Cathy Elaine Rogers

MEMORANDUM OF DECISION - 1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF IDAHO
______________________________________________________
In Re:
Bankruptcy Case
CATHY ELAINE ROGERS, 	No. 04-40539
Debtor.
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MEMORANDUM OF DECISION
______________________________________________________
Appearances:
Jim Spinner, SERVICE, SPINNER & GRAY, Pocatello, Idaho,
Attorney for Trustee.
Bradley E. Rice, Twin Falls, Idaho, Attorney for Debtor.
R. Sam Hopkins, Pocatello, Idaho, Trustee.
Chapter 7 Trustee R. Sam Hopkins objects to Debtor Cathy Roger’s
Amended Claim of Exemption, arguing the exemption should not be allowed
because Debtor’s delay in amending her Schedule C prejudiced Trustee and the
bankruptcy estate. Alternatively, Trustee contends that the $1,300 Debtor receives
each month from her ex-husband cannot be exempted because it is not support but
actually payment for a property division. Debtor argues the monthly payment is
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MEMORANDUM OF DECISION - 2
alimony earmarked for her job training by the state court’s divorce decree, and for
necessary monthly expenses.
Oral argument on Trustee’s objection to the exemption occurred on
September 12, 2005, and the Court took the matter under advisement. The
following constitutes the Court’s findings of fact and conclusions of law. Fed. R.
Bankr. P. 7052; 9014.
Facts
Debtor filed for relief under Chapter 7 of the Bankruptcy Code on
March 19, 2004. Docket No. 1. Debtor disclosed alimony payments on Schedule I
as income, but she did not list her claim for future alimony payments on Schedule
B. Debtor filed amended Schedules B and C on July 13, 2005, listing the $1,300
per month payment as alimony and claiming it exempt under Idaho Code § 11-
604(1)(b). Docket No. 11.
Debtor was married to William Rogers for seven or eight years
before their divorce on March 26, 2003. Debtor obtained the divorce by default.
The divorce decree, drafted by Debtor and her divorce counsel, provides for the
division of property. Ex. 1, Docket No. 13. Debtor was awarded the home, her
personal property, and a portion of the community property. Mr. Rogers, a
farmer, was awarded his separate property and the remaining community property.
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MEMORANDUM OF DECISION - 3
Some of the community property Mr. Rogers was awarded consisted of farming
equipment, and the decree provided that Debtor would be entitled to receive a
portion of any proceeds from the disposition of those assets during Mr. Rogers’
lifetime to compensate her for her equity interest . 	However, Debtor testified she
does not know if she will ever receive anything for her interest in the farm
equipment because Mr. Rogers may continue farming and never dispose of it.
The decree also ordered Mr. Rogers to make payments to Debtor,
referred to as alimony, in the amount of $1,300 for three years then reducing to
$900 for two years. 	Debtor testified that she had always been a mother and a
housewife. But around the time the divorce decree was entered, Debtor obtained a
good-paying full-time job with Dell. After a year Debtor’s wages were cut and
she left the company. She then obtained a job at McDonalds. Currently, debtor
drives a school bus two hours a day, five days a week, earning $13.50 an hour.
She also cleans homes earning an additional $300 to $500 a month.
Debtor insists the monthly payments provided by the divorce decree
are alimony designed to allow her to retrain for a new job. Trustee argues the
monthly payments were really intended to compensate Debtor for her equity in the
parties’ marital property. Trustee points out that Debtor and Mr. Rogers were not
married long enough to justify the amount of alimony being paid, and that it is
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unlikely Debtor will ever receive any significant payment from the farm
equipment. Therefore, Trustee contends, Debtor structured the divorce decree to
pay her a share of the value of the parties’ assets as “alimony.” As noted above,
Trustee also argues Debtor’s delay in filing the amended exemption schedule
prejudiced the bankruptcy estate.
Disposition
A. 	The Delay in Amending the Schedules Did Not Prejudice
Trustee or the Bankruptcy Estate.
Debtors may amend their schedules, including Schedule C, any time
prior to the closing of the bankruptcy case without leave from the court. Fed. R.
Bankr. P. 1009(a); In re Bowden, 00.3 I.B.C.R. 158, 159 (Bankr. D. Idaho 2000)
(citing In re Michael, 163 F.3d 526, 529 (9th Cir. 1998)). “However, case law
[has] recognized the court may deny a debtor the right to amend exemption
schedules where the debtor has acted in bad faith or where the delay in claiming
the exemption has prejudiced creditors.” In re Bowden, 00.3 I.B.C.R. at 159
(citing In re Michael, 163 F.3d at 529; In re Arnold 252 B.R. 778, 784 (9th Cir.
BAP 2000); In re Hamilton, 93 I.B.C.R. 227, 229 (Bankr. D. Idaho 1993)).
Trustee claims Debtor’s delay in amending Schedule C is prejudicial
because it denied creditors the money they would otherwise receive. However,
“[t]he mere fact that allowance of the amendment would remove assets from
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MEMORANDUM OF DECISION - 5
administration is, standing alone, insufficient to establish prejudice.” In re
Hoffpauir, 258 B.R. 447, 452 (Bankr. D. Idaho 2001) (citing In re Arnold, 252
B.R. 778, 784 (9th Cir. BAP 2000)). Trustee presented no evidence of prejudice
aside from arguing the exemption would prevent that money from being disbursed
to creditors. Case law is clear that this is an insufficient reason to constitute
prejudice. Therefore, the Court finds the delay in claiming the exemption did not
prejudice Trustee, the estate, or creditors, and Debtor’s amended schedules will be
allowed.
