© Robert F. Kidd 2005

PARTNERED IN DEBT: THE IMPACTS OF CALIFORNIA’S NEW REGISTERED

DOMESTIC PARTNER LAW ON CREDITORS’ REMEDIES AND DEBTORS’ RIGHTS, UNDER CALIFORNIA LAW AND UNDER FEDERAL BANKRUPTCY LAW

BY: ROBERT F. KIDD, ESQ.1 AND FREDERICK C. HERTZ, ESQ.2

________________________________________________________________________

I. INTRODUCTION

Since 2000, same-sex couples have been able to register with the California Secretary of State as “Registered Domestic Partners.”3 While the initial legislation created only limited rights for such partners, subsequent legislation steadily added new rights and responsibilities.4 Effective January 1, 2005, sweeping new legislation, known as the Domestic Partners Rights and Responsibilities Act of 2003 (“DPRRA”), extended to registered domestic partners most of the rights and duties of married persons.5

Key among these new rights and duties are those of community property: DPRRA extends to registered domestic partners the same rights and responsibilities in “community property” that married persons enjoy. In a closely related area, DPRRA also

1 Robert F. Kidd, Esq., Stein, Rudser, Cohen & Magid, LLP, Oakland, California.

The authors thank the following for their comments: United States Bankruptcy Court, Northern District of California – Hon. Edward Jellen, Hon. Leslie Tchaikovsky and Hon. Randall Newsome; University of California Davis School of Law – Prof. Jack Ayer and Prof. Lisa Ikemoto; present and future members of the State Bar of California – Mary Rudser, Esq., Joan Story, Esq., Susan Jeffries, Esq., Eric P. Israel, Esq., Allison H. Kidd, Mike Daley and Rosie Hernandez.

2 Frederick C. Hertz, Esq., Law Offices of Frederick Hertz, Oakland, California.

3 Pursuant to former Family Code section 297 (STATS. 1999, CH. 588 (AB 26)). For convenience, the text refers to California Registered Domestic Partners variously as “registered domestic partners,” “domestic partners” or simply “partners.” Further for convenience, the text uses only the masculine form of pronouns. Thus, all references in the text to “he,” “his” and “him” refer equally to “she,” “her” and “her.”

4 The history of the initial and subsequent legislation is summarized in Knight v. Superior Court (Schwarzenegger), 128 Cal. App. 4th 14, 20-21, 26 Cal. Rptr. 3d 687, pet. for rev. den., 2005 LEXIS 7127 (June 29, 2005) (hereinafter Knight). See also Elizabeth Erhardt, Creation and Recognition of Domestic Partnership Regimes in California, in CALIFORNIA DOMESTIC PARTNERSHIPS (Sondra Allpin ed., Cont. Ed. Bar 2005) (hereinafter “CALIFORNIA DOMESTIC PARTNERSHIPS”) , pp. 5, et seq.

5 California Domestic Partners Rights and Responsibilities Act of 2003 (STATS. 2003, CH. 421 (AB 205), as amended, STATS. 2004, CH. 947 (AB 2850)). As explained by the Legislative Counsel: “This bill would extend the rights and duties of marriage to persons registered as domestic partners ….” Legislative Counsel’s Digest, AB205. For a general discussion of the new legislation, see CALIFORNIA DOMESTIC PARTNERSHIPS, Frederick Hertz, The Expansion of California’s Domestic Partnership Law: Discerning the Uncertain Impacts of AB205, ACFLS NEWSLETTER (Fall 2004 No. 2), p. 1.

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imposes on registered domestic partners the same mutual responsibility for debts that applies to married persons.

This monograph explores how these two areas of change will affect: (i) individual registered domestic partners who are debtors; (ii) the registered domestic partners of such debtors; and (ii) creditors of either or both domestic partners. Section IV below explores these changes under California law; section V below explores these changes under federal bankruptcy law.

II. TWO CONFLICTING, CO-EXISTING USAGES OF THE WORD “SPOUSE”.

This monograph is a tale of two conflicting, co-existing usages of the word “spouse.” One usage was enacted by DPRRA, and is found in new California Family Code § 297.5(a). The other is a matter of federal law, and is found in the federal Defense of Marriage Act (“DOMA”).6

A. California Family Code § 297.5(a).

Family Code § 297.5(a) is the centerpiece of DPRRA. It dramatically expands domestic partners’ rights and responsibilities by expanding the legal usage of a single word -- “spouse”:

(a) Registered domestic partners shall have the same rights, protections, and benefits, and shall be subject to the same responsibilities, obligations, and duties under law, whether they derive from statutes, administrative regulations, court rules, government policies, common law, or any other provisions of sources of law, as are granted to and imposed on spouses. (emphasis added.)7

Thus, when section 297.5(a) is read together with California Family Code §§ 760, et seq., it extends to registered domestic partners the same community property rights and responsibilities that married persons enjoy under the Family Code.8 (For convenience, 6 Defense of Marriage Act (PUB. L. 104-199, § 3 , enacting TITLE 1 U.S.C. § 7). Note that DOMA has two operative provisions. Section 3 of DOMA (enacted as TITLE 1 U.S.C. § 7) is discussed in the text. Section 2 of DOMA (enacted as TITLE 28 U.S.C. § 1738C) excuses the respective states from recognizing same-sex marriages authorized in other states; it is not discussed further in this monograph. For convenience, all references herein to “DOMA” are to 1 U.S.C. § 7.

7 CAL. FAM. CODE § 297.5(a).

8 Family Code § 760 is prototypical of the many California statutes that define rights or obligations by referring to the synonymous terms “married person,” “husband,” “wife” or “spouse.” That statute provides in relevant part:

… [A]ll property, real or personal, wherever situated, acquired by a married person during the marriage while domiciled in this state is community property.

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this monograph will label as “DPRRA community property” that bundle of community property rights and responsibilities that flows to registered domestic partners from DPRRA.) Similarly, when section 297.5(a) is read together with Family Code §§ 910, 913 and 914, it imposes on registered domestic partners the same mutual responsibility for debts that the Family Code imposes on married persons.9

It is important to note that section 297.5(a) does not redefine the word “spouse,” so as to conflate “registered domestic partner” with “married person.” Rather, the statute only extends to registered domestic partners certain rights and responsibilities, which are defined as being those enjoyed by California spouses. While this may be a fine distinction, it is important to recognize that California law post-DPRRA continues to observe a legal distinction between “married person” and “registered domestic partner”: marriages and domestic partnerships are and continue to be “different legal relationships.”10

B. Federal Defense of Marriage Act.

CAL. FAM. CODE § 760. Although the statute employs the term “married person,” rather than “spouse,” Family Code § 297.5(a) is triggered because, under existing non-DPRRA law, “married person” is synonymous with “spouse.” See CAL. FAM. CODE §11. See also CAL. FAM. CODE § 295.5(l) (where the operative synonym in a statute for “spouse” is gender-specific, such word refers also to a registered domestic partner).

But note that for other marriage-related terms, DPRRA is less directive. DPRRA gives no express guidance where a statute’s operative term is “during marriage” (as in, e.g., Family Code §760, quoted above, and Family Code §§ 780, 910, 911, 913 and 914) or “is married” (as in, e.g., Cal. Civ. Proc, Code § 703.110). DPRRA generally directs that DPRRA be construed liberally, so as to secure to registered partners the full range of rights provided in the legislation. STATS. 2003, CH. 421 § 15 (AB 205). DPRRA does not, however, conflate the state of being married with the state of being registered as a domestic partner. See Knight, 128 Cal. App. 4th at 20, discussed infra at note 10 and accompanying text.

This monograph assumes that the courts will liberally construe these marriage-related phrases, so as to extend their statutes’ respective rights and obligations to registered domestic partners. Suffice to say that a narrower construction of any of these phrases will lessen DPRRA’s sweeping reach. For an example of why a registered domestic partner might argue against a broad reading of such marriage-related phrase. See infra note 55.

9 CAL. FAM. CODE §§ 910, 913 and 914. But see supra note 8.

10 Knight, 128 Cal. App. 4th at 20; see also Smelt v. County of Orange, 374 F. Supp. 2d 861 (C.D. Cal. 2005) (citing Knight).

This legal distinction between “registered domestic partner” and “spouse” is necessary to minimize the potential conflict between DPRRA, on one hand, and Family Code § 308.5, on the other. The latter statute requires that California recognize only marriages that are between a man and a woman. Because Section 308.5 was enacted through the initiative process, the Legislature may amend it only if the voters specifically give the Legislature power to do so. CAL. CONST., ART. II, § 10, SUBD. (c); Knight, 128 Cal. App. 4th at 20. As a consequence, DPRRA expressly does not modify any statute that was adopted by initiative. CAL. FAM. CODE § 297.5(j).

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DPRRA’s expansive usage of the word “spouse” occurs in the face of a contrary, restrictive trend under federal law. When a federal statute is read, the Defense of Marriage Act (“DOMA”) defines the word “spouse” to mean only a party to a heterosexual marriage (emphasis added):

In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word “marriage” means only a legal union between one man and one woman as husband and wife, and the word “spouse” refers only to a person of the opposite sex who is a husband or a wife. 11

This restrictive definition operates every time the word “spouse” appears in the United States Bankruptcy Code.12

Prior to DOMA, Congress had never defined the words “marriage” or “spouse,” because it was generally understood that state and federal definitions of the terms were consistent, and that they related only to the union of one man and one woman.13 Following a 1993 decision of the Hawaii Supreme Court,14 Congress became concerned that the State of Hawaii might issue marriage licenses to same sex couples, and that such couples might seek federal benefits based upon their marital status. DOMA was intended to preserve the one-man-one-woman definition of marriage, for purpose of applying federal law.15

11 1 U.S.C. § 7.

12 See, e.g., In re Kandu, 315 B.R. 123 (Bankr. W.D. Wash. 2004); In re Goodale, 298 B.R. 886, 893 (Bankr. W.D. Wash. 2003).

13 Kandu, 315 B.R. at 132, quoting H.R. REP. NO. 104-664, at p.2, reprinted in 1996 U.S.C.C.A.N. 2905, 2911; see, e.g., CAL. FAM. CODE.§ 300 (“Marriage is a personal relation arising out of a civil contract between a man and a woman …”).

14 Baehr v. Lewin, 74 Haw. 530, 852 P.2d 44 (Haw. 1993).

15 Kandu, 315 B.R. at 132.

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C. The State-federal interplay.

DPRRA and DOMA each limit their effects to their respective spheres under our federal form of government. Thus, DPRRA expressly does not affect any federal law or federal benefit,16 and DOMA operates only in determining the meaning of federal statutes and regulations.17

As a consequence, when section IV below discusses DPRRA’s impacts on the rights creditors and remedies debtors under California law, it focuses exclusively on California law, and DOMA is not a factor.

When section V below turns to federal bankruptcy practice the discussion becomes more complicated. While DOMA clearly controls every time the word “spouse” appears in the federal Bankruptcy Code, problems arise when the Bankruptcy Code incorporates elements of California substantive law -- including the expansive provisions of DPRRA. Section V below explores how these problems create uncertainties about how the assets and debts of California registered domestic partners will be administered under the Bankruptcy Code.

III. BACKGROUND -- REGISTERED DOMESTIC PARTNERSHIPS UNDER DPRRA.

The following sections summarize how a California registered domestic partnership comes into existence, how it is terminated, and to whom DPRRA applies.18

A. Creating a Registered Domestic Partnership .

A couple commences a registered domestic partnership by filing a “Declaration of Domestic Partnership,” with the California Secretary of State. The formal requirements are few in number: the registrants must have a common residence; neither may be married to someone else, or a party to another registered domestic partnership; registrants may not be related by blood in a degree that would prevent them from marrying; registrants must be at least 18 years old; except for a provision for older opposite-sex couples, the registrants must be of the same sex.19

16 CAL. FAM. CODE § 297.5(k).

17 1 U.S.C. § 7; Kandu, 132 B.R. at 132 (citing H.R. REP. NO. 104-664).

18 See generally Elizabeth Erhardt, Creation and Recognition of Domestic Partnership Regimes in California, in CALIFORNIA DOMESTIC PARTNERSHIPS, pp. 8, et seq.

