Donna Migneault v. Jeffrey Migneault CV-98-498-PB 05/18/99

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Donna Migneault

v. Civil No. 98-CV-498-B

Jeffrey R. Migneault

MEMORANDUM AND ORDER

Jeffrey Migneault filed a voluntary Chapter 7 bankruptcy

proceeding in the District of New Hampshire Bankruptcy Court on

July 22, 1997. Three months later, his ex-wife, Donna Migneault,

commenced an adversary proceeding, arguing that a $12,000 debt

that her ex-husband owed her pursuant to their divorce decree

should be deemed non-dischargeable. The Bankruptcy Court agreed

and Migneault's ex-husband has appealed. For the reasons

explained below, I affirm the Bankruptcy Court's decision.

I. BACKGROUND1

_____ Jeffrey and Donna Migneault were divorced on November 20,

1996, after 11 years of marriage. See Memorandum Opinion of

Bankruptcy Court (hereinafter "Order") of June 30, 1998 at 1-2.

1 Unless otherwise noted, facts are taken from the stipulated-to "Statement of Facts" submitted as part of Jeffrey Migneault's brief to this court. Under the terms of their divorce decree, primary physical custody

of the parties' three minor children, Danielle, Courtney, and

Madison, was awarded to Donna Migneault. At the time of the

divorce, Jeffrey Migneault was the business manager of an auto

dealership, Toyota-Volvo of Keene, earning at least $70,000 per

year.

Jeffrey Migneault was initially reguired by the divorce

decree to continue to pay the mortgage, utility, and maintenance

expenses on the parties' marital home on Sand Hill Road in

Peterborough, New Hampshire, as well as child support payments of

$250 per week. After the completion of the school year in June

1997, Donna Migneault and the children were to vacate the marital

home, with child support payments increasing to $428 per week,

and alimony payments commencing at $450 per month. After several

modifications of the divorce decree prompted by Donna Migneault's

plans to move out-of-state, and the impending termination of

Jeffrey Migneault's employment at Toyota-Volvo of Keene, child

support and alimony payments were set at $1,300 per month, and

$200 per month respectively.

Jeffrey Migneault also was obligated under the divorce

decree to pay a total of $12,600, in 18 monthly payments of $700,

to compensate Donna Migneault for her share of the eguity in

their jointly-held marital home. See Order at 2. At the closing

- 2 - on the sale of the premises, Donna Migneault insisted on and

received $3,520 from the broker working for her ex-husband in

exchange for her signature on the deed. She also obtained a $400

payment from her ex-husband on another occasion. Thus, Donna

Migneault agrees that the $12,600 debt has been reduced to

$8, 650 .

On July 22, 1997, Jeffrey Migneault filed a voluntary

petition for relief under Chapter 7 of the Bankruptcy Code.

Donna Migneault filed a complaint on October 20, 1997, objecting

to the discharge of the $8,650 divorce-related debt.

Jeffrey Migneault left his position at the auto dealership

on October 31, 1997, and is now employed by A.G. Edwards as an

investment broker. After three months of training during which

he earned a fixed salary of $3,500 per month, Jeffrey Migneault

became a licensed stockbroker and began earning a minimum

guaranteed base salary of $2,200 per month, plus an unlimited

level of commissions.

Donna Migneault was not employed outside the home during the

marriage. For a period of time after the divorce, she worked at

Nutri-Ceuticals, Inc., in Florida, earning $2,381.50 per month.

She currently works as the part-time office manager at a law

firm, earning approximately $900 per month. II. STANDARD OF REVIEW

Bankruptcy Rule 8013 provides that "[f]indings of fact,

whether based on oral or documentary evidence, shall not be set

aside unless clearly erroneous, and due regard shall be given to

the opportunity of the bankruptcy court to judge the credibility

of the witnesses." Conclusions of law by the Bankruptcy Court

are reviewed de novo. See In re Gamble,

(5th

Cir. 1998); In re Hamilton,

(5th Cir. 1997). I

apply these standards in ruling on Jeffrey Migneault's appeal.

III. DISCUSSION

The Bankruptcy Court based its dischargeability ruling on

(a)(15), which provides that a debt is not

dischargeable in bankruptcy if it is a debt

not of the kind described in paragraph (5)2 that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, a determination made in accordance with State or territorial law by a government unit unless - (A) the debtor does not have the ability to pay such debt from income or property of the debtor not reasonably necessary to be expended for the maintenance or support of

2

(a) (5) makes certain alimony, maintenance and support orders non-dischargeable regardless of the debtor's ability to pay. Donna Migneault has not appealed from the Bankruptcy Court's conclusion that the debt at issue is not covered by paragraph (5).

