A decision from the Ninth Circuit Bankruptcy Appellate Panel underscores the need for updating common and statutory law to deal with breakups in the “modern family” and concerns for spousal abuse.
Although California law is liberal in the sense of preserving homestead exemptions on the dissolution of relationships, all three judges on the BAP were bound by the bankruptcy judge’s findings of fact and upheld the trustee’s objection to a homestead exemption.
Bankruptcy Judge Laura S. Taylor said in her concurring opinion that she would have upheld the debtor’s homestead exemption were the findings different. “[W]hen the relationship between domestic partner co-owners terminates,” she said, “the party who vacates the home need not intend to return in all circumstances to preserve the homestead.”
The couple were law partners who began cohabiting in 2004. Unmarried, they purchased a home together in 2015. The personal relationship ended in 2016, and the debtor moved out of the home a few months later.
The couple made a written agreement to divide their property and proceeds. In substance, the agreement called for the home to be sold and for the debtor to receive a share of the proceeds.
The nonbankrupt partner did not sell the home and contended that the debtor had forfeited her right to proceeds under terms of the agreement. The debtor filed a chapter 7 petition and claimed a California homestead exemption in her share of the proceeds. The trustee and the former domestic partner objected to the homestead exemption.
The testimony and the findings of fact by the bankruptcy court are complicated but boil down to this: The debtor admitted that she did not physically occupy the home on the filing date. At trial, the debtor testified that “she was forced to leave the property due to emotional abuse and physical intimidation, and it was impossible for her to return so long as [her former domestic partner] continued to reside there.” Fearing for her safety, the debtor claimed she would have remained in the home “but for the abuse,” according to the November 18 BAP opinion by Bankruptcy Judge Scott H. Gan.
In substance, the debtor testified that she did not intend to return to the residence unless her former partner were to leave. She was, however, adamant about wanting her share of the proceeds.
California has opted out of federal exemptions, but state statutory law, Judge Gan said, allows a spouse of a former spouse to retain a homestead exemption without residing in the property, as long as there is an intent to return. However, he said it was “essential” under state law for the debtor to “have an intent to reside in the property, even if the debtor was forced to leave due to dangerous conditions.”
Because the bankruptcy court had found that the debtor did not have an intent to return, Judge Gan upheld the bankruptcy court’s denial of a state homestead exemption. The debtor might have had a claim under another provision of California law, but they “were not married,” Judge Gan said, and the home “was not community property.”
The Concurrence
With “reluctance,” Judge Taylor concurred, saying, “[W]e cannot expand the [California] statute through judicial fiat to cover non-married persons.”
The concurrence is replete with admonitions for courts facing similar situations. For example, Judge Taylor said, “[W]e cannot lightly deprive a person of a homestead against a background of alleged physical threat.”
Judge Taylor said she would have reversed absent findings by the bankruptcy court that the debtor had contractually given up her right to return to the home in return for other consideration in the “separation” agreement.
Absent those findings, Judge Taylor said she would have reversed,
even if the facts do not support a conclusion that the departure was not required to avoid physical harm . . . . And a well-evidenced desire to return only when or if a former domestic-partner departs should be sufficient where there is no exchange of valuable alternative consideration in exchange for vacating the home . . . . Where the nonresident party wants to use home proceeds [to purchase another home] and is not resident in the home because joint habitation is difficult, impossible, or dangerous, we should interpret the exemption statutes broadly and absent unusual facts determine that the homestead was not abandoned.
Speaking broadly, Judge Taylor said she was “confident that when the relationship between domestic partner co-owners terminates, the party who vacates the home need not intend to return in all circumstances to preserve the homestead.” She said it would be “sufficient” if the debtor “merely sojourns in another location until it is safe for body, mind, and spirit to return to the homestead.”
Observation
We recommend reading the opinion and the concurrence in full text to appreciate the difficulty of the questions confronting courts following the dissolution of nontraditional relationships, especially now that larger numbers of couples are deferring marriage and thereby lack the protections afforded to married couples.
The opinions show that drafting state and federal statutes will be a difficult undertaking.
A decision from the Ninth Circuit Bankruptcy Appellate Panel underscores the need for updating common and statutory law to deal with breakups in the “modern family” and concerns for spousal abuse.
Although California law is liberal in the sense of preserving homestead exemptions on the dissolution of relationships, all three judges on the BAP were bound by the bankruptcy judge’s findings of fact and upheld the trustee’s objection to a homestead exemption.
Bankruptcy Judge Laura S. Taylor said in her concurring opinion that she would have upheld the debtor’s homestead exemption were the findings different. “[W]hen the relationship between domestic partner co-owners terminates,” she said, “the party who vacates the home need not intend to return in all circumstances to preserve the homestead.”