ATTORNEY FOR APPELLANT
Theodore T. Storer
Fort Wayne, Indiana
ATTORNEYS FOR APPELLEE
Karen M. Freeman-Wilson
Attorney General of Indiana
Deputy Attorney General
SUPREME COURT OF INDIANA
IN RE THE MATTER OF )
DOROTHY J. HAMBRIGHT, )
MARK A. WARSCO, Trustee, )
Appellant (Intervenor Below), )
) Indiana Supreme Court
v. ) Cause No. 02S04-0104-CV-212
DOROTHY J. HAMBRIGHT, ) Indiana Court of Appeals
) Cause No. 02A04-0004-CV-140
Appellee (Petitioner below), )
ROBERT EDWARDS, JR., )
Appellee (Respondent below). )
APPEAL FROM THE ALLEN SUPERIOR COURT
The Honorable Craig Bobay, Magistrate
Cause No. P-84-572
ON PETITION TO TRANSFER
January 31, 2002
We granted transfer in this case to address whether child support arrearages owed
to a custodial parent are assets of the parents bankruptcy estate. We
hold that they are not. Rather, like current and future support obligations,
they constitute property held in trust for the benefit of the children.
This is an appeal in an action commenced in 1984 when Dorothy Hambright
brought a paternity action against Robert Edwards, Jr. In 1985, Hambright was
granted custody of her three children and awarded child support. Edwards fell
behind in support and the total arrearage exceeded $19,000 when Hambright assigned her
rights to the State in 1994.
On February 16, 1999, Hambright filed a Chapter 7 bankruptcy. On June
29, Mark A. Warsco, the trustee of her bankruptcy estate, sought to intervene
in the paternity action claiming an interest relating to a property . .
. which is the subject of the action under Trial Rule 24(A)(2).
After argument, the trial court denied the petition to intervene: The Court finds
that said relief would be contrary to public policy concerning child support, and
therefore, denies said Motion to Intervene and Receive Payments for Child Support Arrearage.
Warsco filed a motion to correct error, which also was denied:
The Court finds that when a non-custodial parent fails to timely pay child
support, the child sustains a loss in the form of a reduced standard
of living; and child support arrearages are funds owed the custodial parent, to
be collected, held, and expended as fiduciary for the benefit of the child.
The trial court then certified the order denying intervention for interlocutory appeal.
The Court of Appeals accepted jurisdiction and held that child support arrearages were
an asset of the custodial parent and therefore Warsco could intervene as a
matter of right. Warsco v. Hambright, 735 N.E.2d 844 (Ind. Ct. App.
2000). We granted transfer to address the nature of child support arrearages
I. Warscos Rights and Duties as Bankruptcy Trustee
Under section 704 of the Bankruptcy Code, the trustee is to collect and
reduce to money the property of the estate for which such trustee serves,
and close such estate as expeditiously as is compatible with the best interests
of parties in interest. 11 U.S.C. § 704 (1994). The trustee
has an interest in any asset to the extent that the debtor has
an interest in it and is required to include the property in the
estate. Whether property is an asset of the debtor, and therefore an
asset of the bankruptcy estate, is generally a matter of state law.
Barnhill v. Johnson, 503 U.S. 393, 398 (1992).
Warscos right to intervene in Hambrights paternity action is controlled by Trial Rule
24(A). It states:
(A) Intervention of right. Upon timely motion anyone shall be permitted to
intervene in an action:
(1) when a statute confers an unconditional right to intervene; or
(2) when the applicant claims an interest relating to a property, fund or
transaction, which is the subject of the action and he is so situated
that the disposition of the action may as a practical matter impair or
impede his ability to protect his interest in the property, fund or transaction,
unless the applicants interest is adequately represented by existing parties.
Because no statute gives Warsco an unconditional right to intervene, he claims a
right to intervene only under Trial Rule 24(A)(2) as the holder of an
interest relating to a property . . . which is the subject of
[this] action. Therefore, Warscos ability to intervene, like his claim to the
arrearages under the Bankruptcy Code, turns on whether Hambright has a property interest
in the arrearages.
II. Hambrights Interest in Child Support Arrearages
It has long been held that the right to support lies exclusively with
the child, and that a parent holds the child support payments in trust
for the childs benefit. Bussert v. Bussert, 677 N.E.2d 68, 71 (Ind.
Ct. App. 1997), trans. denied. The custodial parent acts as a trustee
of the payments and is to use them for the benefit of the
child. Straub v. B.M.T. by Todd, 645 N.E.2d 597, 599 (Ind. 1994).
As the constructive trustee, the custodial parent may not contract away the
benefits of the constructive trust, and neither the parents nor the child may
informally effect a modification or annulment of accrued benefits. Cf. Nill v.
Martin, 686 N.E.2d 116, 118 (Ind. 1997).
Warsco does not appear to contest the general proposition that parents hold current
and future support as trustees for the children, but he argues that past
child support arrearages are property of the custodial parent. He bases this
contention on the premise that the custodial parent has already made up for
the missed support by providing food, clothing, and other necessities from other sources
during the period when child support was not paid. Under this view,
the arrearages merely reimburse the custodial parent for his or her expenditures that
should have come from the support payments in the first place.
