COURT OF APPEALS OF VIRGINIA
Present: Chief Judge Fitzpatrick, Judges Elder and Bray
Argued at Chesapeake, Virginia
JOHN EDWARD BROGAN
OPINION BY
v. Record No. 1478-99-1 JUDGE LARRY G. ELDER
MARCH 14, 2000
RUTH ANN CORNETTA BROGAN
FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH
Robert B. Cromwell, Jr., Judge
Steven P. Letourneau (Fine, Fine, Legum &
Fine, on brief), for appellant.
Kenneth A. Moreno (Louis W. Kershner &
Associates, P.C., on brief), for appellee.
John Edward Brogan (husband) appeals from an order of the
Virginia Beach Circuit Court (trial court) holding that his
obligation to pay Ruth Ann Cornetta Brogan (wife) a portion of
his federal civil service retirement pension, which obligation
was imposed by the parties' final decree of divorce, was not
dischargeable in bankruptcy. On appeal, husband contends the
trial court lacked subject matter jurisdiction to adjudicate the
dischargeability of this obligation because exclusive original
jurisdiction rested in the bankruptcy court. 1 We hold the trial
court had concurrent jurisdiction to review the nature and
1
In his statement of questions to be presented, husband, an
out-of-state resident, also raised the issue of whether the
trial court properly obtained personal jurisdiction over him.
Husband has since withdrawn his appeal on this issue.
dischargeability of husband's equitable distribution obligation
to wife, and we affirm the trial court's judgment.
I.
FACTS
The parties were divorced by final decree entered in the
trial court on May 18, 1990. The divorce decree "affirmed,
ratified and incorporated" the parties' written stipulation
agreement, which provided in relevant part as follows:
7. SPOUSAL SUPPORT
The parties hereto waive any
present or future right to receive any
support or maintenance from the other.
8. RETIREMENT BENEFITS 2
The parties agree that Husband is
presently entitled to federal civil service
retirement funds. . . . [T]he Wife's share
of the retirement fund shall be determined
to be one-half of the gross retirement and
shall be paid direct[ly] to Wife.
(Footnote added).
On July 2, 1990, husband filed for Chapter 7 bankruptcy
protection. On his schedule of income and expenditures, he
listed as an expenditure a property settlement payment to wife
in the amount of $400 per month. He listed as his only monthly
2
Husband represents that, although the property settlement
agreement refers to his federal civil service retirement
benefits, the only funds he received were disability benefits.
On appeal, he poses no objection to the court's application of
the terms of the property settlement agreement to his alleged
disability benefits.
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income $698 in civil service disability. Wife received notice
of the bankruptcy filing listing her as a creditor, and she
posed no formal objection. Husband received a discharge on
October 4, 1990. Included in the discharge was the $400 monthly
obligation owed to wife under the property settlement agreement.
On March 19, 1999, wife filed a petition for an order to
show cause in which she alleged husband stopped paying his gross
federal retirement pay to her shortly after entry of the final
decree. Husband contended this obligation was a debt that had
been discharged in his 1990 bankruptcy and that the trial court
lacked subject matter jurisdiction to review the discharge. The
trial court entered orders denying husband's motion to dismiss
and entering judgment for wife in the amount of the claimed
arrearage. The order provided that husband's obligation to pay
one-half of his disability to wife, as provided in the final
decree, "is not affected by his personal bankruptcy in that the
obligation is not a debt that is subject to discharge, but
rather a division of marital property." The court also found
husband in contempt for failing to pay in accordance with the
decree.
II.
ANALYSIS
Husband challenges the jurisdiction of the trial court to
consider the dischargeability in bankruptcy of his property
settlement obligation to wife under the court's 1990 decree of
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divorce. 3 Although conceding that state courts have concurrent
jurisdiction with bankruptcy courts to determine many questions
of dischargeability, including those involving spousal and child
support, 4 he contends that the applicable statutes and rules
provide bankruptcy courts with exclusive jurisdiction over the
dischargeability of debts arising out of property settlement
agreements and equitable distribution awards. Wife contends,
and the trial court found, that the obligation was not a debt at
all and, therefore, was not subject to discharge. Under the
facts of this case, we agree that the obligation was not a debt
and affirm the ruling of the trial court. 5
3
Husband filed for bankruptcy in July 1990 and received his
discharge in October 1990. Unless otherwise noted, all
citations to the United States Code are to the version
applicable to husband's bankruptcy and these related
proceedings. Some of the federal bankruptcy statutes cited
herein have undergone substantive amendment since husband's
bankruptcy. However, as to all parts of those statutes relevant
to this appeal, Congress specifically provided that the
amendments do not apply to "cases commenced under [the
bankruptcy code]" before enactment of the amendments. See
Criminal Victims Protection Act of 1990, Pub. L. No. 101-581,
§ 4, 104 Stat. 2865, 2865-66 (enacted November 15, 1990); Crime
Control Act of 1990, Pub. L. No. 101-647, § 3104, 104 Stat.