- 4 - the debtor or a dependent of the debtor and, if the debtor is engaged in a business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business; or (B) discharging such debt would result in a benefit to the debtor that outweighs the detrimental conseguences to a spouse, former spouse, or child of the debtor.

Although § 523(a) (5) is clumsily worded, it provides an exception

to the general rule of dischargeability for debts that are

incurred in the course of divorce or separation proceedings and

an exception to the exception for cases in which either the

debtor lacks an ability to pay the debt or the debtor will obtain

a benefit from having the debt discharged that outweighs any harm

that the creditor will suffer as a result of the discharge.

In granting Donna Migneault's reguest that the debt should

be deemed non-dischargeable, the court determined that Jeffrey

Migneault had the burden of proving that the debt should be

discharged because he lacks the ability to pay. The court also

relied on its estimation of Migneault's future earning capacity

in rejecting his inability to pay argument. Finally, having

placed the burden of proof on Donna Migneault with respect to the

balance of benefit and harms issue, the court concluded that the

harm that Donna Migneault would suffer if the debt was discharged

outweighed any benefit that Jeffrey Migneault would obtain from the discharge. Jeffrey Migneault challenges each of these

determinations.

A. The Burden of Proof

The bankruptcy court properly placed the burden of proving

the applicability of the "Inability to Pay" exception on Jeffrey

Migneault. Such a finding is both consistent with the language

of § 523(a)(15) and supported by public policy considerations.

Section 523(a) (15) creates an exception to the general

discharge in bankruptcy for property settlement awards, and

section 523(a)(15)(A)("Inability to Pay") creates an exception to

the exception, making the debt dischargeable in cases where the

debtor-spouse is unable to pay. Long established case law holds

that "the party claiming the exception to a statutory provision

is reguired to prove the exception." Hill v. Smith, 2

, 595 (1923). Consistent with that understanding, it was

Jeffrey Migneault's burden to show his inability to pay under §

523(a)(15)(A), as the bankruptcy court decided.

Allocating the burden of proof on the inability to pay issue

to the debtor is also consistent with sound public policy. Such

an allocation clearly places the burden of proof on the

individual likely to be in possession of the evidence necessary

to prove the exception. Thus, reguiring the debtor-spouse to

prove his "Inability to Pay" properly places the burden of proof

- 6 - on the individual who is seeking to invoke the exception and who

is in the best position to uncover the evidence that pertains to

the exception.

While I am mindful that the general purpose of bankruptcy is

to provide the debtor with a "fresh start," § 523(a) (15)

represents a legislative decision by Congress to exempt divorce-

related property settlements from discharge in bankruptcy. See

In re Jodoin,

, 140 n. 22 (guoting Grogan v. Garner,

(1991)). I have considered the reasoning of In

re Butler,

(Bankr. D. V t . 1995), and the decisions

of the other courts which would place the burden on proof on the

creditor-spouse, and find their arguments unpersuasive.3

Accordingly, I conclude that the bankruptcy court properly placed

the burden of proving the "Inability to Pay" exception under §

523(a)(15)(A) on Jeffrey Migneault, the debtor-spouse.

3 As Jeffrey Migneault argues, many of these courts attempt to distinguish § 523(a)(15) from other non-dischargeable debt provisions under § 523(a), including payment of taxes, § 523(a)(1), and repayment of student loans, § 523(a)(8). As the argument goes, under § 523(a)(15), the creditor-spouse must make a prompt claim of non-dischargeability to prevent the property settlement from being discharged, see Bankr. R. 4007(c), whereas no such prompt claim is reguired under the other provisions. I find this argument unconvincing, however, because I do not read this "housekeeping detail," which reguires creditor-spouses to raise their outstanding property settlement disputes promptly, as evidence of Congress' intent to place the burden of proof under § 523(a)(15)(A)& (B) on the creditor-spouse.

- 7 - B. The Inability to Pay Exception

Jeffrey Migneault testified at the bankruptcy hearing that

his monthly income was $2,200 plus commissions, while his monthly

expenses totaled more than $3,600. The bankruptcy court,

however, considered Jeffrey Migneault's future earning potential

as a factor in determining that he had the ability to pay the

debt over time. See In re Slover,

(Bankr. E.D.

Okla. 1996)("This court may consider the income that the Debtor

is capable of producing. . ."); In re McCartin,

(Bankr. D. Mass. 1996)(holding that the Debtor's future earning

potential is an important factor to be considered); In re Tavlor,

(Bankr. N.D. 111. 1996)(holding that proper

construction of § 523(a)(15)(A) reguires the court to consider a

debtor's future ability to pay the claim over time). But see. In

re Hesson,

(Bankr. D. Md. 1995)(noting that "if

the debtor has no "disposable income" to fund payment of the

obligation, the debtor prevails, and the exercise is over"); In

re Dressier,

(Bankr. D.R.I. 1996) (noting

that evaluating the debtor's circumstances at the time of trial

provides for a more accurate analysis of the circumstances); In

re Marquis,

(Bankr. D. Me. 1997)(same).