19 CAL. FAM. CODE § 297(b).

Note that under Family Code § 297(b)(5)(B), a heterosexual couple may register as registered domestic partners if one or both partner meets the eligibility criteria under Title II of the Social Security Act as defined in 42 U.S.C. § 402(a) for old-age insurance benefits, or Title XVI of the Social Security Act as

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B. Retroactive Treatment for Previously-Registered Domestic Partnerships.

As noted above, same-sex couples have been able to register as California domestic partners since 2000.20 For couples who registered before the January 1, 2005 effective date of DPRRA, their new DPRRA rights and responsibilities -- including those related to community property and mutual responsibility for debts -- operate retroactively, from the date of the couple’s original registration.21

This retroactivity may significantly impair the vested property rights of previously-registered domestic partners. Such impairment is readily seen in the community property rights of the domestic partners inter se. Before DPRRA’s effective date, an asset acquired during a domestic partnership belonged only to the acquiring partner, and the non-acquiring partner received no interest in the asset; following DPRRA’s effective date, the acquiring partner and the non-acquiring partner own such property jointly, as community property. By imposing the new law retroactively, from the date of the prior date of registration, the acquiring partner’s property interests are seriously impaired, in favor of the non-acquiring partner. In addition, creditors of the non-acquiring partner may also be able to assert an interest in this retroactively-characterized DPRRA community property, to the detriment of the acquiring partner. These expanded creditors’ rights are discussed in section IV(C) below.

defined in 42 U.S.C. § 1381 for aged individuals. While most observations herein will apply to such opposite-sex partners, this monograph does not expressly address the implications of DPRRA for such partners.

20 It has been estimated that as of the January 1, 2005 effective date of DPRRA, more than 26,000 California couples were registered as domestic partners under prior legislation. See Lee Romney, Though They Can’t Wed Gay May Now Divorce, L.A. TIMES (Jan. 1, 2005).

21 Family Code § 297.5(m)(1) provides in part (emphasis added):

(m)(1) For purposes of the statutes, administrative regulations, court rules, government policies, common law, and any other provision or source of law governing the rights, protections, and benefits, and the responsibilities, obligations, and duties of registered domestic partners in this state, as effected by the section, with respect to community property, mutual responsibility for debts to third parties, … any reference to the date of a marriage shall be deemed to refer to the dates of registration of a domestic partnership with the state.

This statute was added to DPRRA in the “clean-up” bill AB2850 (STATS. 2004 CH. 947 (AB2850)). Prior to the enactment of AB2850, it was not clear whether DPRRA’s rights and duties would date from the January 1, 2005 effective date of the legislation, or some prior date.

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Such retroactive effects may raise Constitutional due process issues.22 The Legislature may have sought to minimize these issues by giving previously-registered partners the opportunity to mitigate the effects of DPRRA. Thus: DPRRA did not become effective until fifteen months after its enactment in 2003; during the interim, the California Secretary of State communicated DPRRA’s legal effects to then-registered and newly-registering partners;23 and during the interim, domestic partners were given the right unilaterally to “de-register.”24 It remains to be seen whether these safeguards will have been sufficient to insulate DPRRA’s retroactivity from Due Process attack.

C. Terminating a Registered Domestic Partnership.

DPRRA provided that any domestic partner who registered under prior law could terminate his domestic partnership unilaterally, but only if he did so prior to DPRRA’s January 1, 2005 effective date.25 Now that that effective date has passed, domestic partners -- whether registered pre- or post-DPRRA -- may terminate their domestic partnership only in the manners described below.

First, if the partnership meets requirements regarding short duration, absence of children and minimal debts and assets, the partners may file a joint termination-notice with the California Secretary of State.26 While this procedure is relatively simple, it is neither speedy nor certain: (i) the termination is not effective until six months have passed; (ii) during those six months, either partner may unilaterally rescind27; (iii) at any time, a court may void the termination, upon a showing of fraud or undue influence.28 Moreover, it is unlikely that many couples will meet the maximum-asset and -debt predicates of this summary procedure.

22 The California Supreme Court has previously held unconstitutional various Family Law reforms that had retroactive effect. See, e.g., In re the Marriage of Buol, 39 Cal. 3d 751, 218 Cal. Rptr. 31 (1985) (statute newly required a writing to prove, upon dissolution of marriage, that property taken in joint tenancy during marriage was actually the separate property of one spouse; the retroactive application of such statute impaired a vested property right without due process of law); In re Marriage of Fabian, 41 Cal. 3d 440, 224 Cal. Rptr. 333 (1986) (statute newly required a writing to effect the waiver of spousal reimbursement rights; the retroactive application of such statute impaired vested property rights without due process of law). See generally Erwin Chemerensky, Constitutional Issues and California’s Domestic Partnership Law, in CALIFORNIA DOMESTIC PARTNERSHIPS, pp. 87, et seq.

23 CAL. FAM. CODE § 299.3.

24 CAL. FAM. CODE § 299.3(a).

25 Id.

26 CAL. FAM. CODE § 299(a).

27 CAL. FAM. CODE § 299(b).

28 CAL. FAM. CODE § 299(c).

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Second, either partner may file a termination-petition with the Superior Court. That court has jurisdiction to terminate the registered domestic partnership and to adjudicate the partners’ legal rights, in much the same manner as it would dissolve a marriage and adjudicate the rights of divorcing spouses.29

D. Application of DPRRA to Non-California Same-Sex Unions.

If two persons of the same sex are parties to a “legal union,” other than a marriage, created in another jurisdiction, which legal union is “substantially equivalent” to a California registered domestic partnership, then that union shall be recognized as a California registered domestic partnership.30 This statute creates substantial uncertainties about what constitutes such “substantial equivalence,” and under what circumstances the rights of “foreign” domestic partners may be controlled by DPRRA.

IV. DPRRA’S IMPACTS ON CREDITOR-RIGHTS AND DEBTOR-REMEDIES UNDER CALIFORNIA LAW.

A. Background: the rights of creditors in the community property of California married couples .

As noted above, Family Code § 297.5(a) extends to “registered domestic partners” the same community property rights and the same mutual debt responsibilities that California law recognizes for married “spouses.” To appreciate how section 297.5(a) has expanded the rights of the creditors of domestic partners, the following review may be helpful.

For California married couples, property is categorized as either the “community property” of the married couple, or the “separate property” of either spouse. Community property is generally that which was acquired by either spouse or both spouses during the marriage.31 Separate property is generally that which a spouse either owned before marriage, or acquired during marriage by gift, bequest, devise or descent.32 Community property may be transmuted to the separate property of either spouse; separate property may be transmuted to community property; separate property of one spouse may be transmuted to the separate property of the other spouse.33

29 CAL. FAM. CODE § 299(d).

30 CAL. FAM. CODE § 299.2.

31 CAL. FAM. CODE § 760.

32 CAL. FAM. CODE § 770.

33 CAL. FAM. CODE § 850.

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The right of a creditor to levy on the property of California married persons may be summarized as follows:

(a) If a creditor obtains a judgment against both spouses , it may levy on (i) the married couple’s community property, (ii) the husband’s separate property, and/or (iii) the wife’s separate property;34

(b) If a creditor obtains a judgment against one spouse only , it may levy on (i) the married couple’s community property, and/or (ii) the judgment-debtor’s separate property.35 This general rule applies whether the judgment-debtor incurred the debt before or during the marriage. Note, however, that if the debt arose pre-marriage, the creditor may not levy upon the non-debtor’s earnings (even though those earnings are community property), as long as those earning are held in a deposit account over which the debtor-spouse has no control.36 In no event may a creditor levy on the separate property of the spouse who is not the judgment-debtor;37 and

(c) If a debt is for “necessaries of life .” Under the statutes discussed above, if one spouse incurs a debt, his creditor may obtain a judgment against him only. The creditor may then levy on both spouses’ community property and/or the judgment-debtor’s separate property, but it cannot obtain a judgment against or levy on the separate property of the non-debtor spouse.38 A different rule applies, however, when the debt is for “necessaries of life” or “common necessaries of life” provided to one of the spouses.39 In such event, the creditor may sue and obtain a judgment against either spouse or both spouses, and then may levy on the community property and/or separate property of the judgment-debtor(s).40

34 CAL. FAM. CODE §§ 910(a) and 913(a); CAL. CIV. PROC. CODE §§ 695.010 and 695.020.

35 Id. 36 CAL. FAM. CODE § 911.

37 CAL. FAM. CODE § 913(b)(1).

38 Note, further, that community property is not liable for debts incurred by either spouse while living apart prior to judgment of dissolution or legal separation. CAL. FAM. CODE § 910(b).

39 Family Code § 914(a)(1) refers to “necessaries of life” provided to one spouse while both spouses were living together; Family Code § 914(a)(2) refers to “common necessaries of life” provided to one spouse while the spouses were living separately. Section 914(a)(2)’s “common necessaries of life” are those which are commonly required to sustain life and family; they include food, clothing, medical treatment, burial costs. Section 914(a)(1)’s “necessaries of life” is a broader category, which takes into consideration all circumstances of the recipient’s lifestyle, including his station in life, the special needs of his employment, etc. See Los Angeles Finance Co. v. Flores, 110 Cal. App. 2d Supp 851, 243 P. 2d 139 (1952); Ratzlaff v. Portillo, 14 Cal. App. 3d 1013, 92 Cal. Rptr. 722 (1971); Leasefirst v. Barrelli, 13 Cal. App. 4th Supp. 28, 17 Cal. Rptr. 2d 114 (1993).

40 CAL. FAM. CODE § 914(a) and (b).

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B. Expansion of creditor-rights: mutual liability debts under DPRRA.

In light of the foregoing discussion, it is easy to see how DPRRA significantly expands creditors’ rights in the assets of registered domestic partners.

Prior to January 1, 2005, a creditor’s access to the assets of a registered domestic partner was the same as its access to the assets of any non-married person: the creditor could levy only on property of the judgment-debtor. Because “community property” existed only in the context of a marriage, domestic partners owned no community property on which the creditor could levy. Further, because Family Code § 914(a) applied only to married spouses, a creditor could not sue one partner for the necessaries-of-life provided to the other.

Effective January 1, 2005, creditors have the same rights vis-a-vis to the assets of registered domestic partners that they have vis-a-vis the assets of married couples. Under Family Code § 910(a), if the creditor obtains a judgment against one registered domestic partner, it may now execute on the partners’ DPRRA community property, as well as on the judgment-debtor’s separate property. Subject only to the earnings-exception provided in Family Code § 911,41 the creditor may do so whether the debt was incurred before or during the registered domestic partnership. Further, under Family Code § 914, a registered domestic partner may now be sued for the necessaries-of-life provided to his partner; the creditor may then satisfy its judgment by levying upon DPRRA community property and/or and the separate property of the judgment-debtor(s).

C. Expansion of creditor-rights: retroactive operation of DPRRA.

DPRRA’s expansion of debt-liability, as described above, will likely dismay not a few domestic partners. A partner may be dismayed to learn, for example, that his “new” DPRRA community property is liable for the pre- and post-registration debts of his impecunious partner. A partner may be further dismayed when he is sued personally for uninsured medical-treatments and other necessaries of life provided to his partner.42

In most regards, such dismay will be no different than that experienced by married couples under similar circumstances. In one regard, however previously-registered partners may bear an additional burden. Under Family Code § 297.5(m)(1), such partners’ community property rights and mutual-debt responsibilities date not from DPRRA’s effective date, but rather from the date of the partners’ prior registration.43 As

41 CAL. FAM. CODE § 911(a). See supra text accompanying note 36.

42 See Frederick Hertz, The Expansion of California’s Domestic Partnership Law: Discerning the Uncertain Impacts of AB205, ACFLS NEWSLETTER (Fall 2004 No. 2) p. 1.

43 CAL. FAM. CODE § 297.5(m)(1); see supra text accompanying notes 20-24.

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is shown below, this retroactive effect may create a startling windfall for third-party creditors.

