On appeal from the Superior Court of New Jersey, Chancery Division, Camden County, FM- 04-313-96.
Before Judges King, Coburn and Axelrad.
The opinion of the court was delivered by: Axelrad, J.T.C. (temporarily assigned).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Defendant Harvey Schorr appeals Judge Donaldson's order declaring that the obligations undertaken by him in the parties' property settlement agreement were solely in the nature of support obligations and non-dischargeable in bankruptcy. On appeal, he asserts that his obligations were equitable distribution and dischargeable and that the court should have held a plenary hearing on the issue of dischargeability.
The parties were married on August 29, 1976 and divorced on June 19, 1996. The parties negotiated and executed a property settlement agreement in connection with their divorce. Under Article II, SUPPORT AND MAINTENANCE OF HUSBAND AND WIFE, defendant agreed to pay plaintiff $300 per week in alimony; to pay all outstanding medical, dental, vision, prescription and related expenses incurred by plaintiff as of the date of the final judgment of divorce; and once his obligation to pay plaintiff's health insurance premium ceased, to pay plaintiff an additional $100 per month to be applied toward reduction of the outstanding principal balance on his obligations under Article IV, paragraph 8. Under Article III, INSURANCE TO SECURE HUSBAND'S OBLIGATIONS, defendant agreed to maintain a term life insurance policy upon his life in the amount of $200,000, irrevocably naming plaintiff as beneficiary until such time as he satisfied the obligations listed in Article IV, paragraph 8 and all third party debts for which plaintiff might be responsible. Once those debts were satisfied, he would only be obligated to pay for the premium as to $150,000 worth of coverage, and plaintiff had the option of paying the additional premium on a $200,000 policy or accepting the lower amount of coverage which defendant was required to provide. Under Article IV, EQUITABLE DISTRIBUTION OF PROPERTY, paragraph 8, defendant agreed to pay in installments a total of $45,518 to plaintiff, which represented her share of his accounting practice. Under Article V, INDEBTEDNESS, defendant agreed to be responsible for all debts of the parties, or of either of them, incurred as of the date of the final judgment of divorce.
Under Article XI, GENERAL PROVISIONS, paragraph 12, HUSBAND'S BANKRUPTCY, the parties expressly provided for the possibility of defendant filing a bankruptcy petition after execution of the agreement:
Husband represents and warrants to Wife that he has no present intention to file a petition in bankruptcy and agrees that to the extent he may later decide to do so, he will not seek to discharge any of his obligations to Wife hereunder and that this Agreement shall remain in full force and effect. Husband further agrees and recognizes that Wife is relying on all of Husband's payment and indemnification obligations to her hereunder for her support and maintenance, regardless of the characterization of a particular obligation as support, alimony, equitable distribution or otherwise. Accordingly, should Husband file a petition in bankruptcy and seek to discharge any of his obligations to Wife hereunder, all of his obligations hereunder including, but not limited to, alimony, support, equitable distributions, payment of insurance and payment of child support and Husband's relief of debt, shall be considered in determining the appropriate post-petition level of alimony/support Husband will be required to pay to Wife.
Paragraph 8, HEADINGS FOR REFERENCE ONLY, provides that the section headings are inserted "for convenience and shall not affect the meaning, construction, scope or effect of this Agreement." On January 22, 1998 defendant filed a petition for protection under Chapter 13 of the United State Bankruptcy Code, and his obligations under the property settlement agreement were stayed. By consent order dated May 29, 1998, the Bankruptcy judge vacated the stay for the Family Part Judge to conduct a hearing to determine the nature of defendant's obligations under the agreement and to specifically determine which of the obligations were in the nature of equitable distribution and dischargeable and which were in the nature of support and non-dischargeable. Counsel for both parties agreed to submit briefs outlining their respective positions regarding the effect of defendant's bankruptcy on his obligations under the property settlement agreement. Counsel for defendant did not request a plenary hearing. In a letter opinion dated November 1, 1999, Judge Donaldson found that "the obligations which the Defendant undertook in their Property Settlement Agreement were solely in the form of support obligations" and, therefore, his obligations to plaintiff were not dischargeable in bankruptcy. On January 21, 2000 Judge Donaldson denied defendant's motion for reconsideration.
Defendant contends that his obligations under the property settlement agreement are not support-related. Pursuant to 11 U.S.C.A. §523(a)(5), [a] discharge under section 727, 1141, 1228(a), 1228(b) or 1328(b) of this title does not discharge an individual debtor from any debt to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement, but not to the extent that . . . such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support .
Alimony and support obligations may not be discharged in bankruptcy. Stein v. Fellerman, 144 N.J. Super. 444, 449 (App. Div. 1976), certif. denied, 73 N.J. 50 (1977). Portions of a property settlement agreement not viewed as being in the nature of alimony, such as debts assumed as part of equitable distribution, are dischargeable. Ibid. The burden of proof is on the party claiming the liability is non-dischargeable, plaintiff in this case. In re Midnet, 84 B.R. 776, 778 (Bankr. M.D. Fla. 1988); Bankruptcy Rule 4005. In making its determination, the courts are not bound by the label which the parties ascribe to any provision in the agreement. See Kubera v. Kubera, 200 B.R. 13, 16 (Bankr. W.D.N.Y. 1996). In determining whether obligations arising out of a divorce settlement are in the nature of support, a court must "look beyond the label attached to an obligation by a settlement agreement to examine its true nature." Gianakas v. Gianakas, 917 F.2d 759, 762 (3d Cir. 1990). The intent of the parties at the time of the settlement agreement must be discerned. Id. (citing In re Yeates, 807 F.2d 874, 878 (10th Cir. 1986)). In order to ascertain the parties' intent at the time of the settlement, the court must analyze the following three principle factors:
1) the language and substance of the agreement in the context of surrounding circumstances, using extrinsic evidence if necessary;
2) the parties' financial circumstances at the time of the settlement; and
3) the function served by the obligation at the time of the divorce or ...