Opinion
NOT FOR PUBLICATION
Argued and Submitted at Pasadena, California: May 21, 2010
Appeal from the United States Bankruptcy Court for the District of Montana. Bk. No. 09-60408-RBK. Honorable Ralph B. Kirscher, Chief Bankruptcy Judge, Presiding.
Before: HOLLOWELL, JURY and RUSSELL , Bankruptcy Judges.
Hon. David E. Russell, Bankruptcy Judge for the Eastern District of California, sitting by designation.
This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1.
Donald and Kimberli Parr (the Debtors) claimed a homestead exemption for their home. The bankruptcy trustee objected. The bankruptcy court sustained the trustee's objection, finding that Donald did not reside at the home when the homestead declaration was filed and that Donald was therefore not entitled to a homestead exemption. Additionally, the bankruptcy court determined that Kimberli was entitled to exempt only the value of her one-half joint interest in the home. We AFFIRM.
I. FACTS
In 2005, the Debtors purchased property on Butterfly Lake Lane (Butterfly Lake) in Billings, Montana. In 2008, the Debtors' marriage began to fail. They separated and Donald moved out in February 2008. Kimberli remained at Butterfly Lake with their children and obtained a restraining order against Donald forbidding him access to Butterfly Lake. She filed a petition for dissolution of marriage in late March or early April 2008. Donald lived for a short while at his office before briefly moving to Missoula, then lived with his mother upon his return to Billings, and after November 2008, at a duplex on Westchester Square in Billings (Westchester Square).
On January 13, 2009, as the Debtors were dissolving their marriage and preparing to file bankruptcy, they executed and filed a declaration of homestead. The declaration states: " [t]hat at the time of making this declaration, they actually reside on [Butterfly Lake]." On March 23, 2009, the Debtors filed a joint chapter 7 bankruptcy case. The Debtors' bankruptcy petition lists Donald's address at Westchester Square and Kimberli's at Butterfly Lake. Butterfly Lake is included on Schedule A as their jointly-owned residence, valued at $199,000 with a secured claim against it in the amount of $154,229.52. The Debtors claimed a homestead exemption under MCA § 70-32-104 in the amount of $44,770.48.
Unless otherwise indicated, all chapter, section, and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
Montana allows an exemption value of up to $250,000 for a homestead. MCA § 70-32-104.
Within 30 days after the § 341 meeting of creditors was held, the bankruptcy trustee (the Trustee) objected to Donald's homestead exemption (the Objection). The Trustee contended that Donald was not entitled to claim a homestead exemption for Butterfly Lake because Donald did not reside there on the petition date.
Kimberli filed an opposition on May 22, 2009. She argued that even though Donald was not occupying Butterfly Lake, it was still his place of residence unless and until the divorce action was resolved and the community property was allocated. In the alternative, Kimberli argued that she would be allocated full ownership of Butterfly Lake through the divorce property settlement, and therefore, was entitled to the full exemption claim.
On June 23, 2009, the bankruptcy court held a hearing on the Objection. The bankruptcy court determined that it would not decide the matter until the divorce court allocated the community property. On August 18, 2009, the state court entered a Settlement Agreement, Waiver of Hearing and Consent to Entry of Decree, which was approved by a Final Decree of Dissolution of Marriage entered on August 28, 2009 (the Divorce Decree).
The order entered by the bankruptcy court gave the Debtors 10 days to request relief from the stay in order to proceed with the dissolution.
The Divorce Decree states, in part:
On September 22, 2009, the bankruptcy court held a second hearing on the Objection. The Debtors provided testimony and various documents were entered into evidence. On October 26, 2009, the bankruptcy court issued a Memorandum Decision, concluding that because Donald did not reside at Butterfly Lake on the petition date, he was not entitled to claim it as a homestead; and that Kimberli was only entitled to claim a homestead value proportionate to her one-half interest in Butterfly Lake as of the petition date. In re Parr, 2009 WL 3517602 (Bankr. D. Mont. 2009). An order sustaining the Objection was entered the same day. Kimberli timely appealed.
Although only Kimberli filed the appeal, her Opening Brief refers, for the most part, to her arguments and position as belonging to the Debtors. In our discussion, we likewise attribute the position of Kimberli with respect to the joint claim of homestead exemption as belonging equally to the Debtors.
II. JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. § 157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.
III. ISSUE
(1) Did the bankruptcy court err in denying Donald's homestead exemption for Butterfly Lake?
(2) Did the bankruptcy court err in denying Kimberli the full homestead exemption value?
IV. STANDARDS OF REVIEW
Questions regarding the right of a debtor to claim exemptions are subject to de novo review. Arnold v. Gill (In re Arnold), 252 B.R. 778, 784 (9th Cir. BAP 2000). We review the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. Hopkins v. Cerchione (In re Cerchione), 414 B.R. 540, 545 (9th Cir. BAP 2009). Clear error will only be found if, on the entire evidence, we are " left with the definite and firm conviction that a mistake has been committed." United States v. U.S. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948).
