In re Kooi

547 B.R. 244

In re: Richard A. Kooi, Debtor.

Case No. BG 14–04692

United States Bankruptcy Court, W.D. Michigan.

Signed March 22, 2016

Roger G. Cotner, Esq., Grand Haven, Michigan, attorney for Richard A. Kooi (the "Debtor").

Jeff A. Moyer, Esq., Grandville, Michigan, Chapter 7 Trustee (the "Trustee").

SUPPLEMENTAL OPINION SUSTAINING TRUSTEE'S SECOND OBJECTION TO DEBTOR'S AMENDED EXEMPTIONS AND GRANTING TRUSTEE'S MOTION TO COMPEL TURNOVER

James W. Boyd, United States Bankruptcy Judge

I. INTRODUCTION AND JURISDICTION.

This matter is before the court on the Trustee's Objection to the Debtor's Amended Exemptions (Dkt. No. 64) and Amended Motion to Compel Turnover (Dkt. No. 66) in the above captioned chapter 7 case. This opinion supplements the bench opinion sustaining the Trustee's objection to exemptions and granting the motion for turnover that was given in open court on March 11, 2016.

The court has jurisdiction over this bankruptcy case. 28 U.S.C. § 1334. The bankruptcy case and all related proceedings have been referred to this court for decision. 28 U.S.C. § 157(a) ; L. Civ. R. 83.2(a) (W.D.Mich.). This contested matter is a statutory core proceeding and the court has authority to enter a final order. 28 U.S.C. § 157(b)(2)(B) (allowance or disallowance of ... exemptions from property of the estate) and (E) (orders to turn over property of the estate).

II. FACTS AND PROCEDURAL HISTORY.

During the evidentiary hearing on these matters, which was held on March 8, 2016, the court heard testimony from one witness: the Debtor, Richard Kooi. The court found his testimony credible. The court also admitted Trustee's Exhibits 1 through 4 and Debtor's Exhibits A through E into evidence. Both parties' exhibits included copies of the Consent Judgment of Divorce entered by the Ottawa County Circuit Court on June 4, 2015. The copy of the judgment submitted by the Debtor as Exhibit D included certain handwritten notes as attachments. The Trustee's copy of the judgment, Exhibit 2, did not include the handwritten notes. At the hearing, the Trustee stipulated that the handwritten notes should be appended to the Consent Judgment of Divorce as reflected in Debtor's Exhibit D.

The evidence at the hearing established the following material facts:

The Debtor's former spouse, Lisa Kooi, filed a divorce action in Ottawa County Circuit Court in August 2013. On July 10, 2014, the Debtor filed his chapter 7 case. (Dkt. No. 1.) The Debtor's original schedules disclosed various assets and claimed several exemptions, including exemptions in: guns and fishing gear; the Debtor's interest in Lisa Kooi's retirement account; the Debtor's interest in his mother's trust; and an "Additional property settlement in pending divorce proceeding." (Debtor's Exh. A.) The Trustee filed an objection to the Debtor's original claim of exemptions on September 17, 2014. The objection was resolved by a settlement stipulation that was approved by this court by order entered on December 8, 2014. (Dkt. No. 32.)

On March 11, 2015, Lisa Kooi filed a motion for relief from stay in the Debtor's bankruptcy case, to allow the divorce proceeding to go forward in the Ottawa County Circuit Court. (Dkt. No. 39.) The Trustee did not oppose the motion, and the court entered an order granting relief from stay on April 15, 2015. (Dkt. No. 45.)

On June 4, 2015, the Ottawa County Circuit Court entered a Consent Judgment of Divorce. (Debtor's Exh. D; Trustee's Exh. 2.) In the section of the judgment of divorce entitled PROPERTY DIVISION, the Debtor is awarded a 50% interest in property identified as "WKEH Inventory—Graf" and a 50% interest in property identified as "WKEH Inventory—Eagle." In the same PROPERTY DIVISION section, the judgment further provides:

13. Cash to Defendant. Plaintiff [Lisa Kooi] shall pay $2,700.00 to Defendant [Richard Kooi] within thirty (30) days of the entry of the Consent Judgment of Divorce.

(Debtor's Exh. D; Trustee's Exh. 2.)

Upon receiving a copy of the Consent Judgment of Divorce, the Trustee learned that the Debtor was entitled to the half interests in the hockey inventory and the $2,700 cash payment. Knowing that the Debtor had already fully utilized his § 522(d)(5) exemptions, the Trustee sought turnover of the $2,700 cash payment from Lisa Kooi directly to the Debtor's bankruptcy estate. The Trustee was informed by Lisa Kooi's attorney that the payment had already been made to the Debtor by check dated July 3, 2015, and that the Debtor had cashed the check on July 7, 2015.

