Menu   4 ABR 144 

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ALASKA

In re: )
)Case No. A95-00055-DMD
HENRY L. BROONER,)Chapter 7
)
Debtor.            )
______________________________)

MEMORANDUM REGARDING MOTION TO AVOID LIEN

The debtor's motion to avoid lien came before the court for hearing on July 6, 1995. Robert McFarlane appeared for the debtor, and J. Mitchell Joyner appeared for estate of Kathleen Stoumbaugh. For the reasons set forth herein, I find against the debtor and for the Stoumbaugh estate.

Background

Kathleen Knutson married Henry Brooner on March 21, 1980, at Kenai, Alaska. His parents deeded land in Soldotna to Henry and his then wife Kathleen in 1987. Record title remains in their names to this date. Proceeds from a worker's compensation settlement Kathleen received were used to build a home on the real property. The Brooners divorced in 1992. Henry was awarded the home. To equalize the distribution of the marital estate, Kathleen received a judgment against Henry for $27,525 through the divorce decree. Kathleen recorded the judgment several months after entry of the decree. Henry never paid the judgment. Kathleen married Gregory Stoumbaugh. She passed away on December 9, 1994. Henry filed for Chapter 7 relief on January 30, 1995, and filed a motion to avoid the judgment lien now held by the Kathleen Stoumbaugh estate.

Analysis

11 U.S.C. § 522(f) allows a debtor to avoid "the fixing of a lien on an interest of the debtor in property" to the extent the lien may impair the debtor's exemption and the lien is a judicial lien or a nonpossessory, nonpurchase money, security interest. In Farrey v.   TOP    4 ABR 145  Sanderfoot, 111 S. Ct. 1825 (1991), the Supreme Court considered the application of § 522(f) to the divorce of Jeanne Farrey and Gerald Sanderfoot. Sanderfoot had been awarded the family home, which had been owned by the parties in joint tenancy. Farrey was given a lien of approximately $30,000 on the home to secure her interest in the home.

The Supreme Court keyed on the concept of "the fixing of a lien" found in § 522(f). Because Sanderfoot took his fee simple interest simultaneously with the creation of the lien, he received the interest and the lien together, the court reasoned. As Sanderfoot did not possess his new fee simple interest before the lien fixed, he could not avoid the lien. The court concluded that the avoidance power of § 522(f) only applies to pre-existing interests in property.

In a concurring opinion, Justice Kennedy, joined by Justice Souter, stated that the Bankruptcy Code may be used "in some later case" to avoid otherwise valid property obligations arising in a divorce decree. "Absent respondent's concession (that prior rights to the property were wholly extinguished and new rights put into place), it would seem that the state court did not divest him of his pre-existing interest." Farrey v. Sanderfoot, 111 S. Ct. at 1832 (Kennedy, J. concurring).

Focusing on this language, I granted Seth Yerrington's motion to avoid lien in In re Yerrington, 2 A.B.R. 25, 27 (Bankr. D. Alaska (1991), rev'd, 144 B.R. 96 (9th Cir. BAP 1992). Seth Yerrington owned a home in fee simple prior to his marriage. Title remained in his name during the marriage and was never converted to a tenancy by the entirety. He was awarded the home in the divorce, subject to an "equitable interest" of his ex-wife in the sum of $27,500. I found the equitable interest to be a judgment lien under § 522(f). Because Yerrington possessed his fee simple interest in the property prior to the attachment of any lien, I concluded the lien was avoidable.

My decision was reversed by the BAP on appeal. While the BAP agreed that Mrs. Yerrington's interest in the property constituted a judicial lien under the bankruptcy code, it found that "[T]he dissolution decree destroyed the previous interests of the parties and created new ones, just as in Sanderfoot under Wisconsin law." In re Yerrington, 144 B.R. at 99-100 (footnotes omitted). While Mrs. Yerrington's interest was never of record, she had a pre-dissolution marital interest in the
  TOP    4 ABR 146  property's accumulated equity under Wanburg v. Wanburg, 664 P.2d 568 (Alaska 1983) and Burgess v. Burgess, 710 P.2d 417 (Alaska 1985). This interest was terminated upon the entry of the divorce decree, according to the BAP, and a new interest created.

