Brogan v. Brogan

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Husband has since withdrawn his appeal on this issue.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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