Wiggains v. Reed (In the Matter of Wiggains)

Community property homestead rights are lost if only one spouse files bankruptcy.

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Case Status:
No. 15-11249 (5th Circuit, Feb 14,2017) Published
When it became clear that Mr. Wiggains would file bankruptcy to satisfy his outstanding debts, the couple entertained various options and made their best estimate on ultimate financial benefits by having only Mr. Wiggains file after the Partition Agreement was recorded. Allowing Mrs. Wiggains to sidestep the statutory limits for homestead exemptions and obtain approximately $500,000 in proceeds that otherwise are for creditors would lay waste to the provisions of the Bankruptcy Code involved here. AFFIRMED.
Procedural context:
The Bankruptcy Court entered a final judgment on a Declaratory action against Mrs. Wiggains right to separate homestead from her husband on Sept 4, 2015. After filing a timely notice of appeal to the district court on September 22, 2015, Mrs. Wiggains filed with the Fifth Circuit a request, which was joined by the Trustee, to allow a direct appeal here under 28 U.S.C. § 158(d). The Fifth Circuit granted the request on December 16, 2015.
Jeremy Wiggains and his wife Tanya, married since 2007, purchased an expensive home in an exclusive Dallas suburb in late 2012. During their brief residency, the couple made valuable improvements as part of their investment strategy to increase profits from a future sale of the home. In the summer of 2013, the Wiggainses began marketing their home. In August 2013, they signed a sales contract for $3.4 million. A few days before they received the purchase offer, two significant events occurred. First, the Wiggainses, upon the advice of counsel, executed and filed a “Partition Agreement,” which sought to recharacterize their home from community property to separate property, one half belonging to each spouse. The Partition Agreement further provided that each spouse would have “sole and exclusive authority, management, and control of their separate property. . . .” Second, Mr. Wiggains filed for bankruptcy under Chapter 7 of the Bankruptcy Code one hour after recording the Partition Agreement. He claimed an exemption for his separate interest in the home under Texas law, which is subject to the $155,675 homestead exemption cap of Section 522(p) of the Bankruptcy Code, enacted in 2005 as part of the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) to address the so-called “mansion loophole.” After various objections by the Trustee and certain creditors, Mr. Wiggains agreed to limit his homestead exemption to $130,675. Mrs. Wiggains did not separately file for bankruptcy. The family resided at the home until it was sold by the Chapter 7 Trustee for $3.4 million, netting $568,668.41 in cash proceeds after payment of all liens, claims, and encumbrances. The net from the sale was further decreased by the disbursement of $130,675 to Mr. Wiggains pursuant to his homestead exemption.

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