Reinbold v. Schertz

SIGNED THIS: November 17, 2022

Mary P. Gorman

United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT

CENTRAL DISTRICT OF ILLINOIS

In Re )

) Case No. 21-70207

ROBERT SCOTT SCHERTZ, )

) Chapter 7

Debtor. )

)

JEANA K. REINBOLD, solely as )

Chapter 7 Trustee, not individually, )

)

Plaintiff, )

Vv. ) Adv. No. 21-07017

)

KIMBERLY D. SCHERTZ, )

)

Defendant. )

Before the Court after trial is a complaint filed by the Chapter 7 trustee

of the bankruptcy estate of Robert Scott Schertz seeking authority to sell real

estate co-owned by the bankruptcy estate and Kimberly D. Schertz as tenants

□□□

by the entirety. For the reasons set forth herein, judgment will be entered in

favor of the Trustee.

I. Factual and Procedural Background

Robert Scott Schertz (“Debtor”) filed a voluntary petition under Chapter

13 of the Bankruptcy Code in the District of Utah on January 4, 2021. Shortly

thereafter, the Debtor filed a notice of voluntary conversion to Chapter 7, and

Kimberly Schertz filed a motion for relief from the automatic stay seeking to be

allowed to proceed with a dissolution of marriage case she had filed in McLean

County, Illinois, on December 9, 2020. Mrs. Schertz asked to be allowed to

have the Illinois state court divide the couple’s property and debts and to

resolve other related disputes; the Debtor objected to the motion.

On March 17, 2021, after two hearings on the motion, the Utah

bankruptcy court entered an order granting limited relief to allow the Illinois

state court to “identify, value, apportion, divide and allocate the parties’ marital

property[.]” The order did not, however, provide stay relief for the allocation of

the parties’ debts and explicitly stated that the state court’s “determination as

to the allocation and division of the parties’ marital property shall not be

binding on the Bankruptcy Court, the creditors, or the Chapter 7 Trustee in

this case until and unless the Bankruptcy Court has a further hearing and

order approving the allocation of property of the bankruptcy estate[.]” The same

day, the Utah bankruptcy court entered an order granting a motion to transfer

venue of the case to the Central District of Illinois. The transfer motion had

been filed by Compeer Financial, PCA (“Compeer”), a creditor of the Debtor,

Kim Schertz, and the related entity, Schertz Aerial Service, Inc. (“Schertz

Aerial”). The transferred case was docketed in this District on March 22, 2021.

After the case was transferred, Jeana K. Reinbold was appointed as the

Chapter 7 trustee (“Trustee”). The Trustee commenced administration of the

estate. She sold the Debtor’s stock in Schertz Aerial—of which the Debtor was

the sole shareholder—along with related causes of action to Kim Schertz for

$20,000. The Trustee also commenced this adversary proceeding against Kim

Schertz by filing a complaint to compel the sale of real estate consisting of a

single-family home on 11 acres and an additional 52 acres located at 22761 N.

1300 East Road, Hudson, Illinois 61748 (“Hudson property”), co-owned by the

estate and Kim Schertz as tenants by the entirety.

Prosecution of the Trustee’s adversary complaint was postponed for some

time out of deference to the state court in its consideration of marital

dissolution matters. But after it became clear that there was no end in sight to

the dissolution case and because Compeer recorded a $2 million judgment

against Kim Schertz that encumbered her interest in the Hudson property, this

Court entered an order in the main bankruptcy case on August 3, 2022,

reconsidering the original order granting stay relief. The order vacated the stay

relief order only as to the Hudson property. After this Court’s determination

that the issues concerning the real estate were best resolved through the

bankruptcy case and proceedings, the Trustee’s complaint was scheduled for

trial for September 28, 2022.1

The Trustee’s case in chief at trial consisted of five witnesses. Faiq Mihlar

and Jennifer Dixon were called to testify as to the public records regarding title

and ownership of the Hudson property. Mr. Mihlar identified himself as a

managing member of the law firm Heavner, Beyers & Mihlar, which he said

also owns and operates Central Illinois Title Company. He said that, in June

2022, Central Illinois Title Company received a request for a title search on

behalf of Compeer as to the Hudson property. Mr. Mihlar stated that the

company completed the search as requested, which showed the property was

owned by the Debtor and Kim Schertz as tenants by the entirety. In September

2022, an updated, supplemental report was completed at the request of the

Trustee.

Mr. Mihlar explained that the property was previously owned solely by

the Debtor until June 29, 2020, when ownership was transferred by deed to

the Debtor and Kim Schertz as tenants by the entirety. According to Mr.

