08/12/2011 – Defendant’s Memorandum in Support of Motion to Dismiss Adversary Proceeding filed in the Adversary Proceedings by Galassini before U.S. Bankruptcy Judge Pamela S. Hollis in the Northern District of Illinois (Eastern) filed by O’Rourke & Moody (Chicago, IL) attorney Michael C. Moody .
Defendant, Timothy Galassini (“Defendant” or “Mr. Galassini”) seeks dismissal of a Section 547 – preference – and a Section 548 – fraudulent conveyance – complaint filed by his former wife as debtor-in-possession (“Plaintiff” or “Debtor”). Pursuant to a Dissolution of Marriage, the Defendant received $174,025 for marital assets, $100,000 toward Mr. Galassini’s attorneys fees in the divorce action and $360,000 connection with the Debtor’s receipt of sole title to the marital residence. The motion to dismiss is based on the domestic support defense in Section 547(c)(7) and the Debtor’s solvency during the preference period. Registered users click here to see a copy of this brief.
The Defendant argues that the lump sum payments made by the Debtor pursuant to the Dissolution of Marriage are protected from avoidance by the Section 547(c)(7) defense applicable to “a bona fide payment of a debt for a domestic support obligation… .” This portion of Defendant’s brief follows:
A. Defendant’s claim as creditor in the Bankruptcy Case is a domestic support obligation and therefore cannot be avoided pursuant to 11 U.S.C. § 547(c)(7).
11 U.S.C. § 101 (14A) defines a domestic support obligation (“DSO”), in pertinent part, as a debt that accrues before the date of the order of relief in a bankruptcy case that is owed to a former spouse in the nature of support of such former spouse established by a divorce decree that is not assigned to a nongovernmental entity. See 11 U.S.C. § 101 (14A) (Lexis, 2011). In determining whether an obligation is a liability for support or maintenance, the court must look to the substance of the obligation and not to labels imposed by state law. In re Harr, 2000 Bankr. LEXIS 1026, 15 (Bankr. N.D. Ill., 2000); citing Maitlen v. Maitlen (In re Maitlen), 658 F.2d 466, 468 (7th Cir. 1981). The determination is made “looking at the substance of the agreement ‘viewed in the crucible of surrounding circumstances.’” Id., at 16; citing Yeates v. Yeates (In re Yeates), 807 F.2d 874, 878(10thCir.1986).
Over the years considering DSO cases, the Seventh Circuit has developed a non-exhaustive list of factors to aid in determining whether or not a debt should be classified as a DSO when there is no clear intent expressed. Harr v. Harr (In re Harr), 2000 Bankr. LEXIS 1026, *16 (Bankr. N.D. Ill. 2000). Those relevant factors include labels used, location of the obligation within the divorce decree, the temporal scope of payments, disparity of income among the parties and the need for child support. Id. at *16-17. In addition to the previous factors, the parties’ intent is also given great deference. Id. at *17 (citation omitted).
Defendant’s creditor claim in the Bankruptcy Case is borne from the Dissolution of Marriage entered by the Circuit Court of Cook County in March 2010. A true and accurate copy of the Dissolution of Marriage is attached hereto as Exhibit A. The Dissolution of Marriage was entered after a long, contentious litigation, termed by the court as “[Debtor’s] reckless litigation.” Exhibit A, ¶ 10(b). The result of Debtor’s actions was a judgment designed to both punish her and to assist Mr. Galassini to recover his life’s status quo after the divorce. The dissolution included a sum to be paid to Mr. Galassini of $174,025.00 for marital assets dissipated by Debtor and $100,000.00 contributed from Debtor to Mr. Galassini’s attorney fees. Exhibit A, ¶¶ 8(c), 10(c). Additionally, and of relevance to this action, the Dissolution of Marriage provided that the marital residence would belong to Debtor solely, and as result Debtor was to pay Mr. Galassini $360,000.00 for the property. Exhibit A, ¶¶ 9(c), 11(c).
In Harr, the plaintiff and debtor/defendant were divorced in 1985 at which time a written settlement agreement was incorporate into the dissolution of the marriage. Harr, *1-2. After failing to make the payments and a 1997 judgment on the payments, debtor filed for a Chapter 7 petition and sought to avoid the debts. Id. at *2-3. Plaintiff filed the adversary proceeding asserting the debts nondischargeable as DSOs, requiring the court to analyze the dissolution of marriage for the above cited factors. See generally Id. The court’s decision that the payments were supportive in nature turned on the fact that the debtor’s earnings more than doubled plaintiff’s and as a result the debtor had to provide for plaintiff in order for her to live her accustomed to life and provide for her children. Id. at *22.
The payments due to Mr. Galassini under the Marriage Dissolution are supportive in nature. Similar to Harr, there is a great income discrepancy between Mr. Galassini and Debtor’s as noted by the court throughout the Marriage Dissolution. Exhibit A, ¶¶ V, 7(e), 10(b)(d). It is clear the court’s disbursement of funds and future costs was greatly affected by the income disparity. The court valued the marital residence at $650,000.00 of which $360,000.00 of the equity was awarded to Mr. Galassini while only $180,000.00 awarded to Debtor. Exhibit A, ¶¶ 7(b), 11(c). Additionally, and even more in line with Harr, Debtor was ordered to pay 80%, to Mr. Galassini’s 20%, of the two dependent children’s medical expenses, private education expenses and extracurricular activities. Exhibit A, ¶¶ 12(b), 13(b), 14(a). Given the court’s continued reference to the income disparity, it is clear the unbalanced home equity split and expense allocation was done in an effort procure a support net for Mr. Galassini to meet his obligations.