4789, 4916 (enacted November 29, 1990); Bankruptcy Reform Act of
1994, Pub. L. No. 103-394, § 702, 108 Stat. 4106, 4150.
4
Wife characterizes the payments at issue as part of the
property settlement; she does not contend that they were
non-dischargeable support payments. See 11 U.S.C. § 523(a)(5)
(1988).
5
The trial court provided in its order that husband's
obligation to pay wife half his monthly retirement/disability
benefits was "not a debt that is subject to discharge [in
bankruptcy], but rather a division of marital property." We
note that whether an obligation is a division of marital
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In order for a financial obligation to be dischargeable
under federal bankruptcy law, the obligation must be a debt as
defined in the bankruptcy code. See 11 U.S.C. § 101(4), (11)
(1988) (currently codified without substantive amendment at 11
U.S.C. § 101(5), (12) (1994)). A debt which first arises after
the filing of the petition for discharge in bankruptcy is not
affected by the discharge. See id.; 11 U.S.C. § 727(b) (1988)
(codified without amendment at 11 U.S.C. § 727(b) (1994)); LTV
Steel Co. v. Shalala, 53 F.3d 478, 497 (2d Cir. 1995). A debt
which arose pre-petition is dischargeable unless it falls within
one of the statutory exceptions to discharge listed in the
property, standing alone, is not dispositive of whether it is a
debt subject to bankruptcy discharge.
Prior to the 1994 amendments to the bankruptcy code,
spousal and child support obligations were the only marital
debts not dischargeable in bankruptcy. See Stone v. Stone, 199
B.R. 753, 758 (Bankr. N.D. Ala. 1996); In re Smither, 194 B.R.
102, 105 (Bankr. W.D. Ky. 1996) (noting that "[f]or over 150
years, under various Bankruptcy Acts, the dischargeability of
debts arising from a divorce, dissolution or separation
agreement . . . has been based on whether [the debt] was in the
nature of alimony or support or was a division of property").
When Congress enacted 11 U.S.C. § 523(a)(15) to take effect in
1994, "[i]ts decision was based in part on a determination that
during divorce negotiations, a divorcing/separating spouse may
agree to [(1)] pay marital debts and hold the other spouse
harmless for such debts or [(2)] increase the amount of the
property settlement in exchange for a reduction in alimony."
See Stone, 199 B.R. at 758 (emphasis added) (footnote omitted).
Congress acted to remedy what it perceived as an unfairness in
allowing a spouse declaring bankruptcy to discharge sums other
than alimony owed the other spouse under a property settlement
agreement.
Plainly, therefore, a financial obligation is not precluded
from being a debt subject to bankruptcy discharge simply because
it constitutes a division of marital property.
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applicable version of 11 U.S.C. § 523(a). See 11 U.S.C.
§ 101(4), (11) (1988); 11 U.S.C. § 523(a) (1988); 11 U.S.C.
§ 727(b) (1988); LTV Steel Co., 53 F.3d at 497.
State courts have concurrent jurisdiction with bankruptcy
courts to determine whether an obligation was a debt under the
bankruptcy code and, if so, whether it arose pre- or
post-petition. See Granados v. Granados, 214 B.R. 241, 243-44
(Bankr. E.D. Cal. 1997); see also 28 U.S.C. § 1334(b) (1988)
(currently codified without amendment at 28 U.S.C. § 1334(b)
(1994)) (providing that federal court has original, but not
exclusive, jurisdiction over "civil proceedings arising under"
the bankruptcy code); Sanders v. City of Brady, 936 F.2d 212,
218 (5th Cir. 1991) (noting that only aspect of bankruptcy
proceeding over which federal district courts and their
bankruptcy units have exclusive jurisdiction is bankruptcy
petition itself and that state courts have concurrent
jurisdiction in all other matters arising in or relating to
bankruptcy cases unless bankruptcy code provides otherwise).