B. 	The Monthly Payments Are Alimony and the Claimed
Exemption is Proper.
Idaho has accepted the Bankruptcy Code’s invitation to restrict its
citizens to the exemptions allowed under state law. 11 U.S.C. § 522(b)(1); Idaho
Code § 11-609. As the objecting party Trustee bears the burden of proof to show
the exemption is not proper. Fed. R. Bankr. P. 4003(c). However, once Trustee
presents “sufficient evidence to rebut the prima facie validity of the exemption, the
burden shifts to a debtor to demonstrate that the exemption is proper.” In re
Nielsen, 97.4 I.B.C.R. 107, 107 (Bankr. D. Idaho 1997) (citing Russell,
B ANKRUPTCY E VIDENCE M ANUAL, 1997 Ed., 323; In re Frazier, 104 B.R. 255
(Bankr. N.D. Cal. 1989)). Additionally, “it is well-established that the nature and
extent of exemptions is determined as of the date that the bankruptcy petition is
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MEMORANDUM OF DECISION - 6
filed.” In re Moore, 269 B.R. 864, 868 (Bankr. D. Idaho 2001) (citing Culver,
LLC v. Chiu (In re Chiu), 266 B.R. 743, 751 (9th Cir. BAP 2001)). Exemption
statutes are liberally construed in favor of the debtor. In re Steinmetz, 01.1
I.B.C.R. 28, 28 (Bankr. D. Idaho 2001).
The claimed exemption provides:
(1) An individual is entitled to exemption of the
following property to the extent reasonably necessary
for the support of him and his dependents:
(b) money or personal property received, and
rights to receive money or personal property for
alimony, support, or separate maintenance.
Idaho Code § 11-604(b).
The Court is often asked to determine whether a monetary award in
a divorce decree is in the nature of support in the context of dischargeability
litigation prosecuted under § 523(a)(5). In that situation, the Ninth Circuit has
articulated several factors to guide the Court in determining whether an award is in
the nature of support.
In determining whether an obligation is intended for
support of a former spouse, the court must look
beyond the language of the decree to the intent of the
parties and to the substance of the obligation. . . . The
courts that have considered this issue have used
several factors to aid in the characterization of the
debt. If an agreement fails to provide explicitly for
spousal support, a court may presume that a so-called
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MEMORANDUM OF DECISION - 7
‘property settlement’ is intended for support when the
circumstances of the case indicate that the recipient
spouse needs support. . . . Factors indicating that
support is necessary include the presence of minor
children and an imbalance in the relative income of the
parties. . . . Similarly, if an obligation terminates on the
death or remarriage of the recipient spouse, a court
may be inclined to classify the agreement as one for
support. . . . The court will look also to nature [sic] and
duration of the obligation to determine whether it is
intended as support. Support payments tend to mirror
the recipient spouse’s need for support.
In re Martin, 04.3 I.B.C.R. 131, 132 (Bankr. D. Idaho 2004) (quoting Shaver v.
Shaver, 736 F.2d 1314, 1316-17 (9th Cir. 1984) (internal citations omitted)). The
Bankruptcy Appellate Panel has instructed that “[a] significant factor is whether
there are other provisions in the agreement separate and distinct from the provision
in question which is designated as support payments and which terminate at a
specific date or upon a specific event.” Leppaluoto v. Combs, 101 B.R. 609, 616
(9th Cir. BAP 1989).
Here, neither party has offered, nor has the Court discovered in its
own research, how the Court should determine whether, under Idaho law,
payments under a divorce decree should be designated as alimony, as opposed to
property settlement payments. Therefore, the Court will adopt the reasoning of
the cases discussed above in the analogous setting of determining whether a debt
for alimony should be discharged under § 523(a)(5).
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MEMORANDUM OF DECISION - 8
In this case, precious little evidence was presented regarding the
parties’ intentions at the time of the divorce. Debtor was a housewife, and there
was an obvious disparity in the incomes being generated by her and Mr. Rogers.
The amount of the monthly payment under the parties’ divorce decree reduces
after three years and terminates altogether after five years, perhaps evidencing that
with retraining, Debtor should need less support. Significantly, the divorce decree
separates alimony from its provisions controlling distribution of the parties’
property.
The fact that it is unlikely Debtor will receive a payment on account
of her interest in the farm equipment does not indicate the monthly payments from
Mr. Rogers to Debtor were intended as a substitute for such a payment. Indeed,
the monthly payments and Debtor’s possible equity payment appear unrelated.
And while Debtor had the good fortune to obtain a good job around the time the
divorce decree was entered, Debtor had little experience in the job market at the
time of the divorce and would have clearly benefitted from retraining. Given the
circumstances existing at that time, the Court is persuaded that the divorcing
parties intended the monthly payments as alimony for Debtor’s support.
Conclusion
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It has not been shown that Debtor’s delay in filing the amended
Schedule C prejudiced Trustee or the bankruptcy estate. In addition, there is
insufficient evidence to show that the monthly payments Debtor receives under the
divorce decree are anything other than as provided by the decree: alimony.
Therefore, the monthly payments may be exempted under Idaho Code § 11-
604(b).
Trustee’s objection to Debtor’s claim will be denied by separate
order.
Dated: October 5, 2005
Honorable Jim D. Pappas
United States Bankruptcy Judge
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