Judgment Liens Securing Nonsupport Family Law Obligations

If a judgment lien on the debtor’s homestead secures a nonsupport obligation e.g., a property settlement obligation, whether the lien may be avoided under 522(f)(1)(A) is controlled by the rationale of Farrey v. Sanderfoot, 500 U.S. 291 (1991). In that case, the Supreme Court held that a judgment lien could not be avoided under this provision unless the debtor owned the property interest before the lien attached. In that case, the parties had stipulated that, as a result of the divorce decree, the parties’ old interests in the homestead were extinguished and the debtor’s interest in the homestead represented a new interest. Therefore, the lien could not be avoided.

Several courts in the Ninth Circuit have held that the law of the relevant state results in the same extinguishment of old interests and the creation of new ones. See In re Cath, 999 F.2d 1405 (9th Cir. 1993) (Washington law); In re Barnes, 198 B.R. 779 (B.A.P. 9th Cir. 1992) (California law); In re Yerrington, 144 B.R. 96 (Bankr. 9th Cir. 1992), aff’d, 19 F.3d 32 (9th Cir. 1994) (Alaska law).

This issue took an unexpected twist in In re Stoneking, 225 B.R. 690 (B.A.P. 9th Cir. 1998). In that case, the debtor’s former spouse’s attorney had obtained a judicial lien securing his fees on the couple’s homestead while it was still community property. The community was later divided, and the home, still subject to the attorney’s lien, was awarded to the debtor as his separate property. When the debtor filed a bankruptcy petition and moved to avoid the attorney’s judgment lien under 522(f)(1), the attorney argued the motion should be denied because the debtor’s current interest in the homestead did not exist before the creation of the lien. The bankruptcy appellate panel rejected the argument, distinguishing if from the lien in Farrey v. Sanderfoot because the "lien nevertheless was not created simultaneously with the termination of the Debtor’s interests in Residence." Stoneking, 225 B.R. at 693. The lesson taught by Stoneking is that, to preserve a family law attorney’s lien, the lien should be specifically re-created as part of the judgment creating the new property interest.



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