BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Hannah-Beth Jackson, Chair 2013-2014 Regular Session AB 1945 (Wieckowski) As Amended March 28, 2014 Hearing Date: June 10, 2014 Fiscal: No Urgency: No TMW SUBJECT Enforcement of Money Judgments: Exemptions DESCRIPTION Existing law provides that the spouse of a judgment debtor may claim a community property exemption from a judgment creditor's enforcement of the money judgment against the debtor. This bill would also authorize that exemption for a domestic partner of the judgment debtor. BACKGROUND In a bankruptcy action, exemptions generally allow a person to protect certain types of assets during the bankruptcy process. If an asset is exempt, the asset can generally not be taken to pay creditors' claims. These property exemptions are designed to ensure that a debtor maintains the ability to support himself or herself, as well as dependent family members, after the entry of judgment, and also to facilitate the debtor's financial recovery. Individuals filing bankruptcy in California can choose between two different sets of exemptions: the 703 exemptions or the 704 exemptions. The "703 exemptions," located in Code of Civil Procedure Section 703.140(b), consist of 11 categories that are modeled after federal bankruptcy law. In comparison, the "704 exemptions," contained in Code of Civil Procedure Sections 704.010 through 704.210, provide 21 different types of exemptions that protect a wider range of property. Additionally, the 703 exemptions are specific exemptions that a bankruptcy debtor may elect in lieu of all other exemptions while the 704 exemptions are available (more) AB 1945 (Wieckowski) Page 2 of ? to all bankruptcy or nonbankruptcy debtors in California seeking to exempt specified property from enforcement of a money judgment. Existing law authorizes the spouse of a judgment debtor to claim a community property exemption from a judgment creditor's enforcement of the money judgment against the debtor in a bankruptcy action. This bill would also authorize that exemption for a domestic partner of the judgment debtor. CHANGES TO EXISTING LAW Existing law provides that, except as otherwise provided by law, all property of the judgment debtor is subject to enforcement of a money judgment. (Code Civ. Proc. Sec. 695.010 (a).) Existing law , the 704 exemptions, provides for 21 specific exemptions that limit the enforceability of a money judgment against a debtor's personal property, including motor vehicles, residential improvement materials, jewelry, heirlooms, and works of art, tools and implements used in the exercise of the debtor's trade, business, or profession, public benefit accounts, inmate trust funds, and unmatured life insurance policies. (Code Civ. Proc. Sec. 704.010 et seq.) Existing law , the 703 exemptions, makes 11 similar exemptions available to debtors in personal bankruptcy proceedings. (Code Civ. Proc. Sec. 703.140.) Existing law provides that the 703 exemptions apply only to property of a natural person, and may be claimed by any of the following persons: (1) in all cases, by the judgment debtor or a person acting on behalf of the judgment debtor; and (2) in the case of community property, by the spouse of the judgment debtor, whether or not the spouse is also a judgment debtor under the judgment. (Code Civ. Proc. Sec. 703.020.) Existing law provides for the creation of a legal entity called a domestic partnership, wherein two adults have chosen to share one another's lives in an intimate and committed relationship of mutual caring. (Fam. Code Sec. 297.) Existing law provides that registered domestic partners have the same rights, protections, and benefits, and are subject to the same responsibilities, obligations, and duties under law, whether they derive from statutes, administrative regulations, AB 1945 (Wieckowski) Page 3 of ? court rules, government policies, common law, or any other provisions or sources of law, as are granted to and imposed upon spouses. (Fam. Code Sec. 297.5(a).) This bill would provide that, in the case of community property subject to the enforceability of a money judgment against a debtor's property, the domestic partner of a judgment debtor may claim a 703 exemption, whether or not the domestic partner is also a judgment debtor under the judgment. COMMENT 1. Stated need for the bill The author writes: The [United States] Bankruptcy Court of the Central District of [California] examined in 2011 whether it was legal to dismiss a homosexual married couple's joint bankruptcy filing because they were homosexual. It held that [the federal Defense of Marriage Act (DOMA)] violated the debtor's equal protection rights afforded under the Fifth Amendment of the United States Constitution, either under heightened scrutiny or under rational basis review (In re Balas, 449 BR 567 (Case No. 2:11-bk-17831 TD)). However, since the overturning of DOMA by the Supreme Court, it is unclear whether domestic partners may file for bankruptcy jointly. AB 1945 makes clear that registered domestic partners can claim property exemptions in a bankruptcy just as spouses in a marriage can, regardless of whether the partners file jointly or not. While state law says that registered domestic partners have the same rights, protections and benefits as spouses, it is unclear whether domestic partners can file jointly in a bankruptcy. AB 1945 settles this issue. 