V. DISCUSSION
A. Donald Was Not Entitled To Claim A Homestead Exemption For Butterfly Lake
Property that may be exempted from the bankruptcy estate is set forth in § 522(b)(1). Montana has opted out of the federal exemption scheme and permits its debtors only the exemptions allowable under state law. 11 U.S.C. § 522(b)(2), (3); MCA § 31-2-106. Therefore, while " the federal courts decide the merits of state exemptions, . . . the validity of the claimed state exemption is controlled by the applicable state law." Kelley v. Locke (In re Kelley), 300 B.R. 11, 16 (9th Cir. BAP 2003); In re Harrod, 2010 WL 346882 *3 (Bankr. D. Mont. 2010).
In Montana, a homestead " consists of the dwelling house or mobile home, and all appurtenances, in which the claimant resides . . . ." MCA § 70-32-101. There is no " automatic" homestead exemption based upon possession alone. Martinson v. Michael (In re Michael), 183 B.R. 230, 233 (Bankr. D. Mont. 1995). In order to be entitled to a Montana state homestead exemption, a debtor must execute and record, in the same manner as a grant of real property, a declaration of homestead. Id .; MCA § § 70-32-105, -106, -107. The declaration of homestead must contain a description of the premises and a statement that the person resides there and claims it as a homestead. MCA § 70-32-106.
Montana state exemption statutes are liberally construed in favor of debtors. In re Snyder, 2006 MT 308 ¶ 13, 335 Mont. 11, 14, 149 P.3d 26, 28 (citing Mont. Const. art. XIII, § 5); Glass v. Hitt (In re Glass), 60 F.3d 565, 570 (9th Cir. 1995). Nevertheless, if there is not compliance with the statute there is no valid homestead exemption. In re Michael, 183 B.R. at 233. Moreover, the essential element of claiming a homestead exemption is residence on the property. In re Luthje, 107 B.R. 292, 296 (Bankr. D. Mont. 1989) (" [A] homestead cannot be claimed unless the [d]ebtor resides on the property."); In re Vaughn, 16 Mont. B.R. 182, 183 (Bankr. D. Mont. 1997) (The " general rule is that an individual asserting a homestead exemption must reside on the premises.").
A debtor's entitlement to an exemption is determined based upon facts as they existed at the time of the bankruptcy filing. See In re Cerchione, 414 B.R. at 548; Cisneros v. Kim (In re Kim), 257 B.R. 680, 685 (9th Cir. BAP 2000). It is undisputed that at the time Donald filed his bankruptcy petition, he had not physically occupied Butterfly Lake for over a year.
Donald testified that when he moved from Butterfly Lake in February 2008, he took most of his personal property with him and never returned. Donald testified that even though he had never intended to return to Butterfly Lake to live with Kimberli, he considered Butterfly Lake his home and felt that he was entitled to part of the house. Donald testified he considered Westchester Square his residence as of November 2008. This is confirmed by Donald listing Westchester Square as his residence on the couple's January 2009 parenting plan, Donald opening a bank account with the Westchester Square address in January 2009, filing his bankruptcy petition listing Westchester Square as his address in March 2009, and submitting his 2008 tax returns indicating his residence at Westchester Square.
Nevertheless, the Debtors assert that:
All of the testimony at the hearing on this matter made it clear that [Butterfly Lake] was the residence of both Donald and Kimberli as of February 2008 when Donald moved out because of marital differences. At no time thereafter did he make any overt act that showed his intention to establish a new residence from [Butterfly Lake] prior to filing the homestead declaration.
Appellant's Opening Brief at 10.
Essentially, the Debtors argue that Donald " established his residence" at Butterfly Lake and did not abandon or terminate it when the couple separated. They rely on MCA § 1-1-215, which provides guidelines for determining a person's residence:
(1) [A person's place of residence] is the place where a person remains when not called elsewhere for labor or other special or temporary purpose and to which he returns in seasons of repose.
(2) There may be only one residence. If a person claims a residence within Montana for any purpose, then that location is the person's residence for all purpose unless there is a specific statutory exception.
(3) A residence cannot be lost until another is gained.
. . .
(6) The residence can be changed only by the union of act and intent.
MCA § 1-1-215. " Each case regarding a person's place of residence 'must stand on its own facts.'" Umland v. Nat'l Cas. Co., 2003 MT 356, 319 Mont. 16 ¶ 20, 81 P.3d 500, 503 (Mont. 2003) (internal citation omitted).
