An opinion from the Ninth Circuit affirming the Bankruptcy Appellate Panel suggests that the California legislature might consider modifying the state’s homestead exemption to protect people in nontraditional relationships who are victims of abuse.
Obliged to follow state law, the Ninth Circuit upheld denial of a homestead exemption because the debtor had no intent to return to the home, even though she said that returning was impossible given abuse from her former partner to whom she was not married.
The Breakup
The unmarried couple began cohabiting in 2004. Having purchased a home together in 2015, their personal relationship ended in 2016. The debtor moved out of the home a few months later.
After the breakup, the couple made a written agreement to divide their property and proceeds. The agreement called for the home to be sold and for the debtor to receive a share of the proceeds.
Filing a chapter 7 petition in 2021, the debtor claimed a California homestead exemption of almost $500,000 in the home she had left five years earlier. The trustee and the former domestic partner objected to the homestead exemption. The nonbankrupt former partner had not sold the home and claimed that the debtor had forfeited her right to proceeds under terms of the agreement.
The bankruptcy court upheld the objection to the exemption claim and was affirmed by the BAP. McKee v. Anderson (In re McKee), 22-1042, 2022 BL 417325 (B.A.P. 9th Cir. Nov. 18, 2022). To read ABI’s report, click here. The debtor appealed to the Ninth Circuit.
No Intent to Return Was Pivotal
Circuit Judge Kenneth K. Lee explained that the debtor was claiming a so-called automatic homestead exemption under California law that’s available to someone who “resides” in the property. However, physical occupancy is not required if the person “intends to return.”
Whether the debtor intended to return was a question of fact that the bankruptcy court found against the debtor. Rather than intending to return, the bankruptcy judge decided that the debtor’s desire was to cash out her interest in the property, not to live in the home.
The debtor claimed that her former partner’s abuse made it impossible for her to return, but Judge Lee read California caselaw to mean that impossibility of returning does not give rise to an exemption “regardless of intent to return to the home.” In the case on appeal, the bankruptcy court had found that the debtor had no intent to return.
The evidence supported the bankruptcy court’s factual conclusion. The debtor had changed her driver’s license and her voter registration to show that her residence was a home that she was renting, not the home that she had left. The debtor had removed all of her personal property and only wanted to “cash out” her interest on her former home, the bankruptcy judge found.
While the debtor’s testimony might be “probative,” Judge Lee said that the debtor’s “post hoc testimony that she would have returned — had [her former partner] ever vacated — does not save her claim.”
The debtor urged the appeals court to protect her interest in the homestead under California Code § 704.720(d). Before a division of community property, the subsection extends the homestead exemption to a “debtor . . . not currently residing in the homestead” if “his or her separated or former spouse continues to reside in or exercise control over possession of the homestead.”
“Neither the plain language of the statute nor the caselaw supports” the debtor’s argument that the subsection should apply even though the couple were never married, Judge Lee said.
Alternatively, the debtor argued that the subsection should apply because it was enacted to protect victims of domestic violence. Judge Lee rejected the contention, saying that the “argument impermissibly requires us to extend California law — which we cannot and do not do.”
Judge Lee affirmed the BAP’s decision affirming the bankruptcy court’s order sustaining objections to the homestead exemption.
An opinion from the Ninth Circuit affirming the Bankruptcy Appellate Panel suggests that the California legislature might consider modifying the state’s homestead exemption to protect people in nontraditional relationships who are victims of abuse.
Obliged to follow state law, the Ninth Circuit upheld denial of a homestead exemption because the debtor had no intent to return to the home, even though she said that returning was impossible given abuse from her former partner to whom she was not married.