. Lindsey. Rather, Ms. Lindsey started a business under the name of B & L Electric and has continued providing services to Staley of the same nature as were provided by MIES. Debtor testified that he did not believe that MIES had any value over and above its assets since it was simply a service provider.

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Cite This Page — Counsel Stack

Bluebook (online)
309 B.R. 540, 2004 Bankr. LEXIS 654, 2004 WL 1091782, Counsel Stack Legal Research, https://law.counselstack.com/opinion/klinger-v-hosler-in-re-hosler-ilcb-2004.