Most courts considering the issue have interpreted Sanderfoot similarly and refused to avoid liens awarded to former spouses in divorce cases, as new interests were created at the time of the divorce decree. In re Finch, 130 B.R. 753 (S.D. Tex. 1991); In re Haynes, 157 B.R. 646 (Bankr. S.D. Ind. 1992); In re Byler, 160 B.R. 178 (Bankr. N.D. Okla. 1993); In re Dale, 152 B.R. 573 (Bankr. D. Minn. 1993); In re Bradford, 166 B.R. 90 (Bankr. S.D. Tex. 1994). In Matter of Parish, 7 F.3d 76 (5th Cir. 1993), however, the debtor was permitted to avoid his ex-wife's $76,500 lien as property inherited during the marriage was not part of the marital estate under Texas law. Similarly, the court in In re Wright, 135 B.R. 871 (Bankr. W.D. Mo. 1992) allowed lien avoidance against "nonmarital property" held by the debtor. The court found that a lien attached to the debtor's pre-existing interest in the property, which had been solely owned by the debtor prior to his marriage.

The Ninth Circuit squarely faced the issues raised by Sanderfoot in In re Catli, 999 F.2d 1405 (9th Cir. 1993). There, the husband had been awarded the family home. He was required to sell the home and divide the proceeds equally with his ex-wife. His ex-wife was given a lien for one-half of the net sale proceeds. The husband filed bankruptcy and attempted to avoid his ex-wife's lien. The Ninth Circuit reversed a BAP decision allowing lien invalidation.

Whatever the nature of Mr. Catli's interest in the home as a result of the divorce decree it was not an interest that existed prior to the decree. Mr. Catli thus never possessed an interest to which Mrs. Catli's lien attached, before it attached, and § 522(f)(1) does not apply.

In re Catli, 999 F.2d at 1408.

During their marriage, Henry Brooner and Kathleen Stoumbaugh held their property in a tenancy by the entirety. AS 34.15.140; 41 Am. Jur. 2d, Husband and Wife, § 57. Upon the entry of their divorce decree, the tenancy by entirety ceased. 41 Am. Jur. 2d, Husband and Wife, § 59. Henry received a new interest in the property as the sole owner and   TOP    4 ABR 147  Kathleen received a judgment lien for her interest in the marital estate. Under Sanderfoot, Yerrington, and Catli, her judgment lien did not affix to a prior interest of the debtor. Rather, the prior interest was abolished and replaced by a new interest concurrent with the decree.

Brooner argues that his case is somehow distinguishable from Sanderfoot and Yerrington because Mrs. Yerrington received an "equitable interest" and Mr. Yerrington was to execute a deed of trust. These factual distinctions are meaningless. Both Mrs. Yerrington and Kathleen Stoumbaugh had judicial liens as defined by 11 U.S.C. § 101(36). Both were not subject to invalidation because they did not affix to a pre-existing interest of the debtor. If anything, the facts of the instant case are more egregious than in Yerrington. In Yerrington, the husband owned the property in fee simple prior to and during the marriage. Here, a tenancy by the entirety was abolished and fee ownership in the husband established by the divorce decree.

Brooner maintains that it was not necessary to "destroy" Mr. Brooner's pre-existing interest to make a property division. Using the word "destroy" may be harsh, but it's accurate. I would prefer to state that Mr. Brooner's pre-existing interest was modified by the court to create a new interest. Regardless of the rhetoric, Kathleen Stoumbaugh's lien affixed to this new interest.

Finally, Brooner argues that Kathleen did not record the decree for several months after entry. Thus, according to Brooner, the judgment lien attached to a pre-existing interest. I disagree. First, the BAP found that the new interests, including the judgment lien, were created at the time of the entry of the divorce decree in Yerrington. Moreover, the purpose of recording is to provide notice of a judgment lien to innocent third parties. A failure to record does not affect the validity of the lien between the parties to the litigation, which is effective immediately.

Conclusion

Henry Brooner's attempt to avoid his marital obligations through lien invalidation is not well taken. His motion to avoid must be denied. A separate order and judgment denying the motion will be entered.



    DATED: July 13, 1995.


                BY THE COURT
                DONALD MacDONALD IV
                United States Bankruptcy Judge