Warscos position is supported by
In the Matter of Henady, 165 B.R. 887,
893 (Bankr. N.D. Ind. 1994), which concluded that, under Indiana law, the right
to collect past due child support is a right to repayment which belongs
to the debtor personally and not as trustee for the children. Thus,
Henady allowed the bankruptcy trustee to collect the arrears as an asset of
the bankruptcy estate. Id. However, we believe Henady does not reflect
the current status of Indiana law.
The court in
Henady based its conclusion, in large part, on this Courts
holding in Lizak v. Schultz, 496 N.E.2d 40, 42 (Ind. 1986). In
Lizak, this Court held that the representative of the estate of a deceased
custodial parent was entitled to recover child support arrearages without proving the amount
of money that had been spent on the children. In discussing the
nature of child support, citing cases dating from 1865, we noted:
The description of the childrens custodian as a trustee has distant origins in
our law. Early cases seem to use this term to differentiate alimony,
paid to the former spouse for her benefit, from child support, payable to
the custodian of the child, regardless of whether the custodian is a parent
or not. It has been used to describe the relationship between child
and custodian and the obligation of the latter to seek enforcement of the
support order. It has not been used to permit the non-paying parent
to avoid the obligation of a support order.
Clearly, one who has present custodial responsibility can collect ongoing payments for the
support of the child. Only he can be the trustee of the
non-custodial parents ongoing obligation to pay. Similarly, one who has had the
obligation to care for a child and has advanced his own funds to
do so is entitled to collect the arrears from the non-custodian.
Id. at 42 (citations omitted).
III. Warsco Has No Right to Intervene
Warsco argues that because in Lizak this Court allowed the decedents estate to
recover the child support arrearages, the arrearages belong to the custodial parent and
can be included in the bankruptcy estate of the custodial parent. Lizak
rejected the delinquent parents effort to avoid his child support obligation by forcing
the custodian to reconstruct years of support. The practical effect of Lizak
is that a custodian may not be forced to reconstruct years of a
familys often poorly documented finances as a precondition to collection of support.
It prevents the non-custodial parent from raising an alleged misapplication of the funds
as a defense to payment. Indiana law allows the non-custodial parent to
request an accounting demonstrating that child support funds were spent on the child.
Ind. Code § 31-16-9-6 (1998). The accounting remedy is available if
there is a serious dispute as to the proper application of the funds,
but refusal to pay is not an option available to the non-custodial parent.
All of this is consistent with the view that the children are
the beneficiaries of the funds owed to the custodial parent as trustee.
Indeed, in rejecting the claim that the representative needed to prove that the
custodial parent had come up with the amount of arrearages from her own
funds, Lizak described the obligation of the non-custodial parent as that of a
debtor to the mother trustee. 496 N.E.2d at 42 (quoting Corbridge v. Corbridge,
230 Ind. 201, 206, 102 N.E.2d 764, 767 (1952), and Grace v. Quigg,
150 Ind. App. 371, 378, 276 N.E.2d 594, 598 (1971) (citations omitted)).
And Lizak refers to the custodial parent as the trustee of the non-custodial
parents ongoing obligation to pay. 496 N.E.2d at 42.
The second case upon which
Henady relied is Linton v. Linton, 166 Ind.
App. 409, 336 N.E.2d 687 (1975). That case dealt with the enforceability
of an agreement between the parents to discharge the fathers delinquent support payments
for less than the full amount due. The Court of Appeals held
that although a custodial parent cannot make an enforceable agreement that future support
payments need not be made, when an arrearage accrues the custodial parent may
compromise or forgive the debt if the children had indeed received all of
the benefits intended in the original decree. Id. at 423, 336 N.E.2d
at 695. The record in Linton did not reveal whether in fact
the custodial parent had made up the shortfall. The court assumed that
the trial court had so determined and upheld the custodial parents release of
the delinquent support. Accordingly, Warsco and the Court of Appeals correctly suggest
that Linton implies that if the custodial parent can be shown to have
made up the deadbeats shortfall, the shortfall belongs to the custodial parent.
Linton was decided before Indiana Code sections 31-16-16-2 through 6 were enacted
and before this Courts holding in Nill v. Martin. Modification of support
arrearages is now prohibited by section 31-16-16-6, which permits a court to modify
a delinquent support payment only in two instances not relevant here.
Beehler v. Beehler, 693 N.E.2d 638, 640 (Ind. Ct. App. 1998) (A court
is without power to retroactively modify an obligors duty to pay a delinquent
child support payment.). Similarly, in Nill this Court stated, [O]nce funds have
accrued to a childs benefit under a court order, the court may not
annul them in a subsequent proceeding. 686 N.E.2d at 118. Nill
went on to invalidate an informal agreement made by the parents, then adopted
by the trial court, to reduce the amount of child support below the
amount ordered in the divorce decree. Nill makes clear that even as
to back child support the role of the custodial parent remains that of
a constructive trustee. Id.