Consider the following pre-DPRRA hypothetical:

(a) In January 2000, Partner A and Partner B registered as domestic partners, under prior legislation. Under the law then in effect, the act of registration created no community property and no mutual debt obligations;

(b) At the time of registration, Partner A was indebted to Creditor C-1. Following registration, Partner A became indebted to Creditor C-2. Under the law then in effect, both creditors could levy on the property owned by Partner A, but neither could obtain a judgment against or levy on the property of Partner B;

(c) Following registration, Partner A became indebted to Creditor C-3 for uninsured medical expenses, i.e., for a common necessary of life. Under the law then in effect, Creditor C-3 could levy on the assets of Partner A, but it could neither obtain a judgment against nor levy on property owned by Partner B;

(d) Following registration, Partner B earned money, and purchased personal or real property. Again, under the law then in effect, none of the creditors of Partner A could obtain a judgment against or to levy on the property of Partner B.

Following the effective date of DPRRA, the rights of the creditors vis-à-vis Partner B have expanded substantially:

(a) Pursuant to Family Code § 297.5(m)(1), Partners A and B are deemed to have been registered from the date of their January 2000 registration, for all purposes with respect to “community property” and “mutual responsibility for debts to third parties.”44 By operation of that statute, Partner B’s asset has been transformed retroactively into DPRRA community property;

(b) As a consequence, Family Code § 910(a) authorizes both Creditor C-1 and Creditor C-2 to levy on the newly-characterized DPRRA community property. Thus the asset that Partner B acquired as his sole property is now liable for debts that Partner A incurred both during and before the partners’ registration;

44 CAL. FAM. CODE § 297.5(m)(1).

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(c) As a further consequence, Family Code § 914(a)(2) authorizes Creditor C-3 (i) to sue Partner A and/or Partner B for the necessaries of life provided to Partner A, and (ii) to levy on the partners’ DPRRA community property and the judgment-debtors’ respective separate property. Thus, Creditor C-3 now has the ability to sue Partner B and to levy on Partner B’s separate property, for necessaries-of-life previously provided to Partner A.

What result will follow for real property that was jointly acquired by domestic partners -- presumably as tenants-in-common -- post-registration and pre-DPRRA? Should each partner’s ownership interest now be characterized as the DPRRA community property of both, thereby obviating the tenancy-in-common? Will it make a difference if the tenancies-in-common were acquired after DPRRA’s enactment date, but before its effective date? Under such circumstances, might a reviewing court conclude that it was the partners’ specific intention to take title as separate-property tenancies-in-common?45 These questions will be of critical interest not only to the domestic partners inter se, but also to the creditors of the domestic partners.

If Partner A’s creditors can now levy on retroactively-characterized DPRRA community property, such levy is clearly a windfall for such creditors, at the expense of Partner B. Because the notice provisions of DPRRA would arguably have given Partner B fair warning of this potentiality, the courts may reject Partner B’s complaint that such windfall violates his Due Process rights.46 It is not clear, however, just what Partner B might realistically have done to protect himself from DPRRA’s retroactive effect. While Family Code § 299.3(a) authorized Partner B to “de-register” unilaterally (and thereby to preclude the creation of DPRRA community property), the emotional and other costs of de-registration would surely have militated against widespread resort to such a remedy. Further, while Partner A and Partner B could arguably have entered into a post-registration agreement (preemptively confirming the “separate” nature of Partner B’s property), such agreement would have required Partner’s A’s participation, which Partner A might have declined to give. Assuming that the partners did nothing prior to the effective date of DPRRA, any subsequent transmutation of their newly-characterized DPRRA community property (i.e., back to the “separate property” of Partner B) is subject to avoidance as a transfer in fraud of Partner A’s creditors.47

Beyond the detriment to Partner B, such windfall for Partner A’s creditors will also come at the expense of the Partner B’s creditors: following a levy by Partner A’s creditors, there will remain fewer assets upon which creditors of Partner B might levy. Unlike Partner B, the creditors of Partner B will have had no ability to preempt such application of DPRRA’s retroactivity.

45 Note that the community property presumption is rebutted where a husband and wife during marriage acquire title to real property as joint tenants. Hanf v. Summers (In re Summers), 278 B.R. 808 (B.A.P. 9th Cir. 2002), aff’d 332 F.3d 1240 (9th Cir. 2003) (construing California law).

46 See supra text accompanying notes 20-24.

47 See CAL. FAM. CODE § 851.

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Because of the many variables, it is not clear how DPRRA’s retroactivity will “play out” in every instance of the never-ending struggle between creditors and debtors. Suffice to say that DPRRA gives to creditors significant new means by which to ferret out and to levy upon assets of a judgment-debtor who is a registered domestic partner.

D. The expansion and the restriction of exemptions for registered domestic partners.

The Code of Civil Procedure defines a number of “exemptions,” by which a

judgment-debtor may protect his assets from the levy of creditors.48 Because DPRRA operates to bring registered domestic partnerships within the ambit of the statutory of “family unit,” registered domestic partners may now assert “family unit” exemptions that are not otherwise available to unmarried persons.49

Among such exemptions, the most significant is usually the “homestead” exemption, set forth in Code of Civil Procedure § 704.730. Under that statute, a judgment-debtor may exempt the equity-value of his residence, up to $75,000 (when the residence is occupied by a family unit),50 $50,000 (for non-family-unit residence)51 or $150,000 (for claimants over 65 years old, etc.).52

Depending on the circumstances, DPRRA may expand the value of the homestead exemption available to a registered domestic partner. For example, prior to the effective date of DPRRA, a childless registered domestic partner who was the sole owner of his residence could assert of the $50,000 exemption that was available under section 704.730(a)(1); following the effective date of DPRRA, the same registered domestic partner may assert the $75,000 exemption that is available for the heads of family units, under section 704.730(a)(2).

If, on the other hand, the subject residence was jointly owned by registered domestic partners, DPRRA may operate to devalue the available homestead exemption. Under Code of Civil Procedure § 703.110(a), married spouses together may assert only one homestead exemption, up to the specified dollar amount set forth in the applicable

48 CAL. CIV. PROC. CODE §§ 704.010-704.995.

49 CAL. CIV. PROC. CODE § 704.710(b); CAL. FAM. CODE § 297.5(a). See Michael O’Halloran, Bankruptcy Issues for Domestic Partners, in CALIFORNIA DOMESTIC PARTNERSHIPS, pp. 581-82.

50 CAL. CIV. PROC. CODE § 704.730(a)(2).

51 CAL. CIV. PROC. CODE § 704.730(a)(1).

52 CAL. CIV. PROC. CODE § 704.730(a)(3)(A)-(C). The sub-section also makes the $150,000 exemption available for debtors who are disabled, or who are at least 55 years of age with annual gross income of not more than $15,000 (or $20,000 for husband and wife).

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subsection of section 704.730.53 This “one-exemption limitation” applies whether the judgment names one or both spouse(s), and whether the property subject to levy is separate or community property.54 This one-exemption limitation does not apply to persons who are not “married”: unmarried persons who jointly own a residence may assert two separate homestead exemptions, i.e., one exemption for each claimant, with respect to the claimant’s respective interest in the asset. Depending on the circumstances, the value of such double-exemption could be substantial, ranging from $100,000 (i.e., two exemptions at $50,000) to $300,000 (i.e., two exemptions at $150,000).

Prior to DPRRA, registered domestic partners were not subject to the one-exemption limitation, and so could assert two homestead exemptions, like any other unmarried couple. Following DPRRA, by operation of Family Code § 297.5(a), registered domestic partners are subject to the one-homestead-exemption restriction of Code of Civil Procedure § 703.110(a).55

E. Practice changes for creditors.

Creditors will expand the scope of their investigations, to inquire into the rights and obligations of their debtors and potential debtor’s under DPRRA:

(a) Underwriting . Whenever a business decision is based upon the credit-worthiness of an individual, the decision-maker will need to take into account not only the individual’s marital status, but also his registered domestic partner status. To be comprehensive, such inquiry should include: whether the individual is or was a California registered partner; whether he is or was party to a civil union under the laws of other states and countries; the date on which he registered as a domestic partner; financial liabilities arising out of such current or former status; the existence of DPRRA community property; etc. Standard credit-

53 The “one-exemption limitation” of Code of Civil Procedure § 703.110(a) operates with respect to any exemption that is limited to a dollar amount, unless that exemption specifically allows each spouse to assert an exemption. CAL. CIV. PROC. CODE § 703.110(a). For most debtors, the homestead exemption set forth in Section 704.710 et seq. is the most significant of these exemptions. It is subject to the one-exemption limit of Section 703.110(a) because of the dollar limits set forth in Section 704.730(a). Other, less-significant “dollar-amount-defined” exemptions include those set forth at Cal. Civ. Proc. Code §§ 704.010 (equity in motor vehicles, up to $2,300), 704.040 (equity in jewelry, heirlooms and works of art, up to $6,000), 704.080 (Social security and public benefit deposit accounts, varied amounts). See also Section 704.100 (which allows both spouses to assert exemptions for life insurance policies, up to $9,700 per policy).

54 CAL. CIV. PROC. CODE § 703.110(a).

55 But note that the text of the one-exemption limitation of Code of Civil Procedure § 703.110 begins with the clause: “If the judgment debtor is married …” Although a judgment debtor who is a registered domestic partner is clearly not “married,” the authors believe that courts will probably apply Section 703.110 to registered domestic partners, for the reasons set forth supra in note 8.

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application should be modified to assure that they specifically ask these questions.56

(b) Spousal approvals and waivers . Whenever an agreement requires a spousal approval or waiver, the contracting parties will need the signatures of registered domestic partners, or representations and warranties regarding domestic partner status.

(c) Scholarships and other assistance . Where the award of scholarship or other financial assistance takes into account the resources of the recipient and/or his family, applications should inquire into the registered domestic partner status and the DPRRA assets and liabilities both of the applicant and of his parents.57

(d) Debt collection . Providers of medical services and other necessaries of life can add the domestic partner of the service-recipient as a party-defendant in any collection actions. Judgment-creditors will expand their investigations to seek evidence of inter-partner or third-party transactions that might be avoidable post-DPRRA as fraudulent transfers. Creditors will expand their use of post-judgment collection proceedings to levy on DPRRA community property that is held solely in the name of the non-judgment-debtor domestic partner.58 Because of the retroactive effect of DPRRA, the date of the debtor’s registration may be critical to identifying current or former DPRRA community property subject to levy or fraudulent-transfers subject to avoidance.

(e) Bankruptcy disclosures . In what may the ultimate DPRRA-DOMA irony, the Official Forms in Bankruptcy should be modified to require full disclosure of domestic partner status, DPRRA community property, debts for which DPRRA imposes mutual liability, transfers of DPRRA community property, and even transfers of property that may have been retroactively characterized as DPRRA community property.

F. Responses of Registered Domestic Partners.

56 Federal regulations adopted at 12 C.F.R. 202, pursuant to the Federal Equal Credit Opportunities Act (15 U.S.C. § 1691), generally prohibit creditors from inquiring into an applicant’s marital status or a spouse’s income. These restrictions generally do not apply, however, to credit transactions involving spouses in community property states. 12 C.F.R. 202.5(d). Nonetheless, some elements of these federal regulations do apply to California credit transactions. Just how such elements apply to California registered domestic partners is made more confusing by DOMA’s definition of the word “spouse,” as that word appears in the regulations. See supra text accompanying notes 11-15.

57 See, e.g., http://www.humboldt.edu/~finaid/ab205.shtml (Humboldt State University requirement that aid recipients and custodial parents of aid recipients provide registered domestic partner information).

58 CAL. CIV. PROC. CODE §§ 687.010, 684.130, 697.340(a).

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As registered domestic partners become familiar with their DPRRA rights and responsibilities, they may turn to familiar asset-protection strategies that are already familiar to married couples:

(a) Entering into pre-registration and post-registration agreements . Pursuant to Family Code 1600 et seq., registered domestic partners may enter into pre- and post-registration agreements, similar to married couples’ pre- and post-marital agreements.59

(b) Transmuting assets . Pursuant to Family Code § 850, registered domestic partners may transmute (i) their community property to separate property, (ii) their respective separate property to community property, and (iii) the separate property of one to the separate property of the other. Note, however, that depending on the circumstances, such transmutation may be avoidable as a fraud on creditors.60

(c) Segregating assets . To insulate separate property from the claims of creditors of the other partner, a registered domestic partner will need to assure that he preserves the “separateness” of that property. At a minimum, this effort will require the partners to distinguish between what is “mine” and what is “ours,” and to maintain separate accounts for separate and for community property. Further, Family Code § 911 enables a registered domestic partner to insulate his earnings (which would otherwise be community property) from the pre-registration claims of his partner’s creditors, by keeping the earnings in a separate deposit account.