Mihlar, ownership of the property has not changed since that transfer. Jennifer

Dixon identified herself as a manager of Central Illinois Title Company and

testified that she was familiar with the title searches and reports that Mr.

Mihlar referenced in his testimony. She further testified that she had

1 Kim Schertz’s appeal from the Court’s order entered August 3, 2022, is pending. This Court denied her request to

stay the order pending the appeal based in part on the fact that she had subsequently sought and obtained an order

vacating the original stay relief order in its entirety. Further, this Court’s jurisdiction to hear the Trustee’s complaint

was not contingent on the August 3 order as this Court had never abstained from hearing matters related to property

of the estate. Kim Schertz did not seek a stay pending appeal in the district court.

performed an online search of the McLean County Recorder’s Office website the

day before trial to confirm the continuing accuracy of the reports issued by

Central Illinois Title Company and found no new recordings.

Next, the Trustee called Noelle Burns to testify. Ms. Burns identified

herself as a realtor and an owner of RE/MAX Rising. She testified that she has

been a realtor for 22 years, working for Coldwell Banker prior to her

association with RE/MAX. Ms. Burns was familiar with the Hudson property,

having visited and conducted a market analysis of the property in fall 2021.

She said she did not personally inspect the acreage but did walk through the

residence on the property, describing it as a great house admittedly in need of

some updating. Ms. Burns identified a report that she prepared following her

visit that included her opinion as to the value of the property. As to the process

for completing her report, Ms. Burns explained that, following a site visit, she

searches the multiple listing service system for “comps”—recently sold,

pending, or currently active property listings comparable to the subject

property. She said that adjustments can be and often are made when

conducting a market analysis to account for differences in the properties being

compared. Following this process, Ms. Burns concluded that the value of the

Hudson property at the time of her report was approximately $736,000.

Ms. Burns also identified an updated report for the Hudson property that

she generated the week before trial. She explained that the real estate market

in the area had improved and that pending sales of some of the comps she

relied on in her first report had since closed, providing more accurate

comparison data. Ultimately, Ms. Burns concluded that $11,000 per acre was

the average price for farmland in the area and that $275,000 for the house and

11 acres upon which it sits was a fair estimation of value—up from the

$250,000 at which she initially valued the residence. Based on those figures,

Ms. Burns concluded that the entire property—the house and all 63 acres—

was worth approximately $829,000 as of the week before trial.

Ms. Burns said she considered her opinion to be a conservative estimate,

that a price per acre of $11,000 was a base amount with room for upward

adjustment, and that she felt confident the Hudson property would appraise for

at least $829,000. She did acknowledge, however, that most of the Hudson

property’s value came from the farmland and that she did not take any steps to

determine the specific value of that acreage other than looking at the per acre

prices of her selected comps. On cross examination, she admitted that the

listing details for one of the comps she used included a note about the high

quality of its soil per testing and that no such testing had been conducted to

establish the quality of soil on the Hudson property.

Kevin Buente, a representative of Compeer, also testified. He described

his 27-year career with Compeer, first as a credit analyst and currently as

principal credit officer. He said he is familiar with the Debtor and Kim Schertz

through a series of loan transactions with Compeer on behalf of themselves

and Schertz Aerial. Mr. Buente was assigned to the Schertz account in October

2020 but had helped his predecessor before taking over as the account officer.

Mr. Buente also said he was familiar with the claim filed on behalf of Compeer

in the Debtor’s bankruptcy case, confirming that the $3,511,322 debt asserted

was based on information provided by Compeer to its attorney and was

accurate as to the amount owed at the time of filing. He acknowledged that the

debt had been paid down some since the claim was filed and stated that the

balance owed at the time of trial was approximately $2.596 million.

Mr. Buente identified a standstill/forbearance agreement entered into in

June 2020 between Compeer, Schertz Aerial, and the Debtor and Kim Schertz

individually. According to him, the purpose of the agreement was to give the

borrowers time to sell assets to satisfy or otherwise pay down the debt owed to

Compeer. Mr. Buente asserted that no further agreements had been entered

into by the parties, but he also did not foreclose the possibility of a further

agreement being reached in the future.