In support of their argument, the Debtors cite to several Montana cases where the court, for various reasons, allowed a party to claim a residence as a homestead even if the party did not physically occupy the residence. These cases are distinguishable.
The courts in In re Vaughn, 16 Mont. B.R. 182 (Bankr. D. Mont. 1997) and In re Loeb, 1993 WL 837912 (Bankr. D. Mont. 1993) were concerned with whether a homestead had been abandoned, either through marital separation or under the requirements for abandonment under MCA § 70-32-302. In In re Snyder, 2006 MT 308 ¶ 13, 335 Mont. 11, 14, 149 P.3d 26, 28 (Mont. 2006), the court concluded that even though a person no longer resided on property, he or she could still be able to claim a homestead under MCA § 70-32-216, which provides that if sold property could have been claimed an exempt homestead, the proceeds that are traceable to it may be exempted. Finally, in McCone County Fed. Credit Union v. Gribble, 2009 MT 290, 352 Mont. 254, 216 P.3d 206 (Mont. 2009), the court analyzed whether the defendant resided on a homestead in order to evaluate whether the property was an asset for purposes of MCA § 31-2-328, the Montana Uniform Fraudulent Transfer Act, which does not require a declaration of homestead to be filed in order to claim an asset exempt.
By contrast, the court in In re Schuster, 2006 WL 2711800 (D. Mont. 2006), found that because the debtor did not reside on the property when he filed his homestead declaration, his homestead claim was invalid. The debtor in In re Luthje, 107 B.R. 292 (Bankr. D. Mont. 1989) was denied a discharge under § 727 because he fraudulently attempted to establish a homestead exemption on property on which he did not reside (even though he had a mobile home on the property, he did not spend time at the property, the property did not have utility service, and the majority of the debtor's personal property was elsewhere).
The Debtors' assumption that they established their residence at Butterfly Lake for homestead exemption purposes prior to recording the homestead declaration is simply incorrect. They essentially construe the guidelines for residency contained in MCA § 1-1-215 as an automatic homestead statute. However, there is no automatic homestead exemption in Montana. It is the execution and recording of a declaration of homestead that establishes a homestead as exempt. MCA § 70-32-105. Therefore, the issue is not whether Donald abandoned his homestead at Butterfly Lake by his absence during the separation, but whether he resided at Butterfly Lake when the homestead declaration was filed in order for the homestead declaration to be valid.
The statement that Butterfly Lake remained Donald's legal residence in the Divorce Decree does not change the analysis because the Divorce Decree could not establish Donald's residency for the purpose of claiming a homestead exemption.
Donald was statutorily required to reside at Butterfly Lake when he filed his declaration of homestead in order to claim it as his homestead. In re Michael, 183 B.R. at 233; Wilson v. Arkison (In re Wilson), 341 B.R. 21, 27 (9th Cir. BAP 2006). After reviewing the documents and testimony submitted by the parties, the bankruptcy court found that Donald did not reside at Butterfly Lake at the time the declaration of homestead was filed. Given that Donald filed documents and gave testimony stating that he lived at Westchester Square since November 2008, we find no clear error in the bankruptcy court's findings. Therefore, Donald was not entitled to a homestead exemption for Butterfly Lake.
B. Kimberli Is Not Entitled To A Full Claim Of Exemption For Butterfly Lake
As noted above, a debtor's entitlement to an exemption is determined based upon facts as they existed at the time of the bankruptcy filing. See In re Cerchione, 414 B.R. at 548; In re Kim, 257 B.R. at 685. Although the Divorce Decree allocated Butterfly Lake to Kimberli postpetition, at the time the Debtors filed their bankruptcy petition, they owned Butterfly Lake jointly.
Under Montana law, a joint tenant owns an undivided equal share of the joint tenancy estate. MCA § 70-1-307 (" A joint interest is one owned by several persons in equal shares. . . ."; In re Zimmerman, 2002 MT 90 ¶ 16, 309 Mont. 337, 341, 46 P.3d 599, 601 (Mont. 2002). Furthermore, MCA § 70-32-104(2) provides that " [i]f a claimant who is an owner of an undivided interest in real property claims a homestead exemption, the claimant is limited to an exemption amount proportional to the claimant's undivided interest." Accordingly, the value of Kimberli's homestead claim is limited to the proportional share of her interest, which is one-half because she was a joint tenant at the time the petition was filed.
VI. CONCLUSION
For the foregoing reasons, we AFFIRM the bankruptcy court's order sustaining the Trustee's objection to the Debtors' claim of homestead exemption for Butterfly Lake.
The parties own [Butterfly Lake]. Although Donald has lived in temporary quarters since the parties separated, [Butterfly Lake] has remained his legal residence during the pendency of this matter. Based upon the equities of this case, . . . an equitable distribution of the parties' assets requires that Kimberli receive [Butterfly Lake].