In the United States Bankruptcy Court

for the Northern District of Iowa


THOMAS R. STEFFEN Bankruptcy No. L-91-02167D
Debtor(s). Chapter 7

THOMAS R. STEFFEN Adversary No. L-92-0009D
Plaintiff(s)
vs.
KAREN N. STEFFEN
Defendant(s)

FINDINGS OF FACT CONCLUSIONS OF LAW AND ORDER Re: Debtor's Motion To Avoid Lien


The matter before the Court is the complaint of the debtor seeking determination as to the dischargeability of a debt owed to his former spouse, Karen M. Steffen ("Karen"), and the motion of the debtor, pursuant to 11 U.S.C. § 522(f)(1) to avoid Karen M. Steffen's judgment lien against the real estate which is the former marital residence of the Steffens. This Court concludes that the debt in question is dischargeable, but that the debtor may not avoid Karen M. Steffen's interest in the real estate at issue.

FINDING OF FACTS

The parties have stipulated to the following:

1. Thomas and Karen Steffen were married in June of 1976 and later dissolved their marriage on June 4, 1991. At the time of their dissolution of marriage, the Iowa District Court entered a judgment and decree dividing their marital property between the parties.

2. Prior to the marriage Thomas Steffen owned the real estate at issue in this case which is legally described as Lot 10 in Brueck's subdivision in the City of Dubuque, Iowa, also known as 3210 W. 32nd Street, Dubuque, Iowa, in fee simple. He never transferred legal title to Karen Steffen.

3. During the marriage, Karen Steffen's only interest in the real estate at 3210 W. 32nd Street was her dower right under Iowa law. The dissolution of marriage decree terminated the dower interest and replaced it with a lien interest in the property to secure her equitable share of the property awarded by the Iowa District Court. The relevant parts of the dissolution of marriage decree provide as follows:

6. The parties' residence at 3210 West 32nd Street, shall be sold at a price mutually agreeable by the parties. From the proceeds thereof, the parties shall first pay the outstanding encumbrance together with all costs and commissions related to the sale. Thereafter, the first $7,000.00 is awarded to the Respondent. This represents the Respondent's premarital investment in the land, together-with that portion of his other investments prior to the marriage and the building that would yet be reflected in the value of the building. The remaining funds from the sale shall be divided equally between the parties.

7. Respondent shall have the right to purchase from Petitioner. Petitioner's interest in the real estate for $12,150.00. The court arrives at this figure by presuming a $72,000.00 sale, deducting the present encumbrance, deducting an additional $7,000.00 for Petitioner's premarital investment that yet relates to value, dividing the remaining equity in half and deducting from Petitioner's half, one-half of the probable costs and commissions of sale, assuming a realtor was used. For that reason, any attendant costs upon purchase by Respondent shall be born by Respondent.

In addition, the decree of dissolution of marriage makes other provisions for child support and alimony.

4. Thomas Steffen presently resides at 3210 W. 32nd Street. He has claimed the property exempt in this bankruptcy proceeding under the Iowa homestead exemption.

5. Karen Steffen is presently the moving party in a state court proceeding requesting the Iowa District Court to find Thomas Steffen in contempt of court for the failure to make payment on the real estate as provided for by the dissolution of marriage decree.

DISCUSSION AND CONCLUSIONS OF LAW

The first issue is whether the obligations of Thomas N. Steffen, which are set out in the above quoted provisions of the dissolution of marriage decree, are in the nature of a property settlement and, therefore, dischargeable pursuant to § 523 of the Bankruptcy Code. Section 523(a)(5) excepts from discharge those obligations owed to a former spouse which are in the nature of alimony or child support. The defendant has not asserted that the property interest in question is in the nature of alimony or support. The Court understands from the stipulation of facts which has been submitted that the parties have essentially stipulated that the debt in question is dischargeable. The Court, therefore, concludes as a matter of law that the debt is a dischargeable debt.

The more significant issue is whether the lien rights or property interests awarded to Karen Steffen are subject to lien avoidance pursuant to § 522(f). The Bankruptcy Code provides that exempt property (such as the homestead) remains liable for satisfying discharged debts which are secured by the property, unless, the lien is avoided pursuant to § 522(f). See 11 U.S.C. § 522(c). Consequently,, the homestead located at 3210 West 32nd Street remains liable for satisfying the award made to Karen Steffen in the dissolution of marriage decree, unless, Thomas Steffen can avoid the lien pursuant to § 522(f).

The relevant statutory provision provides as follows:

  1. Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is--
    1. a judicial lien . . . .

§ 522(f)(1). The United States Supreme Court recently addressed this specific issue and held that when a lien on exempt property is created by a divorce decree that simultaneously creates the debtor's interest in the property, that lien cannot be avoided by § 522(f)(1). Farrey v. Sanderfoot, ___ U.S. ___, 111 S. Ct. 1825, 114 L. Ed. 2d 337 (1991).

The Supreme Court first observed that § 522(f)(1) applies only to "the fixing of a lien on an interest of the debtor in 'Property." Sanderfoot, 111 S. Ct. at 1828. The Supreme Court interpreted this language to mean that § 522(f)(1) only avoids judicial liens that have attached to the property of the debtor "at some point after the debtor obtained the interest." Id. at 1828-29. The Supreme Court further stated:

(U]nless the debtor had the property interest to which the lien attached at some point before the lien attached to that interest, he or she cannot avoid the fixing of the lien under the terms of 522(f)(1).

Id. (emphasis original). If the lien and the property interest are created simultaneously or if the lien attached before the debtor obtained an interest in the property, then the lien cannot be avoided. Sanderfoot, 111 S. Ct. at 1830-31; see also In re Macke, 136 B.R. 209, 211 (Bankr. S.D. Iowa 1992) (citing Sanderfoot). The debtor takes the property interest subject to the lien; the lien is not imposed on the interest.

