Suhar v. Bruno (In re Neal)

Summarized by Robert Miller , University of South Dakota, Knudson School of Law
13 years 5 months ago

Citation:

Suhar v. Bruno (In re Neal), Case No.11-8081 (B.A.P. 6th Cir. Sept. 28, 2012)

Tag(s):

Ruling:

The Panel found that the Debtor's assumption of the marital credit card debt of the Debtor and the Defendant, as part of a separation agreement, should not impact whether the Debtor received reasonably equivalent value for transfers to the Defendant in the separation agreement. The Panel also followed recent Sixth circuit precedent in holdng that a separation decree under Ohio law does neither adjudicates reasonably equivalent value nor has preclusive effect in a subsequent bankruptcy proceeding determining if reasonably equivalent value was transferred as part of the separation agreement.

Procedural context:

Appeal from the bankruptcy court for the Northern District of Ohio finding the Defendant liable for a fraudulent transfer. The only contested issue on appeal, reasonably equivalent value, was reviewed de novo.

Facts:

Debtor and the Defendant entered into a separation agreement (the “Agreement”) prepetition. The Agreement transferred the marital residence to the Defendant. It also provided that the Debtor waived any claim on the equity in the marital residence while the Defendant in turn was responsible for the oversecured mortgage. The Agreement also provided that there was no marital debt and it allowed the parties to retain their respective pensions. Only the Debtor had a pension. Additionally, prior to the execution of the Agreement, the Debtor used a loan from her parents to pay off a mortgage on the marital residence of the Debtor and the Defendant. Following the Debtor's filing of a chapter 7 petition, the trustee brought an avoidance action against the Defendant alleging that the transfers by the Debtor made as part of the Agreement were for less than reasonably equivalent value. The bankruptcy court found that separation agreement did not have preclusive effect on the issue of reasonably equivalent value. The bankruptcy court also found that the transfers were not for reasonably equivalent value. The Panel affirmed the bankruptcy court's finding that the Agreement did not have preclusive effect even though it stated that it was "a fair just and equitable division of property". The Panel agreed with the bankruptcy court's reliance on a recent Sixth Circuit case holding that Ohio separation agreements do not preclude a later action contesting the reasonable equivalence of value transferred as part of the separation agreement. However, the Panel reversed the bankruptcy court's use of the marital debts and the loan from the Debtor's parents in determining reasonably equivalent value. Because debts are not assets, the Panel expressed skepticism over whether marital debts should be considered when weighing the value of the separation agreement transfers for reasonable equivalence. More particularly, the Defendant did not benefit from the Debtor's assumption of debts of the couple on the Debtor's credit card because the Defendant would have remained liable for the debts as an authorized user. The Defendant also failed to benefit from the loan from the Debtor's parents because it was discharged in the Debtor's bankruptcy. The Defendant was liable for the difference between the value of his interest in the Debtor's pension and the value of the Debtor's abandoned interest in the equity of the marital residence.

Judge(s):

Judge Preston authored the opinion of the court and she was joined by Judge McIvor and Judge Emerson.

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