The Trustee then filed his motion to compel turnover of the $2,700 from the Debtor. (Dkt. No. 48.) A hearing on the Trustee's motion was held before this court on October 1, 2015. Mr. Cotner did not appear at the hearing, and the court adjourned the hearing and entered an order requiring Mr. Cotner to personally appear on the adjourned hearing date.

On November 6, 2015, four days prior to the adjourned hearing, the Debtor filed amended Schedules B and C. The amended schedules specifically identified and disclosed the $2,700 and interests in the hockey inventory, and claimed those items as exempt under § 522(d)(10)(D). (Dkt. No. 63.) On December 5, 2015, the Trustee filed a Second Objection to Amended Exemptions. (Dkt. No. 64.) The Trustee also filed an amended motion for turnover of the $2,700 cash payment, the $2,400 of WKEH inventory, and a portion of a distribution from the Debtor's mother's trust that was previously received by the Debtor. (Dkt. No. 67.)

A status conference on the objection to exemptions and amended motion for turnover was held on January 7, 2016. At the status conference, the Trustee withdrew his request for turnover of the distribution from the Debtor's mother's trust. According to Debtor's Exhibit C, the trust distribution of $17,928.93 was received on December 31, 2014. Of this amount, $12,710 was claimed as exempt by the Debtor. The balance of $5,218.93, plus an additional amount of $1,500, was turned over to the Trustee on January 6, 2015.¹

III. DISCUSSION.

A. Property of the Estate.

The filing of a bankruptcy case creates a bankruptcy estate, which generally includes "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a). "This definition is unquestionably broad, and it is well-settled that property of the estate includes ‘every conceivable interest of the debtor’ held as of the commencement of the bankruptcy case, whether that interest is ‘future, nonpossessory, contingent, speculative [or] derivative.’ " Moyer v. Slotman (In re Slotman), 2013 WL 7823003, at *5 (Bankr.W.D.Mich.2013) (citing In re Yonikus, 996 F.2d 866, 869 (7th Cir.1993) and United States v. Whiting Pools, Inc., 462 U.S. 198, 204–05, 103 S.Ct. 2309, 2313–14, 76 L.Ed.2d 515 (1983) ). In applying this standard, "most courts analyze whether the asset is ‘sufficiently rooted in the pre-bankruptcy past’ of the debtor." Tyler v. DH Capital Management, Inc., 736 F.3d 455, 461–62 (6th Cir.2013) (discussing the standard set forth in Segal v. Rochelle, 382 U.S. 375, 379, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966) and its continued applicability after enactment of the Bankruptcy Code).

Pursuant to § 541(a)(5)(B), a debtor's bankruptcy estate also includes:

[a]ny interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date ... as a result of a property settlement agreement with the debtor's spouse, or of an interlocutory or final divorce decree[.]

11 U.S.C. § 541(a)(5)(B). Finally, § 541(a)(7) provides that property of the estate includes "[a]ny interest in property that the estate acquires after the commencement of the case." 11 U.S.C. § 541(a)(7).

In this case, the Debtor disclosed an interest in an "additional property settlement in pending divorce proceeding" in his original Schedule B. Then, after entry of the Consent Judgement of Divorce, the Debtor disclosed the $2,700 cash payment and his interest in the WKEH inventory on his Amended Schedule B. He also claimed an exemption in the property on Schedule C. Generally, an asset must be property of the estate before the Debtor may claim an exemption in it. See Owen v. Owen, 500 U.S. 305, 308, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991). Despite disclosing his interests in the cash payment and inventory as assets and claiming them as exempt, the Debtor has now asserted that these items are not property of his bankruptcy estate. Specifically, the Debtor argues that he received these items in the Consent Judgment of Divorce, which was entered on June 4, 2015—more than 180–days after the filing of his bankruptcy case. Accordingly, he asserts that these assets are not included in property of his estate under § 541(a)(5)(B).

The Debtor's argument overlooks the effect of § 541(a)(1), (a)(7) and Michigan property law. Under Michigan law, the filing of a divorce action creates a "marital estate" and each spouse's interest in the marital property to be apportioned in the divorce case vests. In re Slotman, 2013 WL 7823003, at *7 (citing Byington v. Byington, 568 N.W.2d 141, 144, 224 Mich.App. 103, 110 (1997) (explaining that assets acquired or income earned by one spouse during the marriage are considered to be "marital property" and are subject to apportionment)). As a result, the Sixth Circuit Court of Appeals and other courts within the circuit have held that:

when a debtor acquires an interest in marital property as a result of filing for divorce prepetition, that interest in marital property ... becomes property of the debtor's estate in a later filed bankruptcy case.

In re Slotman, 2013 WL 7823003, at *5 (citing Corzin v. Fordu (In re Fordu), 201 F.3d 693, 700–02 (6th Cir.1999) ; In re Greer, 242 B.R. 389, 396–97 (Bankr.N.D.Ohio 1999) (both decided under Ohio law)). Because neither spouse is guaranteed to receive any given item of...