(d) Terminating the registered domestic partnership . Under Family Code § 299(d), registered domestic partners may terminate their domestic partnership, and distribute their community property as their respective separate property. Note, however, that if such distribution effects a constructive or an actual fraud on the partners’ creditors, the distribution may be subject to avoidance.61

V. THE TREATMENT OF CALIFORNIA REGISTERED DOMESTIC PARTNERS UNDER THE UNITED STATES BANKRUPTCY CODE.

59 But see CAL. FAM. CODE § 297.5(m)(2) (special rules for agreements entered into prior to June 1, 2005).

60 CAL. FAM. CODE § 851; see State Board of Equalization v. Woo, 82 Cal. App. 4th 481, 484, 98 Cal. Rptr. 2d 206 (2000) (transmutation of wife’s community earnings was avoidable as a fraudulent transfer, where it was made with the intent to avoid a garnishment of wages to satisfy husband’s tax delinquencies).

61 See Majia v. Reed, 31 Cal.4th 657, 3 Cal. Rptr. 3d 390 (2003) (marital settlement agreement subject to avoidance as a fraudulent transfer under Cal. Civ. Code §§ 3439.04); see also Filip v. Bucurenciu, 129 Cal. App. 4th 825, 838-39, 28 Cal. Rptr. 3d 884 (Nevada marital property settlement agreement subject to avoidance under Cal. Civ. Code §§ 3439.04).

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The following text speculates on what will happen as the legal innovations of DPRRA collide with existing legal structures of the United States Bankruptcy Code,62 as construed with the federal Defense of Marriage Act.63

The authors stress that their analysis is speculative in the extreme. As of this writing, no reported opinion has construed DPRRA, DOMA and the Bankruptcy Code. It is only a matter of time, however, before the bankruptcy petition of a California registered domestic partner raises the issues discussed below.

A. At the threshold: DOMA’s restrictive definition of “spouse” bars California registered domestic partners from filing a joint

bankruptcy petition under Bankruptcy Code § 302(a).

A bankruptcy case is commenced by filing a “petition for relief” with the Clerk of the United States Bankruptcy Court.64 If an individual is married: (i) he alone may file an individual bankruptcy petition; (ii) he and his spouse may file two separate individual bankruptcy petitions; or (iii) he and his spouse may together file a single “joint petition.”65 Such joint petition is specifically authorized by Bankruptcy Code § 302(a) (emphasis added):

(a) A joint case under a chapter of this title is commenced by the filing with the bankruptcy court of a single petition under such chapter by an individual that may be a debtor under such chapter and such individual’s spouse. ….66

It should be clear that California registered domestic partners are not eligible to file a joint petition under Bankruptcy Code § 302(a). Read together with DOMA, section 302(a)’s reference to the debtor’s “spouse” can only be to a person of the opposite sex who is the debtor’s husband or wife. Because a same-sex California registered domestic partner does not fall within this definition, he and his partner cannot qualify under section 302(a) as a “debtor … and such individual’s spouse.”67

As of this writing, only one reported opinion has construed section 302(a) and DOMA. In the case of In re Kandu,68 two American women married in British

62 11 U.S.C. Code §§ 101, et seq.

63 1 U.S.C. § 7. See supra text accompanying notes 11-15.

64 11 U.S.C. §§ 101(13), 101(41) and 301.

65 11 U.S.C. § 302(a).

66 11 U.S.C. § 302(a).

67 But see infra note 71 regarding whether opposite-sex registered domestic partners might qualify to file a joint bankruptcy petition under Bankruptcy Code § 302(a).

68 Kandu, 315 B.R. 123.

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Columbia, as was permitted in that province. Upon returning to the State of Washington, they filed a joint Chapter 7 bankruptcy petition, purportedly under Bankruptcy Code § 302(a). The Bankruptcy Court dismissed the joint petition, on the grounds that it had been improperly filed by unmarried individuals. The Court held that section 302(a), read with DOMA’s restrictive definition of the word “spouse,” required such result. The Court further sustained DOMA against a number of constitutional attacks. 69

Note that Kandu involved individuals who were legally married under the laws of British Columbia, and so presumably were “spouses” under the laws of that province. In contrast, registered domestic partners are not deemed “married” under California law, and therefore are not “spouses” under California law.70 Thus, even if there were no federal DOMA, California registered domestic partners arguably would not qualify to file a joint bankruptcy petition under Bankruptcy Code § 302(a). 71 DOMA is not mere surplusage, however. It eliminates any possibility that the courts might expansively construe the Bankruptcy Code’s usage of “spouse” to include registered domestic partners. Further, if registered domestic partners ever achieve marital status under California law, DOMA will continue to deny them “spousal” status under the Bankruptcy Code.

69 The Kandu court held that: DOMA does not violates the Tenth Amendment (because DOMA expressly applies only to federal law, and does not purport to interfere with the states’ rights to recognize same-sex marriages) [Kandu, 315 B.R. at 131]; the doctrine of comity did not require the United States to recognize, in the context of Bankruptcy Code section 302(a), the validity of a marriage that was valid under Canadian law (because the United States need not, under the doctrine of comity, recognize a decree that is in conflict with its own law) [Id. at 133]; DOMA does not violate the Fourth Amendment (because it does not effect the seizure of any property interest) [Id. at 134]; DOMA does not violate the Due Process Clause of the Fifth Amendment (because there is no “fundamental Constitutional right” to enter into a same-sex marriage, and DOMA satisfies the “rational basis” test) [Id. at 138]; and DOMA does not violate the Equal Protection Clause of the Fifth Amendment (because DOMA does not discriminate against couples based upon their sex, and DOMA satisfies the “rational basis” test) [Id. at 141].

A discussion of the Constitutionality of DOMA, as it is applied to the Bankruptcy Code, is beyond the scope of this monograph. As of this writing, Kandu is the only judicial opinion that has addressed the issue. The authors note that Kandu arises out of but one intersection of DOMA and the Bankruptcy Code; other such intersections will raise additional Constitutional issues. For a general discussion of the Constitutionality of DOMA, see Andrew Koppelman, “Dumb and DOMA: Why the Defense of Marriage Act Is Unconstitutional,” 83 IOWA L. REV. 1 (1997); and Scott Ruskay-Kidd, Note, The Defense of Marriage Act and the Overextension of Congressional Authority, 97 COLUM. L. REV. 1435 (1997).

70 See supra note 10 and accompanying text.

71 Note that commentator Michael O’Halloran suggests that opposite-sex California registered domestic partners may qualify as “spouses” under DOMA, and therefore may qualify as “spouses” under Section 302(a) and other sections of the Bankruptcy Code. See Michael O’Halloran, Bankruptcy Issues for Domestic Partners, in CALIFORNIA DOMESTIC PARTNERSHIPS, pp. 566-67. While the law relating to opposite-sex domestic partnerships is beyond the scope of this monograph, the authors conclude that because California law continues to observe a distinction between “marriage” and “registered domestic partnership” (see supra text accompanying notes 10 and 68), it is unlikely that an opposite-sex California registered domestic partnership would qualify as a “marriage” under DOMA, or that an opposite-sex domestic partner would qualify as a “spouse” under DOMA or the Bankruptcy Code.

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B. Bankruptcy Code § 541(a) – DOMA’s restrictive definition of the word “spouse” excludes the non -debtor partner’s interests in

“DPRRA community property” from the bankruptcy estate of the debtor domestic partner.

While California registered domestic partners are barred from filing a joint bankruptcy petition, they are not denied access to the bankruptcy courts completely. One partner -- alone -- may file an individual bankruptcy petition, or both partners -- separately -- may file individual bankruptcy petitions.

The following text explores what happens when one California registered domestic partner files a Chapter 7 bankruptcy petition, and his partner does not.72 For sake of convenience, these hypothetical partners will be referred to as “the debtor domestic partner” and the “non-debtor domestic partner.”

In this section V(B), the authors conclude that Bankruptcy Code § 541(a)(2), as construed with DOMA, excludes the non-debtor registered domestic partner’s interests in DPRRA community property from the bankruptcy estate of the debtor registered domestic partner. Such exclusion creates a number of problems for the administration of the bankruptcy estate, which are explored in section V(C) below.

1. Background: property of the bankruptcy estate.

The act of filing of a bankruptcy petition creates a “bankruptcy estate,” a legal entity that exists separate and distinct from the debtor.73 In a Chapter 7 case, the estate acts through the bankruptcy trustee, its legal representative.74 It is the trustee’s responsibility to gather and to liquidate the property of the estate, and then to distribute the proceeds to creditors.75

72 Some of the implications of each registered domestic partner filing a separate individual bankruptcy petition are discussed infra in the text accompanying notes 150-55.

73 11 U.S.C. § 541(a); Farmer v. Crocker National Bank (In re Swift Aire Lines, Inc.), 30 B.R. 490, 495 (B.A.P. 9th Cir. 1983). See generally 5 COLLIER ON BANKRUPTCY [hereinafter “COLLIER”] ¶ 541.01 pp. 541-7 et seq. (15th ed. rev'd 2005).

74 11 U.S.C. § 704. Note that this monograph limits its discussion to “liquidation” cases filed under Chapter 7 of the Bankruptcy Code. Although it does not specifically address cases filed under Chapter 11, Chapter 12 or Chapter 13 of the Bankruptcy Code, most of the analyses are applicable to such cases. For discussion of the intersections of DPRRA and Chapter 13 bankruptcy law, see Michael O’Halloran, Bankruptcy Issues for Domestic Partners, in CALIFORNIA DOMESTIC PARTNERSHIPS.

75 11 U.S.C. §§ 704 and 726.

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Pursuant to Bankruptcy Code §541(a), the bankruptcy estate is the receptacle for all of the debtor’s interests in property as of the filing of the bankruptcy petition, and for certain interests in property that arise after the filing of the bankruptcy petition.76 While section 541(a) deposits these property-interests in the bankruptcy estate, it does not address threshold questions regarding the existence and/or the scope of a debtor’s property-interests in a given asset.77 To determine these questions, the Bankruptcy Code generally looks to state law. As the United States Supreme Court explained in Butner v. United States (citation omitted) (quotation in the original):

Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding. Uniform treatment of property interests by both state and federal courts within a State serves to reduce uncertainty, to discourage forum shopping, and to prevent a party from receiving “a mere windfall by reason of the happenstance of bankruptcy.”78

2. Background – how Bankruptcy Code § 541(a) treats “separate property” and “community property” when only one

married spouse files bankruptcy.

As background, the following text reviews how Bankruptcy Code §541(a) treats “separate property” and “community property,” when one married spouse files a bankruptcy petition and the other does not.

Because the entry of a debt-discharge order is premised upon creditors having had full access to the debtor’s non-exempt assets, Congress gave to the term “property of the estate” the broadest scope possible.79 Thus, Bankruptcy Code § 541(a)(1) broadly provides (emphasis added):

(a) … Such [bankruptcy] estate, is comprised of all the following property, wherever located and by whomever held:

(1) … [A]ll legal or equitable interests of the debtor in property as of the commencement of the case.80

76 11 U.S.C. § 541(a)(1)–(7).

77 Dumas v. Mantle (In re Mantle) 153 F.3d 1082, 1084 (9th Cir. 1998).

78 Butner v. United States, 440 U.S. 48, 55 (1979).

79 See general discussion at 5 COLLIER, ¶541.07 pp. 541-012, et seq; Alan Pedlar, Community Property and the Bankruptcy Reform Act of 1978, 11 ST.MARY’S L. J. 349, 357 (1979). 80 11 U.S.C. § 541(a)(1).