Jeffrey Migneault offers several arguments as to why the

bankruptcy court erred in relying on his future earning

- 8 - potential in determining his ability to pay under §523 (a) (15)

(A), including (1) that because the "Inability to Pay" exception

is written in the present tense, only the time of trial can be

used in determining the debtor-spouse's ability to pay; and (2)

that the use of future earning potential to determine a debtor-

spouse' s ability to pay, and a subseguent ruling that the debt is

non-dischargeable, might subject debtor-spouses to "draconian

[contempt] orders" from state divorce courts. I am unconvinced

by these arguments.

As another court recently noted in rejecting similar

arguments,

"this Court's inguiry. . . is not controlled by a mere 'snapshot' of the debtor's financial strength as of a single moment in time. Rather, this inguiry must allow a court to consider the debtor's prospective earning ability. . . . the court has no ability to revisit a debtor's financial circumstances after the conclusion of the trial on the

(a) (15) issues. Given the relative ease with which a party could manipulate an inguiry based upon any single moment in time, cases under

(a)(15) would be decided solely upon the timing of the filing of the bankruptcy and reguired complaint, unless a court can weigh the debtor's earning potential. We therefore hold that a Court may consider facts and circumstances concerning a debtor's future earning potential, as well as his or her income as of the date of the trial of the

(a)(15) action in determining his ability to pay."

Smither,

(Bankr. W.D. Ky. 1996). I agree that

taking account of a debtor's earning capacity when evaluating an inability to pay claim both upholds the underlying purpose of

(a)(15) and best guards against potential abuses.

Accordingly, I conclude that the bankruptcy court properly

considered Jeffrey Migneault's potential future income in

determining his ability to pay under § 523(a)(15)(A).

The bankruptcy court made the factual determination, based

on the evidence and testimony presented at the hearing, that

Jeffrey Migneault's future earning potential as a stockbroker was

not so speculative and conjectural that it rendered him incapable

of paying the $8,650 owed under the property settlement. Because

the bankruptcy court properly considered Jeffrey Migneault's

future earning potential in determining his "Inability to Pay"

under § 523(a)(15)(A), and because the court's subseguent

evaluation of the facts and its conclusion that Jeffrey Migneault

could pay the property settlement were not clearly erroneous, I

affirm.

B. The Greater Benefit Exception

The First Circuit has not determined which party bears the

burden of proving the applicability of the "Greater Benefit"

exception under § 523(a)(15)(B). The bankruptcy court placed the

burden of proof, however, with respect to this issue on Donna

Migneault - a position which Jeffrey Migneault, for obvious

- 10 - reasons, did not contest in his appeal.4 Notwithstanding its

decision on the burden of proof, the court ultimately ruled in

Donna Migneault's favor, finding that the harm she would suffer

as a result of the discharge was greater than any benefit that

her ex-husband could obtain through a discharge of the debt.

In reaching this conclusion, the court evaluated a number of

facts. Specifically, it considered that: (1) Donna Migneault had

custody of the couple's three minor children, and was raising

them on her own; (2) she could not take a full-time job, because

doing so would leave her incapable of attending to the needs of

her children; (3) the cost of additional daycare would negate the

additional income she might earn from increasing her hours; and

(4) her monthly daycare expenses already exceed her monthly

income, and her alimony and child support payments have since

been reduced. In contrast, the court also determined that

Jeffrey Migneault had the ability to pay the debt based upon his

future earning capacity. Although I might not reach the same

conclusions when reviewing the matter de novo, I cannot say that

the bankruptcy court's balancing of harms was clearly erroneous.

4 While Donna Migneault notes in her brief that "Appellee respectfully suggests that the Bankruptcy Court incorrectly imposed the burden of persuasion on her relative to § 523(a) (15) (B)," she did not cross-appeal this ruling.

- 11 - Because the bankruptcy court's balancing of harms under

§ 523(a)(15)(B) was not clearly erroneous, I affirm the court's

decision finding that the "Greater Benefit" exception, § 523(a)

(15)(B), is inapplicable in this case.

IV. CONCLUSION

_____ The Bankruptcy Court's decision holding that the property

settlement debt in the amount of $8,650 is non-dischargeable

under § 523(a)(15) and remains due to Donna Migneault is

affirmed.

SO ORDERED.

Paul Barbadoro Chief Judge

May 18, 1999

cc: James Davis, Esg. Greenville Clark, Esg.

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