2. Statutory clarification of domestic partner exemptions for money judgments This bill would provide that the domestic partner of a judgment debtor may claim a community property exemption from a judgment creditor's enforcement of the money judgment against the debtor. The author argues that this bill is necessary to clarify the existing uncertainty whether registered domestic partners can jointly file for bankruptcy and claim the same property exemptions as married couples. AB 1945 (Wieckowski) Page 4 of ? Under the federal Bankruptcy Code, states may either adopt the federal exemptions listed in the Bankruptcy Code or opt out of those exemptions and create different judgment exemptions. (See 11 U.S.C. Sec. 522(b)(1).) California has not authorized the use of the exemptions in the federal Bankruptcy Code, so California residents filing for bankruptcy are limited to the exemptions allowable to California residents under nonbankruptcy law. (See Code Civ. Proc. Sec. 703.130.) By clarifying that the domestic partner of the judgment debtor is authorized to claim an exemption, this bill would codify the court's holding in In re Rabin (2006) 359 B.R. 242. In Rabin, the domestic partner debtors argued that forcing domestic partners to file separate bankruptcy petitions while allowing only one combined homestead bankruptcy exemption pursuant to California's spousal homestead exemption was inequitable. The court held that "[b]ecause California has opted out of the federal bankruptcy exemption scheme, residents who file bankruptcy are limited to exemptions allowed under the state's exemption scheme. Under California law, the homestead exemption rights of registrations under the [California Domestic Partner Rights and Responsibilities Act (DPRRA)] are identical to those of people who are married, which is a single combined exemption." (Id. at p. 249.) In codifying the Rabin court's holding that domestic partners may claim the same judgment exemptions as spouses, this bill eliminates any uncertainty that domestic partners are to be treated equal to spouses in federal bankruptcy cases brought in California. It is important to note that this bill is limited in its reach and can only clarify bankruptcy exemptions but cannot authorize domestic partners to file a joint bankruptcy application. This is because bankruptcy proceedings are established under federal law, which provides who may file a single or joint application, while state law specifies what type of exemptions the person may claim against the money judgment. Federal law, 11 U.S.C. Sec. 302, provides that an individual and the individual's spouse may file a joint petition. Under the Defense of Marriage Act (DOMA), a spouse is a person of the opposite sex. Although the Supreme Court has declared unconstitutional the application of DOMA to a federal law that results in inequality for spouses of the same sex, there has yet to be a determination that same-sex domestic registered partners may be considered spouses with equal protection under federal law. (See U.S. v. Windsor (2013) 133 S. Ct. 2675.) The Rabin court noted that "Bankruptcy Code section 302 does AB 1945 (Wieckowski) Page 5 of ? indeed limit joint filings (and the payment of a single fee) to married people as a matter of federal law; however, the language of the statute suggests that there is no more than a presumption that cases filed by spouses should be jointly administered, which presumption may be overcome if the court determines that joint administration should not take place. Moreover, as occurred here, consolidation of cases brought by individuals who are not spouses may also be ordered. In determining whether cases of individual debtors should be consolidated, there is no reason to suppose that bankruptcy courts would apply different criteria based merely on the gender of the parties. This is especially so where, as here, applicable state law actively eliminates distinctions on that basis." (In re Rabin, supra, 359 B.R. 242, 247-248.) Thus, while California law provides for domestic partnerships and extends to those partnerships all rights and benefits provided by state law to spouses, federal law does not expressly provide for domestic partnerships. While this bill cannot expand federal bankruptcy law to authorize a state domestic partnership to file a joint bankruptcy application, it does expand the use of exemptions to the domestic partner of the judgment debtor. Although individuals in a domestic partnership would have to initially file separate bankruptcy applications, the Rabin court provides guidance to these individuals regarding how the two cases could be jointly administered. Support : None Known Opposition : None Known HISTORY Source : Author Related Pending Legislation : AB 1853 (Wieckowski, 2014) would remove the requirement that judgment debtors reinvest homestead exemption money into another property within six months from the date the home was sold, or else lose their judgment exemption status, and would exempt benefits from matured life insurance policies, including endowment and annuity policies, and vacation credits or accrued or unused vacation pay. AB 1853 was held under submission in the Assembly Committee on Appropriations. Prior Legislation : AB 1945 (Wieckowski) Page 6 of ? AB 198 (Wieckowski, 2013) would have created additional new categories of property exemptions available to debtors and would raise the amount of the homestead exemption from between $75,000 and $175,000 to between $200,000 and $400,000. AB 198 was held under submission in the Assembly Committee on Appropriations. AB 929 (Wieckowski, Ch. 678, Stats. 2012) increased the dollar amount of the exemptions for a debtor's interest in motor vehicles, jewelry, professional books, and tools of the trade of the debtor or the debtor's dependent, and also increased the amount of the homestead exemption for persons 55 years of age or older who meet specified low-income criteria. AB 1046 (Anderson, Ch. 499, Stats. 2009) raised the amounts of a debtor's homestead exemption by $25,000 in each available category, establishing the current statutory levels of $75,000, $150,000, and $175,000. AB 182 (Harman, Ch. 379, Stats. 2003) raised the dollar amounts a debtor may claim for exemptions from enforcement of a money judgment and in bankruptcy actions. SB 832 (Kopp, Ch. 196, Stats. 1995) raised the dollar amounts a debtor may claim for exemptions from enforcement of a money judgment and in bankruptcy actions. AB 707 (McAlister, Ch. 1364, Stats. 1982) codified the Enforcement of Judgments Law (Code Civ. Proc. Sec. 680.010 et seq.), including the statutory dollar amount of personal property exempted from the enforcement of monetary judgments. Prior Vote : Assembly Floor (Ayes 72, Noes 0) Assembly Committee on Judiciary (Ayes 10, Noes 0) **************