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When a married debtor is subject to the laws of a community property state, the debtor’s interests in his separate property are brought into his bankruptcy estate under this section 541(a)(1). The non-debtor spouse’s interests in her separate property remain outside the debtor’s bankruptcy estate.81

The spouses’ respective interests in community property are specifically addressed in Bankruptcy Code § 541(a)(2). The purpose of this statute is to pass into the estate the same interests in community property that would otherwise be available under state law to satisfy claims against the debtor.82 Because the interests of both spouses in community are generally liable for the debts of either spouse, section 541(a)(2) brings into the debtor’s estate (emphasis added):

(2) All interests of the debtor and the debtor’s spouse in community property as of the commencement of the case that is –

(A) under the sole, equal, or joint management and control of the debtor; or

(B) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and an allowable claim against the debtor’s spouse, to the extent that such interest is so liable.83

The term “community property” is not defined in section 541(a)(2) or elsewhere in the Bankruptcy Code, but is understood to refer to that means of holding property in states that have adopted the community property system.84 To determine whether a particular asset constitutes community property within the ambit of section 541(a)(2), bankruptcy courts apply a three-step test.

First, Butner v. United States directs the court to ask whether the asset is “community property” under the law of the relevant state.85 Second, section 541(a)(2)(A)

81 In re Gorman, 159 B.R. 543, 546 (B.A.P. 9th Cir. 1993) (asset was not property of the debtor spouse’s estate because, under Nevada community property law, the asset was the separate property of the non-debtor spouse).

82 5 COLLIER ¶ 541.13[1] , p. 541-80.12 (citing Alan Pedlar, Community Property and the Bankruptcy Reform Act of 1978, 11 ST.MARY’S L. J. at 349).

83 11 U.S.C. § 541(a)(2).

84 5 COLLIER, ¶ 541.13[1] p. 541-80.12 n. 2. Nine states have community property laws. In addition to California, they are: Arkansas; Arizona; Idaho; Louisiana; Nevada; New Mexico; Texas; and Washington.

85 See, e.g., Mantle, 153 F.3d at 1084 (sale proceeds were property of the debtor’s estate because, under California community property law, the debtor retained his community property interest in such proceeds, notwithstanding the pendency of divorce proceedings); In re Robertson, 203 F.3d 855, 861 (5th Cir. 2000) (residence was not property of the debtor’s estate because, under Louisiana community property law, the pre-bankruptcy partition of the community property vested title to the residence in the non-debtor spouse as her separate property, notwithstanding the fact that the residence remained liable for some of the former spouses’ joint debts); Gorman, 159 B.R. at 546 (asset was not property of the debtor’s estate because, under

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directs the court to ask whether the community property is under debtor’s the sole, equal or joint control. Third, section 541(a)(2)(B) directs the court to ask whether the community property is liable for claims against the debtor or claims jointly against the debtor and the non-debtor spouse.86 If these three questions are answered in the affirmative, then the community property interests both of the debtor and of the debtor’s spouse become property of the debtor’s estate. Because California community property is by statute subject to the joint management and control,87 and liable for the debts of both spouses,88 it generally satisfies the “control and liability” tests of section 541(a)(1)(A) and (B).89

Note that section 541(a)(2) reaches beyond the debtor’s interests in community property, to include the interests of the non-debtor spouse as well, even though the non-debtor spouse is not party of the bankruptcy case, and had no control over whether the debtor filed bankruptcy. This incorporation of the non-debtor’s community property interests into the debtor’s estate is the fundamental purpose of section 541(a)(2). It enables the bankruptcy trustee to administer all of the interests in community property -- including those of the non-debtor spouse -- to the same extent that such interests would be liable under state law for the debts of the debtor spouse.

3. Bankruptcy Code § 541(a)(1) and (2) – how the interests of the non-debtor registered domestic partner in “DPRRA

community property” are excluded from the debtor-partner’s bankruptcy estate.

Given that “DPRRA community property” and “married community property” are virtually identical under California law, one might expect that Bankruptcy Code § 541(a)(2) would treat them similarly. If such were the case, section 541(a)(2) would reach the interests of the non-debtor domestic partner in “DPRRA community property,” just as it

Nevada community property law, the asset was the separate property of the non-debtor spouse).

86 Note that the “control and debt-liability tests” of section 541(a)(2)(A)-(B) are also determined by reference to nonbankruptcy law. See, e.g., In re Ewald, 73 B.R. 792, 794-95 (Bankr. W.D. Tex. 1987) (non-debtor spouse’s profit sharing plan not an asset of the debtor’s estate because, under Texas law, the assets are under the sole control of the non-debtor and are not subject to the claims of the debtor’s creditors); In re Reiter, 126 B.R. 961, 965 (Bankr. W.D. Tex. 1991) (non-debtor’s income, received pre-petition, was an asset of the debtor’s estate because, even though Texas law deemed the income to be under the exclusive control of the debtor and exempt from the claims of the debtor’s creditors, the income was subject to the Internal Revenue Service’s claims against the debtor).

87 CAL. FAM. CODE § 1100.

88 CAL. FAM. CODE §§ 910(a) and 913(a). Note that when community property is not liable for the debts of the debtor, as is the case for the non-debtor’s earnings under Family Code § 911 (see supra text accompanying note 36) such community property would be excluded from the debtor’s estate under Bankruptcy Code § 541(a)(2)(B).

89 In re Maynard, 264 B.R. 209, 214 (B.A.P. 9th Cir. 2001).

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reaches the non-debtor spouse’s interest in “married community property.” Such would be logical, because the non-debtor partner’s interest in “DPRRA community property” is liable for the debts of the debtor partner, in the same manner as the non-debtor spouse’s interest in “married community property” is liable for the debts of the debtor spouse.90

The authors submit that such logic is undone by the appearance of the word “spouse” in section 541(a)(2), and by DOMA’s restrictive definition of that word.

Note that the word “spouse” plays a prominent role in section 541(a)(2). The section does not refer simply to “community property,” in which the debtor might have an interest. Rather, it refers to “all interests of the debtor and the debtor’s spouse in community property.” How should the bankruptcy court construe section 541(a)(2), where the debtor is a California registered domestic partner, the “community property” in question is “DPRRA community property,” and DOMA precludes the debtor’s domestic partner from being “the debtor’s spouse”?

The authors submit that section 541(a)(2), DOMA and DPRRA are susceptible of only two possible constructions, each of which excludes the non-debtor domestic partner’s interest in DPRRA community property from the debtor’s bankruptcy estate.

The first construction begins by construing the term “community property” in isolation from the rest of section 541(a)(2). Applying California law -- as directed by Butner v. United States -- the court would conclude that “DPRRA community property” falls within the ambit of “community property,” and therefore falls within the ambit of in section 541(a)(2). Next, the court would construe how section 541(a)(2)’s phrase “… all interests of the debtor and the debtor’s spouse …” interacts with the term “DPRRA community property.” Because DOMA precludes the word “spouse” from embracing a registered domestic partner, the court would conclude that section 541(a)(2) brings only the debtor-partner’s interest in DPRRA community property into the debtor’s estate, and that it leaves the non-debtor partner’s interest outside of the estate.91

90 In accord with this logic, commentator Michael O’Halloran suggests that DPRRA community property may be treated the same as “married” community property under Bankruptcy Code § 541(a)(2). See infra note 91.

91 Commentator Michael O’Halloran suggests a similar approach, but arrives at a different conclusion, with which the authors of this monograph disagree. See Michael O’Halloran, Bankruptcy Issues for Domestic Partners, in CALIFORNIA DOMESTIC PARTNERSHIPS, pp. 575-76 (emphasis added):

Arguably, the key concepts of subsection (a)(2) are “debtor” and his or her community property interests. Although the term “spouse” is included, if that term is treated as surplusage, then the subpart appears to bring into the bankruptcy estate all domestic partner community property that otherwise fits the statutory elements. This reading of the statute, however, remains subject to further court or statutory clarification but seems consistent with the overall focus of bankruptcy practice in bringing all property of the debtor into the bankruptcy estate.

For the reasons set forth in the text, the authors of this monograph disagree with the conclusion that “all domestic partner community property that otherwise fits the statutory elements” can become property of the estate under section 541(a)(2). The authors conclude that section 541(a)(2) cannot be read to include the interests of the non-debtor domestic partner and, as a consequence, those interests remain outside of the

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This construction has several virtues. First, it follows Butner v. United States by looking to state law to define what constitutes “community property” under section 541(a)(2). Second, it follows DOMA, by excluding from the debtor’s estate the interest in DPRRA community property that is held by the “non-spouse” non-debtor domestic partner. Third, because the trustee steps in to debtor’s shoes, he can matter exercise over DPRRA community property the same joint-control that is authorized by California Family Code § 1100. The construction is troublesome, however, because, under a strict title analysis, it excludes the non-debtor partner’s interests in DPRRA community property from the debtor partner’s estate, and thereby precludes the bankruptcy trustee from administering both partners’ interests in such property. The implications of this “severing” of the partners’ respective interests in DPRRA community property are discussed in section V(C) below.

Under the second construction, neither partner’s interest in “DPRRA community property” would fall within the ambit of section 541(a)(2). This construction would reason that: (i) by its plain language, section 541(a)(2) applies only to community property that is owned by both a debtor and his spouse; (ii) under DOMA, a registered domestic partner cannot be such a “spouse”; and therefore (iii) DPRRA community property must fall outside the ambit of section 541(a)(2). This second construction would come close to constituting a new, federal, “heterosexual” definition of the term “community property” and, hence, something of a departure from Butner v. United States.

Note that even under this second construction, the interest of the debtor domestic partner in DPRRA community property would still comprise property of the bankruptcy estate. It would do so not by operation of section 541(a)(2) -- for the reasons argued above -- but rather by operation of section 541(a)(1). Recall that section 541(a)(1) includes “… all legal or equitable interests of the debtor in property as of the commencement of the case.”92 This broad language would reach the debtor partner’s interests in DPRRA community property; because section 541(a)(1) does not use the word “spouse,” it would not invoke any negative operation of DOMA. Like the first construction described above, this second construction would leave the interests of the non-debtor domestic partner outside the bankruptcy estate of the debtor domestic partner, and would consequently generate the same problems discussed in section V(C) below.

4. Possible solutions to the “property of the estate” problem for DPRRA community property.

Section V(C) below discusses the significant problems that arise from the authors’ conclusion that “DPRRA community property” cannot be administered as “married community property” under Bankruptcy Code §541(a)(2).

debtor’s estate.

92 11 U.S.C. § 541(a)(1).

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Before turning to this discussion, the authors speculate on strategies by which these problems might be avoided, by bringing the non-debtor domestic partner’s interest in DPRRA community property into the debtor partner’s estate, notwithstanding DOMA.

(a) Amendment of Bankruptcy Code §541(a)(2).

Most obviously, Congress could amend Bankruptcy Code §541(a)(2), to delete the DOMA-triggering reference to “the debtor’s spouse.” Such amendment could bring into the bankruptcy estates “all interests in community property in which the debtor has an interest.” Such amendment would enable the courts to invoke Butner v. United States without triggering DOMA, and would thereby enable the court to exercise jurisdiction over the same DPRRA community property interests that are subject to creditors’ claims under DPRRA.93 Such reform would appear unlikely, however: any accommodation of the interests of same-sex couples would seem contrary to current political realities.

(b) Bankruptcy Code §544(a)(1).

Might the trustee invoke the “long-arm clause” of Bankruptcy Code § 544(a)(1)?94

That statute provides in part (emphasis added):

(a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditors, the rights and

powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is avoidable by –

(1) a creditor that extends credit to the debtor at the time of the commencement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all property on which a creditor on a simple contract could have obtained such a judicial lien, whether or not such a creditor exists; (emphasis added)

93 Such amendment would mirror the approach to community property that was incorporated into former Bankruptcy Act § 70a(5) (former 11 U.S.C. § 110(a) (repealed 1979)), which provided in relevant part:

The trustee of the estate of a bankrupt … shall … be vested by operation of law with the title of the bankrupt as of the date of the filing of the petition initiating a proceeding under this title, except insofar as it is to property which is held to be exempt, to all of the following kinds of property wherever located … (5) property, including rights of action which prior to the filing of the petition he could by any means have transferred or which might have been levied upon and sold under judicial process against him, or otherwise seized, impounded or sequestered …

See generally 4A COLLIER ON BANKRUPTCY, ¶ 70.15 (14th ed. 1987). See also Alan Pedlar, Comment, The Implications of the New Community Property Laws for Creditors’ Remedies and Bankruptcy, 63 CAL. L. REV. 1610, 1620 (1975).

94 11 U.S.C. § 544(a)(1).