The Sanderfoot Court held that a divorce decree under state law extinguishes the preexisting property interests of the two parties and then brings into legal existence new property interests in the place of the old. Sanderfoot, 111 S. Ct. at 1830; see also Macke, 136 B.R. at 211. Thus, liens imposed on property pursuant to divorce decrees are not imposed on preexisting property interests since the divorce decree extinguishes all preexisting interests and creates new ones. Thomas Steffen, recognizing that Sanderfoot stands as an obstacle to his attempt to avoid Karen's lien, argues that only Karen's property interest was changed by the divorce decree in this case. He asserts the decree changed Karen's interest from a dower right into a judicial lien that could be avoided. But, his property interest, he argues, preexisted the divorce decree and remained unchanged after it, except for the fixing of Karen's lien upon it.

A divorce decree divides the marital property between the two spouses by creating new property interests in accordance with equitable principles(2)

. In this Case, when the divorce decree divided the marital property interests, it also simultaneously created Karen Steffen's interest in the property to protect her marital property rights. Hence, Iowa law brings this case directly under Sanderfoot. Moreover, the outcome would be the same even if the Iowa divorce decree did not extinguish pre-existing property interests, but instead merely reordered the property interests of the parties. Sanderfoot, 111 S. Ct. at 1831. If the divorce decree could be construed to have transferred Karen's dower interest to Thomas, it also simultaneously created a lien in that interest. See Id. Thomas would not be able to avoid the lien because it fastened to Karen's preexisting dower interest before Thomas received that interest. See Id. Therefore, Thomas never held the interest without the lien already having been affixed to the property interest. Id.

The Court must note, however, that this case is not factually identical to Sanderfoot. In Sanderfoot the debtor-spouse and the creditor-spouse each held equal shares in the divided marital property before it was divided by the divorce decree. Here, the debtor had full legal title to the property and the creditor had only an equitable dower interest prior to the divorce decree dividing the-property.

The Eighth Circuit, however, has specifically addressed the factual situation presented here in Boyd v. Robinson, 741 F.2d 1112 (8th Cir. 1984). Boyd held-that the debtor-spouse who was previously the full legal title holder could not avoid the lien of the creditor-spouse under § 522(f)(1). Id. The Boyd case reasoned that a lien merely 'recognizes, and provide[s) a remedy to enforce, a pre-existing property right in the marital home." 741 F.2d at 1115. Divorce court liens do not attach to the debtor's property interest, but instead the lien attaches to the creditor-spouse's preexisting equitable interest in the homestead that was created by state law prior to the marriage dissolution(3). Boyd, 741 F.2d at 1114. Therefore, the debtor receives the creditor spouse's interest in property with a lien already attached. Id.

The ruling in Boyd, while relying on somewhat different reasoning, is consistent with the Supreme Court's conclusion in Sanderfoot. 111 S. Ct. at 1828 (citing Boyd). This Court believes the ruling in Boyd continues to have vitality after Sanderfoot, and directly applies to this case. Hence, this Court concludes that under all controlling authority the debtor may not avoid the lien of the creditor-spouse pursuant to § 522(f)(1).

Finally, it is unclear as to whether the interest which is the subject of this dispute constitutes a lien interest. Sanderfoot typifies the usual divorce decree in which one spouse is awarded sole title to the family residence with the other spouse receiving a money judgment for his or her interest in the residence, secured by a lien against the home.- In this case, however, the Court ordered the residence sold and decreed how the sale proceeds were to be divided. Karen retains a property interest in the residence, not a judgment secured by a lien. As a consequence, there is no lien to avoid pursuant to 11 U.S.C. § 522(f).

In conclusion, plaintiff's motion to avoid the judgment lien of Karen Steffen is denied. If the interest of Karen Steffen is in fact a lien interest, the motion to avoid lien is denied on the basis of the controlling authority in the Sanderfoot and Boyd cases. Alternatively, if the interest of Karen Steffen is not a lien interest but rather a property interest, there is no authority in the Bankruptcy Code to extinguish her property rights in the marital residence.

ORDER

IT IS THEREFORE ORDERED that any debt which is provided for in paragraphs 6 and 7 of the decree of dissolution of marriage entered in connection with the marriage of Thomas and Karen Steffen is determined to be a dischargeable debt.

IT IS FURTHER ORDERED that the motion to avoid Karen Steffen's lien rights and property interests in the property legally described as: Lot 10 in Brueck's Subdivision, in the City of Dubuque, Iowa, also known as 3210 W. 32nd Street, Dubuque, Iowa, is denied.

DONE AND ORDERED this 12th day of May, 1992.

Michael J. Melloy
Chief Bankruptcy Judge


1. All statutory references, unless otherwise specified, are to the Bankruptcy Code, as amended, 11 U.S.C. §§ 101-1330 (1992).

2. IOWA CODE § 598.21(l) (1991) provides that:

  1. Upon every judgment of annulment, dissolution or separate maintenance the court shall divide the property of the parties and transfer the title of the property accordingly. . . The court shall divide all property, except inherited property or gifts received by one party, equitably between the parties after considering all the following:
    1. The length of the marriage.
    2. The property brought to the marriage by each party.
    3. The contribution of each party to the marriage, giving appropriate economic value to each party's contribution in homemaking and child care services.
    4. The age and physical and emotional health of the parties.

      . . . .

    1. Other factors the court may determine to be relevant in an individual case.

3. Both Iowa and Minnesota recognize that a spouse through marriage gains an equitable property interest. Compare IOWA CODE 598.21(l) (1991) and Boyd v. Robinson, 741 F.2d 1112 (8th Cir. 1984).