In re Randolph

Citations: 546 B.R. 474; 2016 WL 792388Docket: CASE NO. 15-59532-BEM

Court: United States Bankruptcy Court, N.D. Georgia; January 29, 2016; Us Bankruptcy; United States Bankruptcy Court

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The Court is addressing the Chapter 7 Trustee Neil C. Gordon's objection to the debtor's claimed exemptions regarding property transfers. A hearing took place on November 4, 2015, with both the Trustee and the debtor represented by legal counsel. The Court has jurisdiction under 28 U.S.C. § 1334(b) and considers the matter a core proceeding.

Key facts include that on May 14, 2015, the debtor and his former spouse, Judith Randolph, signed a Settlement Agreement detailing the division of their property. On the same day, the debtor executed a quitclaim deed transferring all rights to the property located at 435 Jackson Street, Locust Grove, Georgia, to Ms. Randolph. The deed explicitly states that the debtor relinquishes all claims to the property. 

The Settlement Agreement grants Ms. Randolph exclusive use and ownership of the marital home, stating that the debtor transfers all interest in the property. After the quitclaim deed was recorded on May 18, 2015, Ms. Randolph initiated divorce proceedings on May 15, 2015, during which the deed and Settlement Agreement were filed. A Final Judgment of Divorce, incorporating the Settlement Agreement, was issued on July 31, 2015.

On May 22, 2015, prior to the divorce judgment, the debtor filed for Chapter 7 bankruptcy. He indicated on his Statement of Financial Affairs that he had not transferred any property in the two years before filing, despite the earlier quitclaim deed. In his bankruptcy filings, he listed the property as jointly owned and claimed an exemption of $9,686.00 based on Georgia law.

On October 3, 2015, the Debtor amended his Schedule C, reducing his claimed exemption for a Property to $4,234.00 under O.C.G.A. § 44-13-100(a)(6). The Trustee objected, asserting that the Debtor had no interest in the Property to exempt because he transferred his interest to Ms. Randolph on May 15, 2015. The Trustee invoked the doctrine of merger, claiming the Deed was effective before the Final Judgment, and raised a conditional objection citing potential voidability of the transfer under 11 U.S.C. § 548, which could bar the Debtor from exempting the Property if it is recovered by the Trustee.

In response, the Debtor contended that the Property's transfer did not occur until the Final Judgment on July 31, 2015, and that as marital property, it remained immune to equitable division claims until the marriage dissolution. Citing O.C.G.A. § 19-5-7, he argued that property transfers made after a divorce filing do not pass title. Regarding the Trustee's allegations of fraudulent transfer, the Debtor asserted that the divorce was contentious, the transfer was part of a Settlement Agreement made in contemplation of divorce, and that the dissolution of the marital relationship constituted sufficient consideration. He also contended that at the time of transfer, there was no equity in the Property, Ms. Randolph was not an insider, and the Debtor was not insolvent due to the Settlement Agreement. The parties agree on the facts but dispute the legal implications of the Settlement Agreement, Deed, and Final Judgment.

The legal analysis section clarifies that upon filing for bankruptcy, an estate is created including all legal or equitable interests of the debtor in property at that time, per 11 U.S.C. § 541. The debtor can exempt certain property under 11 U.S.C. § 522(b), but only if it is part of the bankruptcy estate. Federal law governs whether property is part of the estate, while state law determines the debtor's interest in the property. A quitclaim deed conveys whatever interest the grantor has, and a deed must be delivered to be valid and transfer title.