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* * *

Thus, section 544(a)(1) generally gives to the bankruptcy trustee the status of a judgment-lien-creditor, and specifically empowers the trustee to avoid any transfer by or obligation of the debtor, which could be avoided by such a judgment lien-creditor under state law.95

Historically, section 541(a)(1) has been invoked to remove certain clouds on the title of property owned by the estate, such as unperfected security interests, secret liens and undisclosed pre-petition claims against the estate’s property.96 Clearly, the interests of the non-debtor partner in DPRRA community property would not fall into one of these historic categories.

Query whether the literal language of section 544(a)(1) might be construed more expansively: (i) to create an “actual” hypothetical judgment-lien in favor of the bankruptcy trustee; (ii) which lien might be hypothetically foreclosed by the trustee under applicable California law; and (iii) by which hypothetical foreclosure the non-debtor partner’s interests in DPRRA community property might be transferred into the estate, as a matter of applicable California law? The authors are not aware of a judicial precedent for such contruction; such construction would seem an expansion of the operation of section 544(a)(1).97

(c) Bankruptcy Code §105(a).

In the case of Francis v. McNeal, the United States Supreme Court recognized that bankruptcy courts has broad equitable power to administer the assets of non-bankrupts, if to do so would be necessary to achieve an equitable distribution of the bankrupt’s estate.98 In that case under the former Bankruptcy Act, a partnership had been adjudicated an involuntary bankrupt, but the general partners had not been successfully joined in the involuntary petition. The Supreme Court affirmed the bankruptcy court’s order that the non-debtor partner’s assets be administered in the partnership’s bankruptcy case, on the grounds that: (i) as a matter of non-bankruptcy law, the non-debtor partner

95 See 5 COLLIER, ¶ 544.02 p. 544-5.

96 See 5 COLLIER, ¶ 544.01 p. 544-3.

97 See Weiman v. Stopher (In re Weiman), 22 B.R. 49 (B.A.P. 9th Cir. 1982) (Hughes, J., principal opinion), cited in 5 Collier ¶ 544.05 at pp. 544-10.1-10.3 (section 544(a)(1) does not create an “actual” hypothetical judgment-lien). But see Alan Pedlar, Comment, The Implications of the New Community Property Laws for Creditors’ Remedies and Bankruptcy, 63 CAL. L. REV., at 1636 (commentator states, without citation, that former Bankruptcy Act 70c (former 11 U.S.C. §110(c) (repealed 1979)), the predecessor of Bankruptcy Code § 544(a)(1), provided separate statutory authority by which the interests of a non-debtor spouse in community property could be brought into the debtor-spouse’s bankruptcy estate.)

98 Francis v. McNeal, 228 U.S. 695 (1913). The text accompanying this footnote is derived from the discussion in Alan Pedlar, Comment, The Implications of the New Community Property Laws for Creditors’ Remedies and Bankruptcy, 63 CAL. L. REV., at 1636-43.

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was liable for the partnership’s debts; and (ii) the Bankruptcy Act established equitable principles consistent with such non-bankruptcy law.99

The authors recognize that the strict holding of Francis has been replaced in modern times by the enactment of Bankruptcy Code §723,100 which confirms the claims of a partnership’s bankruptcy estate against the partnership’s general partners. Nonetheless, the general rule of Francis may provide the equitable rationale upon which the trustee of the debtor domestic partner’s bankruptcy estate might seek to administer the interests of the non-debtor domestic partner in DPRRA community property. The trustee would presumably assert such claims in an adversary complaint filed under the general equitable powers of Bankruptcy Code §105(a).101 Because such an adversary proceeding would be equitable in nature, the bankruptcy court could condition relief on terms that would protect both the non-debtor partner and the creditors of the non-debtor partner from unfairness.102

99 Francis, 228 U.S. at 699-700.

100 11 U.S.C. § 723.

101 11 U.S.C. § 105(a); FED. R. BANKR. P. 7001.

102 See, in particular, the discussion of “community claims” and “community claim discharge” in the text infra accompanying notes 126-34.

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C. Issues that arise in the administration of a bankruptcy estate from which the interests of the non-debtor registered domestic partner in DPRRA community property have been excluded.

Troublesome issues arise if -- as the authors argue in section V(B) above -- the bankruptcy estate of a California registered domestic partner excludes the DPRRA community property interests of his non-debtor partner.

1. Bankruptcy Code § 363(b)(1) – Can the Chapter 7 trustee sell only the debtor’s interest in DPRRA community property ?

Bankruptcy Code § 363(b)(1) authorizes the trustee, after notice and hearing, to sell property of the bankruptcy estate.103 Chapter 7 trustees routinely invoke this section to sell an asset that was owned as community property by a married debtor and his non-debtor spouse: because the estate includes the community property interests of both the debtor spouse and the non-debtor spouse -- pursuant to section 541(a)(2) -- the Chapter 7 trustee can convey all of the interests in community property that were formerly owned by the two spouses.104

If -- as the authors argue above -- the non-debtor partner’s interest in DPRRA community property remains outside of the debtor partner’s bankruptcy estate, a sale of the estate’s interests under section 363(b)(1) would raise several questions.

First, section 363(b)(1) authorizes the trustee to sell only property of the estate. If the non-debtor domestic partner’s interest in DPRRA community property remains outside the bankruptcy estate, section 363(b)(1) creates no authority to sell that excluded interest.

Second, section 363(b)(1) provides no authority to sell property of the estate free and clear of the non-debtor partner’s interest. Such authority is provided only in Bankruptcy Code § 363(f), and is discussed in the following subsection of the text.

Third, if such a sale were consummated, it is not clear to the authors how the new joint owners (i.e., the non-debtor registered domestic partner and the assignee of the estate) would hold title. Clearly not as “DPRRA community property”: only California registered domestic partners can hold title in that manner. As tenants in common? The authors are not aware of any authority by which interests in former community property can be unilaterally severed into tenancy-in-common interests. Moreover, it is not clear how the debts of the registered domestic partners would be or could be allocated between the severed estates.

103 11 U.S.C. § 363(b)(1). See 3 Collier, ¶ 363.02 pp. 363-9, et seq. 104 See In re Hendrick, 45 B.R. 976, 987 (Bankr. M.D. La. 1985) (construing Louisiana law).

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2. Bankruptcy Code § 363(f) – Can the Chapter 7 trustee sell DPRRA community property “free and clear” of the non-

debtor’s interests?

Bankruptcy Code § 363(f) authorizes the Chapter 7 trustee to sell property of the estate “free and clear of any interest in such property of an entity other than the estate,” if the sale satisfies one of five conditions.105 Of these conditions, four arguably apply to our hypothetical Chapter 7 case.106 For the reasons discussed below, the authors conclude that our hypothetical Chapter 7 trustee cannot invoke section 363(f) to sell DPRRA real community property “free and clear” of the non-debtor’s interests.

(a) Bankruptcy Code § 363(f)(1).

Bankruptcy Code § 363(f)(1) permits the trustee to sell property free of the interests of others if applicable nonbankruptcy law permits such sale free and clear of the non-debtor’s interest.107

Under California Family Code § 1100(a), each domestic partner has the legal capacity to sell DPRRA community personal property, without the consent of the other. Pursuant to Bankruptcy Code §363(f)(1), our hypothetical bankruptcy trustee should be able to invoke that California statute to sell DPRRA personal community property free and clear of the non-debtor partner’s interest.

On the other hand, if the DPRRA community property is real property, California Family Code § 1102(a), requires that both domestic partners execute the deed of conveyance. The authors are aware of no California law that would permit one domestic 105 Bankruptcy Code § 363(f) provides:

(f) The trustee may sell property … free and clear of any interests in such property of an entity other than the estate, only if –(1) applicable nonbankruptcy law permits sale of such property free and clear of

such interest;(2) such entity consents;(3) such interest is a lien and the price at which such property is to be sold is greater

than the aggregate value of all liens on such property;(4) such interest is in bona fide dispute; or(5) such entity could be compelled, in a legal or equitable proceeding, to accept a

money satisfaction of such interest.

11 U.S.C. § 363(f). See 3 COLLIER, ¶ 343.06 p.363-43.

106 See 11 U.S.C. §§ 363(f)(1), (2), (4) and (5).

107 3 COLLIER, ¶ 363.06[2] , p. 363-48 (citing In re Leckie Smokeless Coal Co., 99 F.3d 573, 580 (4th Cir. 1996) (Section 363(f)(1) authorized the sale of coal mine assets free and clear of the pension-claims of retirees, where an Internal Revenue Code regulation exonerated such purchasers from such liability)); Rose v. Carlson (In re Rose), 113 B.R. 534, 537 (W.D. Mo. 1990).

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partner, acting unilaterally, to sell DPRRA community real property free and clear of the other partner’s interests. We conclude, as a consequence, that Subsection 363(f)(1) does not provide a means by which the Chapter 7 trustee might sell DPRRA community real property free and clear of the non-debtor’s interests.

(b) Bankruptcy Code § 363(f)(2)

Bankruptcy Code § 363(f)(2) authorizes the sale of the property “free and clear” if the trustee obtains the consent of the non-debtor owner of an interest in the property.108 One can imagine circumstances wherein our hypothetical non-debtor partner might find it advantageous to give such consent. Given the uncertainty regarding the trustee’s legal rights to sell without consent, one can also imagine circumstances wherein the non-debtor would withhold consent, or would condition consent on the receipt of consideration from the estate.

(c) Bankruptcy Code §363(f)(4).

Bankruptcy Code § 363(f)(4) authorizes the trustee to sell property of the estate “free and clear” if the non-debtor’s interest in the property is “in bona fide dispute.”109 On the facts of our hypothetical bankruptcy case, the requisite “bona fide dispute” does not appear to exist, not as a matter of California law or as a matter of federal law. Note, moreover, that uncertainty has emerged in the Ninth Circuit regarding the trustee’s ability to sell “free and clear” prior to an adjudication of the merits of an underlying dispute.110

(d) Bankruptcy Code § 363(f)(5)

Bankruptcy Code § 363(f)(5) authorizes the sale of property “free and clear” if the non-debtor could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.111 The focus of section 363(f)(5) is whether the interest in question is reducible to a monetary claim;112 the trustee may not sell under this subsection

108 11 U.S.C. § 363(f)(2). See 3 COLLIER, ¶ 363.06[3] p. 363-48.

109 11 U.S.C. § 363(f)(4). See 3 COLLIER, ¶ 363.06[5], p. 363-53.

110 See Darby v. Zimmerman (In re Popp), 323 B.R. 260, 268-70 (B.A.P. 9th Cir. 2005) (Section 363(f)(4) sale-order issued during the pendency of the underlying adversary proceeding regarding the disputed title reversed, as duplicative of litigation and conducive of inconsistent results). Note, however, that Popp was decided in large part upon the precedent of In re Beverly Canon Development Corp., an opinion of the Ninth Circuit Court of Appeals that was withdrawn following the publication of Popp. Warnick v. Yassin (In re Beverly Canon Development Corp.), 362 F.2d 603 (2004), opinion withdrawn, 126 Fed. Appx. 353 (9th Cir. March 8, 2005). See discussion in 3 COLLIER, ¶ 363.06[5], p. 363-53, et seq.

111 See 3 COLLIER, ¶ 363.06[4] pp. 363-49, et seq.

112 See In re Haskell, L.P., 321 B.R. 1 (Bankr. Mass. 2005) (court denied motion of debtor-in-possession lessor to sell real property free and clear of tenant’s long-term lease, where lessor had no legal right to compel tenant to accept monetary compensations for termination of lease).

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if the non-debtor cannot be compelled to accept monetary liquidation.113 This “compulsion” test is not a hypothetical test: the statute requires that either the trustee or the debtor be able to compel monetary satisfaction for the interest that is the subject of the “free and clear” sale.114

The authors are aware of only one circumstance under applicable nonbankruptcy law by which one domestic partner may compel the other to accept money in satisfaction of his interest in DPRRA community property. That singular circumstance arises when the registered domestic partnership is terminated, and the California Superior Court asserts jurisdiction to allocate property between the former partners.115 If our hypothetical domestic partners were in the midst of such a termination proceeding at the time of our hypothetical bankruptcy case, the Chapter 7 trustee might invoke such proceeding as the predicate for a section 363(f)(5) sale. The authors conclude that absent such an actual termination proceeding, the mere hypothetical possibility of such would not provide the predicate for a section 363(f)(5) sale.116

4. Bankruptcy Code § 363(h) – Can the Chapter 7 trustee sell the non-debtor partner’s interest in DPRRA community

property along with the estate’s interest?