We conclude that practical considerations and basic policy concerns prohibit permitting proof of
the source of expenditures for the children to establish the custodial parents individual
right to arrearages. As a matter of law, arrearages, like current and
future support, are held for the children, and the custodial parent has no
individual property interest in them.
The Court of Appeals in the present
case took the view that if the custodial parent had supplied the shortfall
in support, the custodial parent in her individual capacity became subrogated to the
trustees claim against the non-custodial parent and was free to release it.
We agree that Linton implies that proof of the custodial parents replacement of
the imposed support would render enforceable the parents agreement to forego back support.
On the other hand, Lizak holds that the non-custodial parent may not
prove failure to make up the shortfall to rebut a claim by the
There is a facial inconsistency in holding, as we do, that proof of
replacement may not be offered or required to establish that the back support
is an asset of the custodial parent individually, not of that parent as
constructive trustee. However, we think more recent legislative policy to preclude a
courts retroactive adjustment of support is evident. Moreover, these amounts are typically
small in relation to the cost of reconstructing the familys finances over a
period of years. Litigation over the degree to which the children did
or did not suffer from a support shortfall raises a potentially endless list
of debatable contentions and issues. In addition, if past support becomes a
negotiable item between the parents, the door is opened to alter support by
first triggering an agreed delinquency, and then trading past dollars for nonnegotiable future
For all these reasons, we think the preferable rule, and the rule dictated
by current statutes, is that the issue is not open to litigation.
The effect of this rule is to preclude the parents, with or without
the childrens concurrence, from agreeing on a reduction in past support. It
also precludes creditors from reaching past support. In an unusual case where
the parties agreement is reasonable and fully consistent with the childrens interests, this
rule may produce some unfairness. It is also conceivable that colluding parents
could seek to use this doctrine to defraud creditors, but misuse should be
subject to other remedies. The offsetting benefit is preclusion of lengthy and
expensive court intervention in the far more frequent circumstance, including this one, where
the transactional costs are likely to exceed the benefit to any party, and
the children will be the losers.
Viewing child support arrearages as an asset held in trust for the children
is supported by larger policy concerns as well. Insuring protection and support
for the children of Indiana is an important state policy. The Indiana
Child Support Guidelines have been enacted to establish as state policy an appropriate
standard of support for children, subject to the ability of parents to financially
contribute to that support. Ind. Child Support Guideline 1. The Income
Share Model was adopted in Indiana because it was perceived as the fairest
approach for children because it is based on the premise that children should
receive the same proportion of parental income after a dissolution that they would
have received if the family had remained intact.
Id. at cmt.
If child support arrearages are property of the custodial parent, subject to the
parents creditors, this important goal will not be met. Moreover, it is
frequently the case that custodial parents are simply unable to replace the missing
child support. If so, the child goes without until the delinquent parent
pays. If creditors of the parent take precedence as to these funds,
the children will never be fully compensated.
In sum, [t]he bankruptcy courts jurisdiction over [debtors] property extends only as far
as [the debtors] particular interest in the property.
Marrs-Winn Co., Inc. v.
Giberson Elec., Inc. (In re Marrs-Winn Co., Inc.), 103 F.3d 584, 589 (7th
Cir. 1996). Child support arrearages are held by the custodial parents for
the benefit of the children. As such, child support arrearages are not
property of the custodial parent, and a trustee in bankruptcy has no interest
in them. Accordingly, Warsco has no right to intervene in the proceeding.
The judgment of the trial court is affirmed.
SHEPARD, C.J., and DICKSON, SULLIVAN, and RUCKER, JJ., concur.
Warsco raises no issue under Trial Rule 24(B)(2) governing permissive intervention.
Indiana Code section 31-16-16-2 (formerly Ind. Code § 31-2-11-8) provides that any
delinquent support payments automatically become a judgment against the noncustodial parent. Indiana
Code section 31-16-16-3 (formerly I.C. § 31-2-11-9) provides that the judgment automatically becomes
a lien against the noncustodial parents real and personal property. Finally, Indiana
Code section 31-16-16-6 (formerly I.C. § 31-2-11-12) provides that the courts cannot modify
the duty to pay a delinquent support payment. This plainly shows the
legislatures policy of preserving the child support for the children.
These exceptions are Indiana Code section 31-14-19-1, which addresses full faith and
credit issues raised by foreign decrees, and section 31-16-16-6(b), which permits modification of
only those payments that are due after the notice of a petition to
modify is delivered and before a final judgment is entered.
At the time of Warscos motion to intervene, Hambrights three children were
ages 18, 19, and 23. The record does not include the support
order, nor does it indicate any circumstances under which Hambrights children would no
longer be entitled to support or education expenses. We may not presume
the emancipation of Hambrights children.
Cf. Dennison v. Dennison, 696 N.E.2d 88,
99 (Ind. Ct. App. 1998). Therefore, we leave for another day the
issue of whether the nature of the custodial parents interest in an arrearage
changes after a non-custodial parents duty to support ends.