State courts also have concurrent jurisdiction to review many,
but not all, questions of dischargeability. See 11 U.S.C.
§ 523(a), (c) (1988); Fed. R. Bankr. P. 4007, adv. comm. nn., 11
U.S.C. app. (1988). A defendant in a state court action may
plead discharge in bar of the claim, and the state court
generally has jurisdiction to determine whether the debt has
been discharged. However, the bankruptcy court has exclusive
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jurisdiction to determine the dischargeability of § 523(a) debts
listed in § 523(c). See 11 U.S.C. § 523(a), (c) (1988); Fed. R.
Bankr. P. 4007, adv. comm. nn., 11 U.S.C. app. (1988). Only if
the obligation was a pre-petition debt is our jurisdiction
limited by § 523(c).
We hold that husband's obligation to wife was not a debt
within the meaning of the bankruptcy code. The bankruptcy code
defines the term "debt" broadly to include a liability on a
"right to payment, whether or not such right is reduced to
judgment, . . . fixed, contingent, matured, [or] unmatured." 11
U.S.C. § 101(4), (11) (1988). However, "'[b]ankruptcy
recognizes state property rights, and filing bankruptcy cannot
give a debtor a greater interest in an asset than that which he
owned pre-bankruptcy.'" Lowenschuss v. Selnick, 170 F.3d 923,
930 (9th Cir. 1999) (quoting Gendreau v. Gendreau, 122 F.3d 815,
819 (9th Cir. 1997) cert. denied, 523 U.S. 1005, 118 S. Ct.
1187, 140 L. Ed. 2d 318 (1998)). The bankruptcy code provides
that
[p]roperty in which the debtor holds, as of
the commencement of the case, only legal
title and not an equitable interest, . . .
becomes property of the [bankruptcy] estate
under . . . this section only to the extent
of the debtor's legal title to such
property, but not to the extent of any
equitable interest in such property that the
debtor does not hold.
11 U.S.C. § 541(d) (1988) (currently codified without amendment
at 11 U.S.C. § 541(d) (1994)). Therefore, the nature of the
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spouses' interests in the property controls, and state law
governs this determination. See Butner v. United States, 440
U.S. 48, 54-55, 99 S. Ct. 914, 918, 59 L. Ed. 2d 136 (1979);
Resare v. Resare, 154 B.R. 399, 401 (D.R.I. 1993).
In Bush v. Taylor, 912 F.2d 989 (8th Cir. 1990), the Eighth
Circuit Court of Appeals considered the nature of a former
wife's interest in her former husband's pension. The parties'
divorce decree had awarded each spouse "as his or her 'sole and
separate property' one-half of the pension benefits to which
[the husband] was entitled pursuant to his government
employment." Id. at 990. Husband received the monthly pension
check, and "it was his responsibility to pay over to his former
wife, on a timely basis, her half of each check." Id. The
court in Bush held that the wife's share of the pension was her
sole and separate property which the husband received as a
constructive trustee. See id. at 992-93. Because the money was
wife's property, even while in husband's possession, it was not
a debt of husband's subject to discharge in bankruptcy. See
id.; see also Sadowski v. Sadowski, 144 B.R. 566, 567-68 (Bankr.
M.D. Geo. 1992) (holding wife's share of husband's military
retirement was her sole and separate property and not a debt of
husband's subject to discharge where property settlement
agreement merely provided that wife was entitled to a share of
his retirement without stating that share would be her sole and
separate property); McGraw v. McGraw, 176 B.R. 149, 151-52
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(Bankr. S.D. Ohio 1994) (acknowledging argument that valid
domestic relations order which predates bankruptcy filing
constitutes judicial determination of existence of constructive
trust); Connor v. Connor, 610 So. 2d 488, 491 (Fla. Dist. Ct.
App. 1992) (holding that husband's monthly obligation to pay
wife his pension benefit until second mortgage was paid created
a constructive trust, making wife the equitable owner of the
monthly pension payment until the mortgage was paid, and that
husband's bankruptcy could not "divest . . . wife of her
separate property interest in the future payments to be
received").
Here, the parties' property settlement agreement provided
that wife was entitled to a one-half share of husband's gross
retirement and that this share "shall be paid directly to Wife."