113 See Gouveia v. Tazbir, 37 F.3d 295 (7th Cir. 1994) (trustee’s motion to sell real property free and clear of land covenant denied, where the holder of the covenant had the state-law right to enjoin a breach of the covenant, and the debtor could not compel the holder to accept money damages in lieu of equitable relief); Silverman v. Ankari (In re Oyster Bay Cover, Ltd.), 196 B.R. 251 (E.D.N.Y. 1996) (Section 363(f)(5) does not enable the trustee to sell land free and clear of non-monetary property interests); In re Independence Village Inc., 52 B.R. 715 (Bankr. E.D. Mich. 1983) (lifecare facility could not be sold free and clear of resident’s leases and life-estates); In re 523 E. Fifth Ave. Housing, Etc., 79 B.R. 568 (Bankr. S.D. N.Y. 1987) (real property could not be sold free and clear of restrictive covenant requiring property to be used for low income housing); P.K.R. Convalescent Centers, Inc. v. Virginia Dep’t of Medical Assistance Servs. (In re P.K.R. Convalescent Centers, Inc.), 189 B.R. 90 (Bankr. E.D. Va. 1995) (estate authorized to sell nursing home free and clear of State’s interest in recovering costs and depreciation reimbursements).

114 Haskell, 321 B.R. at 21 (rejecting the trustee’s argument that the requirements of Section 363(f)(5) are be satisfied upon a showing that the non-debtor tenant’s leasehold interest in the subject property could be liquidated if a hypothetical government agency were to commence a hypothetical eminent domain proceeding against the underlying real property). Cf., opinions that characterize Section 363(f)(5)’s test as a “hypothetical” test: In re Gulf States Steel, Inc., 285 B.R. 497, 508 (Bankr. N.D. Ala. 2002); In re Healthco Int’l, Inc., 174 B.R. 174, 176 (Bankr. D. Mass. 1994). In this line of cases, the interests at issue were liens; in each case, the court concluded that because a lien-interest could be crammed down in a hypothetical Chapter 11 plan, the “compulsion” test of Section 363(f)(5) was satisfied. Other opinions have criticized these lien-cases’ reliance on Section 363(f)(5). See In re Canonigo, 276 B.R. 257, 264-66 (Bankr. N.D. Cal. 2002) (property can be sold free and clear of liens only if Section 363(f)(3) is satisfied; improper to invoke Section 363(f)(5) to sell free and clear of liens). In any event, there is no case that relies on a “hypothetical” test to sell property free and clear of a non-lien interest under Section 363(f)(5). Haskell, 321 B.R. at 21.

115 CAL. FAM. CODE § 299(d); see supra text at note 29.

116 See Haskell, 321 B.R. at 21 (discussed supra at note 112).

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Bankruptcy Code § 363(h) authorizes the Chapter 7 trustee to sell the interests of the estate and of others in property, but only when the debtor’s interest in the property was (i) a tenancy in common, (ii) a joint tenancy, or (iii) a tenancy by the entirety.117 In order to qualify for treatment under section 363(h), the interest in question must fall “squarely” within one of these three categories.118 Because DPRRA community property does not fall “squarely” within one of the statutory categories, the authors conclude that section 363(h) does not authorize the trustee to sell the non-debtor partner’s interest along with the estate’s interest in DPRRA community property.

D. Miscellaneous other issues regarding the administration of the bankruptcy estate of a California registered domestic partner.119

1. Bankruptcy Code § 707(b) -- applying the “abuse” tests to Chapter 7 cases filed by California registered domestic

partners.

Congress has recently enacted new tests to determine whether a Chapter 7 filing is an “abuse” of the Bankruptcy Code.120 While a complete discussion of these new tests is beyond the scope of this monograph, the authors note that DOMA’s narrow definition of “spouse” leads to surprising results for Chapter 7 debtors who are California registered domestic partners.

At the threshold, a “median income” test asks whether the “current monthly income” of the Chapter 7 debtor and the debtor’s spouse is above or below a median income figure, as calculated by the United States Census Bureau.121 If such combined current monthly income falls below the median, then the debtor’s Chapter 7 petition is

117 11 U.S.C. § 363(h). Note that § 363(h) does not apply to community property: ordinarily the trustee may sell the interests of both spouses in community property pursuant to § 363(b)(1), discussed supra at text accompanying notes 103-04.

118 3 COLLIER, ¶ 363.08[2] p. 363-59; Geddes v. Livingston (In re Livingston), 804 F.2d 1219, 1222-23 (11th Cir. 1986) (because a tenancy-in-common with an indestructible right of survivorship was deemed not to be a tenancy-in-common with the ambit of § 363(h), the trustee could not rely on § 363(h) to sell the property free and clear of the non-debtor’s interest).

119 For additional discussion of the many intersections between DPRRA, COMA and the Bankruptcy Code, see Michael O’Halloran, Bankruptcy Issues for Domestic Partners, in CALIFORNIA DOMESTIC PARTNERSHIPS.

120 11 U.S.C. § 707(b)(2), as enacted by Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, PUB. L. 109-8. For a summary of the consumer elements of the new bankruptcy legislation, including the new “means test,” see Eugene Wedoff, Major Consumer Bankruptcy Effects of the 2005 Reform Legislation, (AMERICAN BANKRUPTCY INSTITUTE April 13, 2005); Thomas J. Yerich, Synopsis of Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (2005) (www.abiworld.org/pdfs/ s256/yerbich.pdg).

121 11 U.S.C. §§ 10A and 707(b)(7).

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deemed not to be an abuse; if the combined monthly income exceeds the median, then the debtor must submit to a second “means” test, described below.

Here may be a rare “victory” for registered domestic partners under DOMA. Because DOMA restricts “the debtor’s spouse” to mean only “person of the opposite sex to whom debtor is married,” the median income test should examine only the income of the debtor domestic partner, and should exclude the income of his non-debtor partner. This exclusion suggests that a debtor who is a domestic partner will more likely than his married counterpart to “pass” the median-income test.

If the debtor’s “current monthly income” exceeds the relevant median-income test figure, then the court must determine whether the debtor generates net income that could be devoted to paying creditors.122 If the resulting net income exceeds specified amounts, then the Chapter 7 case is deemed to be an abuse of the Bankruptcy Code, and the Court will either dismiss the case or convert it to a case under Chapter11 or Chapter 13 of the Bankruptcy Code.123 Curiously, this “means test” makes no reference to “spousal” income or expenses; rather it refers to the debtor’s income, the debtor’s expenses, and sometimes to the expenses of the debtor’s “family unit,” as defined by the Internal Revenue Service.124 Nothing in the new bankruptcy legislation or the incorporated IRS calculations requires that the “family unit” involve a married couple. As a consequence, the authors conclude that same-sex families – whether involving California registered domestic partners or otherwise – may qualify for “family unit” treatment under the new “means” test.

2. Bankruptcy Code § 362 -- Is the non-debtor domestic partner stayed from asserting “control” over the DPRRA

community property?

Under Bankruptcy Code § 362(a)(3), the filing of a bankruptcy petition operates as an automatic stay of “… any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.”125

Clearly, our hypothetical non-debtor domestic partner is subject to this stay. As a consequence, he is stayed from any exercising control over the property of our hypothetical Chapter 7 bankruptcy estate, which estate includes the debtor partner’s interests in DPRRA community property. At the same time, California Family Code § 1100 gives to the non-debtor spouse joint and equal control over the DPRRA community

122 11 U.S.C. § 707(b)(2)(A).

123 Id.

124 Id.

125 11 U.S.C. § 362(a)(3). See 3 COLLIER, ¶ 362.01 , pp. 362-10, et seq.

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property. Because any exercise of such control by the non-debtor partner would seem to constitute “control” that is stayed by Bankruptcy Code § 362(a)(3), the boundary between stayed and permitted activity by the non-debtor partner is not clear.

3. Bankruptcy Code § 726(c)(2) -- The “community claims” ofcreditors of the non-debtor domestic partner.

Because “married” community property is liable for the debts of both spouses,126 the rights of the creditors of the non-debtor spouse would be impaired if only the creditors of the debtor spouse were to receive distributions from the liquidation of community property. To preclude such impairment, Bankruptcy Code § 101(7) and 726(c)(2) authorize any creditor to assert a claim -- even a creditor of only the non-debtor spouse -- if the spouses’ community property would have been liable for such claim.127 Such “community claims” may then receive distributions from the debtor’s estate, even though the non-debtor spouse is not a debtor in the case.128

The administration of such “community claims” will be troublesome in the context of DPRRA community property. In the first instance, section 101(7)’s definition of “community claim” refers back to section 541(a)(2): a claim is a “community claim” only if property defined by section 541(a)(2) would be liable for the debt. If DPRRA community property does not fall within the ambit of section 541(a)(2),129 it should follow that the creditors of a non-debtor domestic partner cannot file a “community claim” in the debtor domestic partner’s bankruptcy case. On the other hand, if DPRRA community property does constitute “community property” under section 541(a)(2) -- but the non-debtor’s interest therein is excluded from the estate 130-- it is not clear how claims will be allocated between the non-debtor partner’s interest and that of the estate. Finally, when section 726(c)(2) authorizes the trustee to make disbursements to creditors on account of their “community claims,” it refers in part to the “community claims … against the debtor’s spouse.” Because DOMA excludes registered domestic partners from falling within the ambit of this statutory phrase, it should follow that creditors to whom only the non-debtor domestic partner is indebted can receive no disbursement on account of their otherwise “community claim.”

126 See supra text accompanying notes 31-40.

127 11 U.S.C. §§ 726(c), 101(7), 541(a)(2). Such “community claims” are defined by 11 U.S.C. § 101(7). See 6 COLLIER, ¶ 726.04, pp. 726-16, et seq. See generally Soderling v. FDIC, 998 F.2d 730, 733 (9th Cir. 1993).

128 11 U.S.C. § 726(c)(2).

129 See supra text accompanying notes 90-91.

130 See supra text accompanying note 92.

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4. Bankruptcy Code § 524(a)(3) -- The “community claim discharge”.

Bankruptcy Code § 727 requires the Bankruptcy Court to grant a discharge of an individual debtor’s debts, unless the debt in question falls into a category that is statutorily defined as nondischargeable.131 Under Bankruptcy Code § 524(a)(2), the entry of a discharge order enjoins creditors from commencing or continuing any act to recover a discharged debt that that was the personal liability of the debtor.132

Because the married non-debtor spouse’s interest in community property becomes an asset of the bankruptcy estate of the debtor spouse, the non-debtor spouse also receives a benefit from the discharge order. Under Bankruptcy Code § 524(a)(3) the entry of discharge order in the debtor-spouse’s bankruptcy case imposes a limited injunction on the holders of “community claims.” Under that section, holders of community claims are enjoined from engaging in collection actions against community property that is acquired by either spouse or by both spouses, at any time after the filing of the debtor spouse’s bankruptcy petition, unless the debt in question has been found to be nondischargeable.133 Thus, even though the non-debtor spouse did not file a bankruptcy petition, any property that he acquires as community property post-petition is free of the claims of his pre-petition creditors. Note that the injunction is limited to after-acquired community property: if the non-debtor spouse owns or acquires separate property, such property is still subject to the claims of his creditors, just as it would be under California Family Code §§ 910(a) and 913(a).

The implementation of section 524(a)(3) in the context of DPRRA community property will be confused and confusing. If, as is suggested above134, a “community claim” does not exist under such circumstances, it should follow that that the section 524(a)(3) injunction is not available to a non-debtor domestic partner. If this conclusion is correct, both domestic partners will be prejudiced: absent a section 524(a)(3) injunction, any DPRRA community property that is acquired by either partner or both partners post-petition will continue to be liable for the pre-bankruptcy debts of the non-debtor domestic partner, presumably including even the community property debts for which the debtor received his discharge.

5. Bankruptcy Code § 522 -- asserting exemptions.

131 11 U.S.C. § 727(a); 11 U.S.C. § 523.