Delivery of a deed is considered complete against the grantor when it is relinquished with the intent for it to be transferred to the grantee. The determination of delivery hinges on whether the grantor intended to retain the ability to reverse the transaction. Recording a deed serves to notify others of the grantor's intent but does not confer legal effect. During marriage, a spouse can execute agreements or convey property, and when separated, spouses can settle the division of marital property through agreements. Such agreements are enforceable as contracts outside divorce proceedings but are evaluated under equitable division principles within divorce contexts. Claims for equitable division arise concurrent with divorce filings and are not actionable post-divorce unless pursued to judgment. O.C.G.A. § 19-5-7 restricts property transfers after a divorce petition is filed, except for bona fide transfers for existing debts, and requires a notice of lis pendens for real property title to be affected. The statute does not restrict property transfers made during separation before a divorce petition is filed. The facts show that the Debtor executed the Deed and Settlement Agreement on May 14, 2015, prior to the divorce filing, facilitating an immediate transfer of property interest to Ms. Randolph. The Deed was recorded shortly after, and the Debtor does not dispute the delivery or intent to transfer the property.

The Court determined that the Debtor intended to transfer the Property to Ms. Randolph by giving her control over the Deed for the Divorce Proceeding, implying that the Deed was delivered before the Divorce Proceeding commenced. Execution and recordation of the deed create a presumption of delivery, supported by various legal precedents. A spouse can voluntarily transfer property before a divorce filing, and an equitable division claim only arises after such a filing. Therefore, the Debtor conveyed his interest in the Property to Ms. Randolph via the Deed, making the transfer effective prior to the Petition Date and excluding the Property from the bankruptcy estate.

Regarding exemptions under bankruptcy law, a debtor may protect property from creditors through exemptions per 11 U.S.C. § 522(b)(1). If a trustee recovers property for the estate, the debtor may exempt it only if the transfer was not voluntary and the debtor did not conceal the property. A debtor cannot claim exemptions for property voluntarily transferred, as clarified in relevant case law. Courts generally define "involuntary transfer" as one occurring by operation of law, rather than by the debtor’s choice.

A transfer may be deemed involuntary if it involves fraud, material misrepresentation, or coercion, even if it was not beyond the debtor's control. A voluntary transfer occurs when the debtor acts freely, with full knowledge of the facts, and without outside influence. Recovery by the Trustee under § 522(g)(1)(A) does not necessitate an adversary proceeding, as action leading to property reconveyance suffices. The Trustee can recover property through various means, including the threat of avoidance powers.

In this case, the debtor transferred property to Ms. Randolph in anticipation of their divorce and signed a Deed reflecting this transfer. The debtor agreed to a Settlement Agreement that included the property transfer and warranted that he executed it freely and voluntarily. Consequently, the court found the transfer voluntary, and if the Trustee recovers the property, § 522(g)(1) would apply. The debtor's claims of an unamicable divorce or lack of concealment regarding the property transfer do not affect the voluntary nature of the transfer. If either element of § 522(g)(1) is met, the debtor cannot claim an exemption in the property. Thus, the court ordered that the Trustee's objection to the debtor's claimed exemption is sustained, disallowing the exemption and permitting the Trustee to renew the objection if the property is recovered. Neither the debtor nor Ms. Randolph obtained an order to modify the automatic stay during the divorce proceedings.

The exemption amount listed by the Debtor on Schedule C is $9,686.00, while an Objection cites it as $9,636.00. This discrepancy is deemed inadvertent and not significant. The Trustee contends that the $9,636.00 exemption exceeds the allowable amount under O.C.G.A. § 44-13-100(a)(6), which defines the wildcard exemption. On the petition date, this exemption was limited to $600 plus up to $5,000 of any unused homestead exemption, later increasing to $1,200 plus up to $10,000 effective July 1, 2015. The Debtor subsequently reduced the claimed exemption to $4,234.00, rendering the issue moot. Georgia, having opted out of federal exemptions under 11 U.S.C. § 522(b), follows its exemption list per O.C.G.A. § 44-13-100(b). Additionally, O.C.G.A. § 19-3-62 defines "marriage articles" as antenuptial agreements for future settlements between spouses and clarifies that such agreements may be enforced by a court of equity, provided third-party rights are not affected. It differentiates between executed contracts and marriage articles, with the term "voluntary" specifically relating to § 522(g)(1) without implying anything about transfer consideration. The Court makes no determination regarding the consideration for the Property transfer.