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In the Matter of Robin Mason and Martin Mason

November 28, 2012

IN THE MATTER OF ROBIN MASON AND MARTIN MASON


The opinion of the court was delivered by: Lynn, J.

a.m. on the morning of their release. The direct address of the court's home page is: http://www.courts.state.nh.us/supreme.

1st Circuit Court - Berlin Family Division

Argued: September 20, 2012

The respondent, Martin Mason, appeals an order of the 1st Circuit Court - Berlin Family Division (Patten, J.), upon the recommendation of the Marital Master (Barber, M.), finding that the obligation of the petitioner, Robin Mason, to pay 50% of Martin's federal income taxes was automatically discharged in Robin's proceedings for bankruptcy under Chapter 7 of the United States Bankruptcy Code, 11 U.S.C. §§ 701 et seq. (2006). We affirm in part, reverse in part, and remand.

The following facts were either found by the trial court or are undisputed. The parties' final decree of divorce was issued in October 2007. It directed Robin to pay 50% of Martin's federal income taxes for 2006. In September 2010, Robin filed for Chapter 7 bankruptcy, listing her obligation under the divorce decree in three separate places. She listed Martin as a creditor holding an unsecured non-priority claim for $4,519.50 for "2010; divorce settlement" and as a codebtor on a "federal tax lien." She also included among her unsecured priority claims a "2006; Federal Tax lien joint with ex husband" in the amount of $5,052.82. In December 2010, the United States Bankruptcy Court for the District of New Hampshire found Robin entitled to a discharge. Robin and Martin each petitioned the Internal Revenue Service (IRS) for "innocent spouse" relief*fn1 from their federal income tax liability for 2006. Her petition was granted; his was denied.

In July 2011, Martin filed a motion for contempt in the 1st Circuit Court - Berlin Family Division, asking the court to order Robin to pay 50% of his federal income tax liability for 2006. The court found that, even though "innocent spouse" relief "changed the nature of [Robin's] obligation from a tax debt to a debt owed [Martin,]" bankruptcy had absolved Robin of her obligation to pay 50% of Martin's 2006 federal income taxes. The court reasoned as follows:

[Robin] sought to have her debt to [Martin] discharged in bankruptcy. Toward [that] end, in her bankruptcy petition [Robin] noticed [Martin] as a creditor for "2010: divorce settlement" in the amount of the original debt to the IRS. [Martin] was duly noticed that he was listed as a creditor and had the opportunity to litigate the issue in the bankruptcy court. [Robin] was granted a bankruptcy and the debt was discharged.

The trial court denied Martin's motion for contempt as well as his request for attorney's fees. This appeal followed.

On appeal, Martin argues that the trial court erred as a matter of law when it found that Robin's obligation to pay 50% of his 2006 federal income taxes had been discharged in bankruptcy because he failed to make a showing before the bankruptcy court that her obligation was non-dischargeable. Martin also argues that the trial court erred as a matter of law and unsustainably exercised its discretion when it declined to award him attorney's fees and costs. We address each argument in turn.

I. Dischargeability of Robin's Debt

As an initial matter, we find that this court has jurisdiction to determine the dischargeability of the debt at issue, contrary to Robin's argument that "[i]n a contested case, whether a debt is non-dischargeable is a matter for the Bankruptcy Court alone to decide." Federal "district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11," subject to an exception not at issue here. 28 U.S.C. §§ 1334(b), (e)(2) (2006) (emphasis added). "While it is true that state courts lack jurisdiction to modify or to grant relief from a bankruptcy court's discharge injunction, they retain . . . concurrent jurisdiction under 28 U.S.C. § 1334(b) to construe the discharge and determine whether a particular debt is or is not within the discharge." Sunbeam Corp. v. Dortch, 313 S.W.3d 114, 115-16 (Ky. 2010) (quotation omitted); see Howard v. Howard, 336 S.W.3d 433, 442 (Ky. 2011); State of New York High. Ed. v. Rochlitz, 505 N.Y.S.2d 354, 356 (Sup. Ct. 1986); In re Grabinski, 150 B.R. 427, 432 (Bankr. N.D. Ill. 1993).

Turning to the merits of the appeal, we find that the trial court erred as a matter of law when it found that Robin's obligation to pay 50% of Martin's 2006 federal income taxes had been discharged in bankruptcy. Section 523 of the Bankruptcy Code deals with exceptions to discharge for certain kinds of debts. 11 U.S.C. § 523 (2006) provides:

(a) A discharge under [Chapter 7] does not discharge an individual ...


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