132 11 U.S.C. § 524(a)(2). See 4 COLLIER, ¶ 524.02[3] pp. 562, et seq.

133 11 U.S.C. § 524(a)(3). See generally Soderling, 998 F.2d at 733.

134 See supra text accompanying notes 126-30.

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Bankruptcy Code § 522(b) allows the debtor to exempt from the estate, certain which property would otherwise become “property of the estate” under Bankruptcy Code § 541.135 If the debtor is a California domiciliary, the specific nature and extent of these bankruptcy exemptions are defined by California’s exemption statutes.136

California affords debtors a choice: they may elect to assert the exemptions described in Code of Civil Procedure § 703.140(b) (commonly referred as “the 703 exemptions”) or those defined in Code of Civil Procedure § 704.010-704.995 (commonly referred to as “the 704 exemptions”).137 If the bankruptcy petition is filed by an “unmarried person,” California law allows him to assert the 703 exemptions or the 704 exemptions, but not both.138 If the bankruptcy petition is an individual petition filed by “a husband or a wife,” then the debtor must elect the 704 exemptions, unless both spouses sign a written waiver, in which the debtor may assert the 703 exemptions.139

Under DPRRA, the “spousal” provisions of these California exemption-statutes now apply equally to registered domestic partners. Because the word “spouse” does not appear in the operative language of Bankruptcy Code § 522(b), the authors conclude that DOMA will not preclude registered domestic partners from exercising their respective rights under these California exemption-statutes, even though such rights will be exercised in the context of a federal bankruptcy case. Thus, the authors conclude that if a debtor domestic partner asserts exemptions in his bankruptcy case, California law will require him to assert the 704 exemptions, unless his domestic partner consents in writing to the assertion of the 703 exemptions.

135 111 U.S.C. § 522(b)(1).

136 11 U.S.C. §§ 522(b)(1) and (3) (which allows the respective states to “opt out” of the federal exemption scheme); CAL. CODE PROC. CODE § 703.130 (which constitutes California’s “opt out” election pursuant to 11 U.S.C. §§ 522(b)(1) and (3)).

137 The most critical difference between the two exemptions schemes is the presence of the homestead exemption among the 704 exemptions. See supra text accompanying notes 48-55.

138 CAL. CIV. PROC. CODE § 703.140(a)(3).

139 CAL. CIV. PROC. CODE § 703.140(a)(2).

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6. Bankruptcy Code §§ 507(a)(1), 523(a) and 522(f) --obligations arising out of divorce.

Under the California Family Code, a separating or divorcing spouse may become entitled to receive alimony, maintenance, and/or child support, from the other spouse. The Bankruptcy Code characterizes these payments as “domestic support obligations,” and accords them special priorities and protections.140

Under DPRRA, a separating or “terminating” registered domestic partner may become entitled to receive similar payments, from his domestic partner. Whenever the Bankruptcy Code employs the word “spouse” in its provisions relating to “domestic support obligations,” however, DOMA denies the Bankruptcy Code’s priorities and protections to registered domestic partners.

(a) Bankruptcy Code § 507(1)(A) -- priority distribution for domestic support obligations.

Bankruptcy Code § 507(a) defines the priority by which distributions are made to creditors from the corpus of the bankruptcy estate. Subject to limited exceptions, section 507(a)(1) accords the first priority of distribution to domestic support obligations that are owed to “a spouse, a former spouse or child of the debtor ….”141

140 11 U.S.C. § 101(14A) provides in part:

The term “domestic support obligation” means a debt that accrues before, or, or after the date of the order for relief in a case under this title, …that is –(A) owed or recoverable by –

(i) a spouse, former spouse or child of the debtor or such child’s parent, legal guardian, or responsible relative; or

(ii) a governmental unit;(B) in the nature of alimony, maintenance, or support … of such spouse, former spouse, or child

of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;

(C) established or subject to establishment before, or, or after the date of the order for relief in a case under this title, by reason of applicable provisions of –

(i) a separation agreement, divorce decree, or property settlement;(ii) an order of a court of record; or(iii) a determination made in accordance with applicable nonbankruptcy law by a

governmental unit; and(D) not assigned to a governmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of debtor, or such child’s parent, legal guardian, or responsible relative for the purpose of collecting a debt.

For a discussion of the treatment of domestic support obligations under the Bankruptcy Code, see infra text accompanying notes 141-49.

141 11 U.S.C. § 507(a)(1).

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Because alimony and maintenance obligations under DPRRA are not owed to a “spouse” or “former spouse” of the debtor, they are not entitled to first-priority distribution under section 507(a)(1); instead, their priority plummets to last-priority, to the same reserved for general unsecured claims against the debtor. Note, however, that the word “spouse” is not implicated in “domestic support obligations” that are owed to a child of the debtor or to the parent, legal guardian or responsible relative of such child.142 As a consequence, such obligations should still receive first-priority treatment under section 507(a)(1), even though they arise out of the termination of a California registered domestic partnership.

(b) Bankruptcy Code § 523(a)(5) and (15) – the nondischargeability of domestic support obligation

claims.

Bankruptcy Code § 727 requires the Bankruptcy Court to grant a discharge of an individual debtor’s debts, unless the debt in question falls into a category that is statutorily defined as nondischargeable.143 Bankruptcy Code § 523(a)(5) exempts from such discharge “any debt … for a domestic support obligation.”144 Because the term “domestic support obligation” must be read under DOMA to exclude alimony and maintenance obligations to California registered domestic partners,145 such obligations are not non-dischargeable under section 523(a)(5), and therefore are fully dischargeable in the debtor domestic partner’s bankruptcy case. Further, Bankruptcy Code § 523(a)(15) exempts from discharge “any debt … to spouse, former spouse or child of the debtor not of a kind described in … [section 523(a)(5)] ….”146 Again, DOMA would appear to negate the operation of this statute, where the debt is owed to a registered domestic partner or a former registered domestic partner.

(c) Bankruptcy Code § 522(f) -- avoiding judgment liens for domestic support obligations.

Bankruptcy Code § 522(f)(1)(A) generally allows a Chapter 7 debtor to avoid a judgment lien on an interest of the debtor in property, to the extent that such lien impairs an exemption to which the debtor would otherwise be entitled.147 The debtor may not avoid such a lien, however, if the lien “… secures a debt of a kind that is specified in

142 11 U.S.C. §§ 101(14A)(A)(i) and 507(a)(1)(A)-(B).

143 11 U.S.C. § 727.

144 11 U.S.C. § 523(a)(5).

145 See supra text accompanying note 140.

146 11 U.S.C. § 523(a)(15).

147 11 U.S.C. § 522(f)(1)(A).

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Section 523(a)(5) …,” that is, if the lien secures a “domestic support obligation.”148 Because DOMA excludes DPRRA alimony and maintenance payments from the ambit of “domestic support obligation,” section 522(f)(1)(A) does not act as a bar to the avoiding of DPRRA alimony- or maintenance-liens.149

7. When both California registered domestic partners file bankruptcy petitions.

As discussed above, while DOMA precludes California registered domestic partners from filing a joint bankruptcy petition, it clearly does not bar them from filing individual bankruptcy petitions.150 The following text explores some of the implications that arise when each domestic partner files a separate individual bankruptcy case.

(a) Joint Administration.

When two or more “related” bankruptcy cases are filed, Federal Rule of Bankruptcy Procedure 1015(b) authorizes the “joint administration” of the two cases. Joint administration is a procedural device that is designed to ease the burden of administering the cases, by docketing all proceedings in the cases under a single case number. When two or more cases are jointly administered, their respective estates remain separate, and creditors’ rights against each respective estate are no different than if the cases were administered separately.151

Given the likely inter-relatedness two domestic partners’ finances, it would seem natural that a Bankruptcy Court would grant a motion to jointly administer the partners’ two bankruptcy cases. There may be a “hitch,” however: Federal Rule of Bankruptcy Procedure Rule 1015(b) does not expressly provide for the joint administration of domestic partners’ cases:

Cases Involving Two or More Related Debtors. If a joint petition or two or more petitions are pending in the same court by or against (1) a husband and wife, or (2) a partnership and one or more of its general partners, or (3) two or more general partners, or (4) a debtor and an affiliate, the court may order a joint administration. …152

148 11 U.S.C. § 522(f)(1)(A).

149 See, e.g., In re Goodale, 298 B.R. 886, 893 (Bankr. W.D. Wash. 2003) (11 U.S.C. § 522(f)(1)(A) does not bar the avoiding of judgment lien, where underlying State-court judgment was for the maintenance of partner of terminated same-sex relationship, which the Washington court had characterized as a “meretricious” relationship under Washington law).

150 See supra text accompanying notes 64-71.

151 Reider v. FDIC (In re Reider), 31 F.3d 1102 (11th Cir. 1994).

152 FED. R. BANKR. P. Rule 1015(b).

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Clearly, under DOMA, the partners’ cases cannot be characterized as those of a “husband and wife”; moreover, the “partner” relationship of registered domestic partners is not that of “general partners.” Nonetheless, because joint administration serves only the interests of judicial economy, and does not affect the substantive rights of anyone interested in the respective estates, it is hard to imagine a policy reason to prohibit the joint administration of the respective estates of two domestic partners. As a consequence, the authors conclude that bankruptcy courts should “stretch” the “general partner” clause of Rule 1015(b) to enable joint administration. In the alternative, bankruptcy courts should be able to invoke the general equitable powers of Bankruptcy Code § 105(a) to effect such joint administration.

(b) Appointing a Single Trustee.

If an order of joint administration is entered, the Court may thereafter appoint – but it is not required to appoint – a single trustee for the jointly administered cases.153

Whether it is appropriate to appoint the same trustee for both estates, will depend on the facts of the cases. In light of the unsettled law regarding the administration of the estates of domestic partners, the likelihood of conflict between the estates suggests that each estate should be administered by a different trustee.154

(c) Substantive consolidation.

Consolidation of the estates of separate debtors may be appropriate when the affairs of two estates are so intermingled that the court cannot separate their assets and liabilities. The propriety of consolidation depends on substantive considerations and the effects that consolidation will have on the substantive rights of the creditors of the different estates.155 Whether it will be appropriate to consolidate the estates of two domestic partners will, of course, depend on the facts of the cases. In a straightforward case, with little separate property and no legal conflicts arising out of the retroactive operation of DPRRA, consolidation may be appropriate. Given the degree of uncertainty about the interaction between DPRRA and the Bankruptcy Code, it may be more prudent to retain the separateness of such estates.

153 FED. R. BANKR. P. Rule 2009.

154 See In re BH&P, Inc., 949 F.2d 1300 (3d Cir. 1991); In re Jack Greenberg, Inc., 189 B.R. 906, 913 (Bankr. E.D. Pa. 1995).

155 Union Sav. Bank v. Augie/Restivo Baking Co. (In re Augie/Restivo Baking Co.), 860 F.2d 515, 518 (2d Cir. 1988); Alexander v. Compton (In re Bonham), 229 F.3d 750, 765-66 (9th Cir. 2000). See also FED. R. BANKR. P. Rule 1015 advisory committee’s note.

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VI. CONCLUSION .

The challenge of harmonizing legal innovations with existing legal structures is not unfamiliar, to attorneys or to judges. Many newly-enacted statutes conflict with existing law: the more sweeping the scope of the new statute, the greater the potential for such conflict, and the greater the need for courts to harmonize the new with the old. Thus, one would expect the enactment of DPRRA to spawn a period of judicial activity, during which DPRRA’s sweeping reforms would be incorporated into and harmonized with California and federal law.

Absent a dramatic reversal by the California Supreme Court or the California Legislature, it appears likely that such process will follow in due course in California, and that DPRRA will become a permanent feature of the relations between California creditors and debtors.

In the bankruptcy arena, the prospects are less clear. DOMA’s opposite-sex definitions of “marriage” and “spouse” will make it difficult to harmonize DPRRA with the Bankruptcy Code, and will likely create incidents of confusion and unfairness, for both registered domestic partners and their creditors. The burden of harmonizing DPRRA, DOMA and the Bankruptcy Code will fall as much on those who appear at the bankruptcy bar as on those who sit on the bankruptcy bench. The authors hope that their analyses will be of assistance to lawyers and judges in the unsettled time ahead.

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