We hold that this provision, which was incorporated into the
final decree of divorce entered before husband's bankruptcy
filing and discharge, was sufficient under Virginia law to give
wife a separate property interest in husband's future benefits.
See Code §§ 20-147 to 20-155 (1983 Repl. Vol. & 1987 Cum. Supp.)
(permitting enforcement of marital agreements as contracts); cf.
Code § 20-107.3(A)(2), (G) (1983 Repl. Vol. & 1989 Cum. Supp.)
(establishing presumption that portion of pension acquired by
either party during marriage is presumptively marital property
absent evidence it is separate and permitting court to require
direct payment of share to spouse); Holmes v. Holmes, 7 Va. App.
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472, 478, 375 S.E.2d 387, 391 (1988) (holding that pension is
property rather than mere expectation of income and that
legislature intended all pensions to be personal property
subject to equitable distribution). Therefore, wife's half of
husband's retirement benefits was a property interest of hers
rather than a debt of husband's subject to discharge in
bankruptcy.
Alternatively, "[wife's] interest in the post-petition
pension payments was not dischargeable because '[p]ayments
[that] are not yet due and payable do not represent a debt under
the [Bankruptcy] Code.'" Bush, 912 F.2d at 993. "Not until
after [the specific date] each month when a payment [is] due but
unpaid [does] that portion of [a husband's] obligation [to his
former wife] become a debt. Accordingly, [the wife's] share of
the post-petition pension payments [are] not pre-petition debts
dischargeable in bankruptcy." Id.; see Teichman v. Teichman,
774 F.2d 1395, 1397-98 (9th Cir. 1985) (holding that because
husband was "under no obligation to pay his former wife until
the Air Force pays him[,] . . . a debt does not arise under the
[Bankruptcy] Code until each payment is due"); Connor, 610 So.
2d at 491 (noting that husband's monthly obligation to pay wife
his pension benefit until second mortgage was paid was not a
debt until it became due because "[r]eceipt of it by husband was
a condition precedent to accrual of the obligation to pay
wife"). But see Justus v. Justus, 581 N.E.2d 1265, 1269-70
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(Ind. Ct. App. 1991) (noting split of authority over whether
obligations not due and payable at time of filing of bankruptcy
petition are dischargeable and holding that wife's claim under
antenuptial agreement to finite periodic payments was a debt
under bankruptcy code's broad definition). Accordingly,
husband's future obligation to pay wife half his retirement
benefits each month after husband's bankruptcy discharge was not
a debt and was not subject to discharge in bankruptcy. 6
For these reasons, we hold the trial court had subject
matter jurisdiction to consider the nature of husband's
6
Even if the challenged obligation was a debt, the trial
court's exercise of jurisdiction to determine dischargeability
in this case was appropriate. We do not consider whether the
debt would have been dischargeable under these circumstances
because husband did not raise this issue on appeal. See Rule
5A:20(c); Littlejohn v. Commonwealth, 24 Va. App. 401, 409, 482
S.E.2d 853, 857 (1997).
Pursuant to Federal Rule of Bankruptcy Procedure 4007, see
11 U.S.C. app. (1988), a debtor or creditor wishing to obtain a
determination of the dischargeability of any debt, other than
one listed in § 523(c), may file a complaint "at any time." In
1990, § 523(c) listed only specified debts involving fraud,
defalcation, embezzlement, larceny, or willful and malicious
injury. See 11 U.S.C. § 523(c) (1988). Therefore, under the
statutes and rules applicable to husband’s discharge, no
exception existed to the provisions of 28 U.S.C. § 1334(b)
(1988), which states that federal courts have "original but not
exclusive jurisdiction of all civil proceedings arising under
title 11, or arising in or related to cases under title 11."
Although the 1994 amendments to the bankruptcy code provide
that jurisdiction to determine the dischargeability of debts
resulting from a property settlement rests exclusively in the
bankruptcy court, see 11 U.S.C. § 523(a)(15), (c) (1994); Fed.
R. Bankr. P. 4007 adv. comm. nn., 11 U.S.C. app. (1994),
Congress specifically provided that those amendments do not
apply to bankruptcy cases "commenced" before October 22, 1994,
see Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 702,
108 Stat. 4106, 4150.
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obligation to wife under the property settlement agreement as
incorporated by the final divorce decree and to enter judgment
on her behalf for arrearages. Therefore, we affirm the judgment
of the trial court.
Affirmed.
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