Wiggains v. Reed

Before debtor and his wife received the purchase offer on their home, the couple executed and filed a Partition Agreement, which sought to recharacterize their home from community property to separate property, one half belonging to each spouse. Then debtor filed for bankruptcy under Chapter 7, claiming an exemption for his separate interest in the home under Texas law. Debtor's wife subsequently initiated an adversary proceeding seeking a declaratory judgment recognizing that the Partition Agreement gave her a one-half separate property interest in the net proceeds from the sale. The Trustee counterclaimed to avoid the Partition Agreement and for a declaration that the remaining proceeds from the sale were property of the estate. The bankruptcy court declared the Partition Agreement avoidable as a fraudulent transfer, leaving the amount of the net sale proceeds in excess of debtor's exemption to be nonexempt property of the estate, and determined that debtor's wife had no right or interest in the Homestead Net Sale Proceeds by virtue of the Partition Agreement. The court affirmed the bankruptcy court's judgment. In this case, the court explained that allowing the wife to sidestep the statutory limits for homestead exemptions and obtain approximately $500,000 in proceeds that otherwise are for creditors would lay waste to the provisions of the Bankruptcy Code involved here. View "Wiggains v. Reed" on Justia Law