In re:

MAGDALENA ORTIZ-AGUILO,

Debtor.

Case No. A03-00281-DMD

Chapter 7

Creditor Gail Scoggin was formerly married to Donald Scoggin. Donald became involved with the debtor, Magdalena Ortiz-Aguilo, during the course of the marriage, and conveyed substantial sums of money to her. The debtor used $40,000 of these funds to purchase a condominium in Texas. Donald also purchased a BMW vehicle for the debtor, which she exchanged for a Chevy Tahoe. These gifts from Donald to the debtor were made prior to the time this bankruptcy case was filed, without the knowledge or consent of Gail.

In the Scoggin divorce action, a third party proceeding was initiated by Gail Scoggin against Ortiz-Aguilo for fraudulent conveyance of community property. Gail filed a motion for partial summary judgment against the debtor in November of 2002. A hearing on the motion was held on March 4, 2003. The state court granted partial summary judgment in favor of Gail. It indicated that title to the condominium and Chevy Tahoe belonged to the community estate of Gail and Donald Scoggin, and that a constructive trust was imposed on these assets. No written order was entered at that time, however.

Seventeen days later, on March 21, 2003, the debtor filed a chapter 7 petition in this court. She scheduled both the Texas condominium and the Chevy Tahoe as assets of her estate. ^1.

Gail Scoggin moved for relief from stay so that she could continue the prosecution of the state court proceeding against the debtor for fraudulent conveyance of assets. The trustee objects to the motion on the grounds that no final, appealable order has been entered placing a constructive trust on the condominium and vehicle, and that, even if such an order had been entered, Gail only holds a 50% interest in these assets because Donald had already conveyed his community property interest in them to the debtor. The trustee contends this court, rather than the state divorce court, should determine the debtor’s and Gail’s interests in these assets. I disagree.

The bankruptcy court has wide discretion when deciding whether to grant relief from stay. ^2.

Bankruptcy courts should “avoid incursions into family law matters ‘out of consideration of court economy, judicial restraint, and deference to our state court brethren and their established expertise in such matters.’” ^3.

I feel relief from stay should be granted in this proceeding to allow the divorce proceedings, including the

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third party proceeding pending against the debtor, to be resolved on the merits by the Texas courts.

Section 541 of the Bankruptcy Code defines the property of the bankruptcy estate. The nature and extent of a debtor’s interest in property is determined by state law, with the estate having no greater rights in property than those held by the debtor prior to bankruptcy. Property that is held in trust by a debtor for another, however, is not property of the estate. This rule of law applies with equal force to constructive trusts that arise by operation of state law. ^4.

Under Texas law, a constructive or resulting trust may be imposed on community property that has been conveyed to a mistress by one spouse without the other spouse’s knowledge. ^5.

Further, in a divorce proceeding, unlike a probate proceeding, a Texas court has wide discretion to divide the marital estate and can “make any division of the community property that is just and right, having regard for the rights of each party.” ^6.

Here, neither the debtor’s nor the estate’s interest in the condominium or Chevy Tahoe can be improved by the filing of this bankruptcy. The Texas court has ruled that these assets are held by the debtor in a constructive trust for the benefit of the martial community of Gail and Donald. Further, it appears Donald’s assignment of

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his interest in the martial community estate’s claims against the debtor to Gail preceded the divorce court’s imposition of a constructive trust on these assets. ^7.

Texas law must be applied to determine who is ultimately entitled to these assets, and the Texas divorce court now handling this matter is in the best position to do so. Gail’s motion will, therefore, be granted.

1 The debtor’s schedules indicate that she has a fee simple interest in the condominium, located in Dallas, Texas, that there are no mortgages or liens on the property, and that it has a fair market value of $40,000.00. The Chevy Tahoe is listed as having a value of $18,000.00, with a lien of $14,395.00 in favor of Bank of America. The debtor took federal exemptions and claimed all of the vehicle’s equity and $17,425.00 of the value of the condo exempt. See Schedules A, B and C, filed Apr. 7, 2003 (Docket No. 6). The debtor intends to reaffirm her car loan with Bank of America. See Statement of Intent, filed Apr. 7, 2003 (Docket No. 8).

2 MacDonald v. MacDonald (In re MacDonald), 755 F.2d 715, 716 (9th Cir. 1985).

4 Foothill Capital Corp. v. Clare’s Food Mkt., Inc. (In re Coupon Clearing Serv., Inc.), 113 F.3d 1091, 1099 (9th Cir. 1997)(citations omitted).

5 Osuna v. Quintana, 993 S.W.2d 201, 210-211 (Tex. App. 1999); Zieba v. Martin, 928 S.W.2d 782, 789 (Tex. App. 1996); Roberson v. Roberson, 420 S.W.2d 495, 501-02 (Tex. App. 1967).

7 See Ex. 1 (Final Decree of Divorce) to Creditor Gail Scoggin’s Reply in Supp. of Mot. for Relief\ From Stay, filed Jun. 2, 2003 (Docket No. 19), at pp. 1-2, 15. A mediated settlement agreement was reached\ between Gail and Donald Scoggin in December of 2002, several months before the debtor filed her\ bankruptcy petition. The agreement was as to all matters in the divorce action, including the community\ estate’s causes of action against the debtor. The final decree, although entered post-petition, is in conformity\ with the mediated agreement, and assigned all of the marital community estate’s causes of action against the\ debtor to Gail.