Walters v. Gallegos (In re Gallegos)
- Summarized by David Treacy , U.S. Bankruptcy Court, Eastern District of Kentucky
- 2 years 2 months ago
- Case Type:
- Consumer
- Case Status:
- Affirmed
- Citation:
- BAP No. CO-22-017 (10th Circuit, Dec 05,2023) Not Published
- Tag(s):
-
- Ruling:
- The U.S. Bankruptcy Appellate Panel of the Tenth Circuit held a bankruptcy court did not err in granting a summary judgment against a chapter 7 Trustee on a claim to avoid a post-petition transfer under 11 U.S.C. § 549(a). Under Colorado law, the debtor and her spouse did not transfer the estate's interest in property when they agreed to dismiss a prepetition divorce case before the entry of a property settlement order. Such an order would have divided the parties' interests in the spouse's premarital property, which had increased in value during the marriage.
- Procedural context:
- The Bankruptcy Appellate Panel reviewed de novo the sole issue on appeal: "whether the Bankruptcy Court erred in concluding that the Divorce Case dismissal did not result in an avoidable transfer" from the debtor to her spouse under 11 U.S.C . § 549(a). Resolution of the appeal required analysis of the intersection of the Bankruptcy Code with principles of Colorado property law, family law, and public policy.
- Facts:
- Paul Waters filed a petition for divorce from Jean Gallegos in Colorado after nine years of marriage. Two months later, Gallegos filed a chapter 7 petition in the U.S. Bankruptcy Court for the District of Colorado. Jared Walters was appointed as the chapter 7 Trustee. As of the petition date, Waters owned certain Property that (a) he had acquired before the marriage, and (b) had increased in value during the marriage. The family court did not issue a divorce decree or a property division order before Gallegos filed her bankruptcy petition. The Trustee moved to intervene in the divorce case. Prior to a scheduled marriage dissolution hearing, Waters and Gallegos reconciled. The family court dismissed the divorce case at their request. The Trustee then filed an adversary proceeding against Gallegos and Waters "seeking to avoid the transfer of the Debtor’s marital interest in the Property out of the bankruptcy estate pursuant to 11 U.S.C. §§ 549(a) and 550(a)." The Trustee contended the dismissal of the divorce case amounted to an avoidable post-petition transfer insofar as Gallegos' "interest in the Property was property of the bankruptcy estate" and "dismissal of the Divorce Case (which eliminated the inchoate interest of the Debtor in the Property) constituted an avoidable transfer of the Property back to Waters." The bankruptcy court granted a summary judgment in favor of Gallegos and Waters. The court explained that, under Colorado law, "the 'filing of a divorce proceeding vests a spouse with certain rights in marital property, but those rights are equitable in nature and not fully defined until the divorce court issues an order dividing the marital property.'" The court "held the vested interest created by the filing of the divorce petition disappears if the divorce case is dismissed prior to entry of a final decree." The Trustee timely appealed.
- Judge(s):
- MICHAEL, PARKER, and THURMAN
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