Mr. Buente also identified a judgment entered by the Circuit Court of

McLean County, Illinois, on December 7, 2021, in favor of Compeer and against

Kim Schertz. Because the outstanding balance owed on the Schertz Aerial

loans exceeded the value of collateral securing the debt, Mr. Buente said that

Compeer engaged its attorney to pursue Mrs. Schertz for the balance. To that

end, he also identified a memorandum of judgment against Kim Schertz in the

amount of $2,675,112.44 plus costs that Compeer’s attorney recorded with the

McLean County Recorder’s Office on January 9, 2022. Again, notwithstanding

a few small payments made recently on the debt, Mr. Buente asserted that a

balance of at least $2,500,000 remained due.

The Debtor, Robert Scott Schertz, was called as a witness for both

parties, testifying first in the Trustee’s case in chief.2 The Debtor acquired

Schertz Aerial in 1986 and was the company’s sole director, officer, and

shareholder for many years. Both Kim Schertz and the Debtor’s mother served

as secretary at different times while the Debtor served as president and

treasurer. But when his mother resigned from her position in 2014, the Debtor

became secretary in addition to his roles as president and treasurer until he

and Kim Schertz’s son Brian Schertz became president in July 2020. The

Debtor then became vice president and a co-director with Kim.

Prior to that, in 2019, the Debtor secured outside employment working

for ExpressJet Airlines. He agreed that he was frequently away from the

business but said he remained in constant communication with and deeply

involved in the operations of Schertz Aerial. He noted that his son who

succeeded him as president of Schertz Aerial maintained full-time employment

outside the business during his tenure as well. The Debtor acknowledged that

his involvement in Schertz Aerial began to wane in 2020 while he was away

working in other states—first with Sky Farmer Ag Service in North Dakota and

later with the USDA in Utah. But he asserted that he remained involved in

certain aspects of Schertz Aerial that only he could do or approve.

The Debtor testified that, in November 2020, relations had soured

between himself and the other family members managing Schertz Aerial to the

point that he exercised his power as sole shareholder to fire Kim and Brian

2 Portions of the Debtor’s testimony given as an adverse witness in Kim Schertz’s case and in the Trustee’s case in

rebuttal have been combined with the recitation of his testimony in the Trustee’s case.

Schertz. In December 2020, Kim Schertz filed her petition for dissolution of

marriage that is now pending; the Debtor filed his bankruptcy petition in Utah

a few weeks later. His interest in Schertz Aerial along with his claims against

the company were sold to Kim Schertz for $20,000 by the Trustee in October

2021.

The Debtor testified that he bought the Hudson property in 1989 and

built the house that he and Mrs. Schertz moved into in 1992. He maintained

his residence there until shortly before his separation from the company and

eventual bankruptcy filing. As the owner and long-time resident, the Debtor

said he was very familiar with the property. In his time there, he said he

farmed the ground, hunted, and made various improvements to the property.

In building the house, the Debtor said he ran power for a half of a mile

underground to the house site, had a septic system put in, and installed

drainage tiles. Later improvements included installation of a new roof, interior

carpeting, some kitchen upgrades, and the construction of what the Debtor

described as a heated shed measuring 40 feet long and wide with running

water and a concrete foundation. He also said that, over time, he and the

couple’s son Michael Schertz erected six or eight deer blinds on the property.

The Debtor said he and Mrs. Schertz had invested a lot of money and sweat

equity in the Hudson property over the years. Asked about the circumstances

of the transfer of ownership of the Hudson property from his sole ownership to

joint ownership with Kim Schertz as tenants by the entirety, the Debtor

asserted that the transfer of title was done, at the suggestion of his attorney, as

part of negotiations to get Mrs. Schertz to withdraw a petition for dissolution of

marriage in 2018. The Debtor said he received no other consideration for the

transfer.

The Debtor said that he had become intimately familiar with the Hudson

property over the 30 years he lived there. He said that he personally planted,

sprayed, and worked the ground, but he did not have a combine so he paid

others to harvest the crops. In recent years, he rented the land to others to

farm. That experience, as well as his experience as an agricultural pilot flying

over millions of acres of farmland in the region through which he saw first-

hand the impacts of different soil types on crop yields, led the Debtor to form

an opinion about the Hudson property acreage and its value for agricultural

uses. He described the farmland as “variable”—in some areas the soil is

excellent but in other areas it is subpar. He acknowledged that there are

drainage issues and that the light soil makes it more challenging to grow

anything other than cover crops. He said that, overall, the land’s agricultural

value is marginal. But he also said the property is very unique due to it being

surrounded on three sides by parkland and a watershed protection area

managed by the City of Bloomington, Illinois; the property is insulated from

development. He explained that building is greatly restricted in the Evergreen

Lake area that borders the property, resulting in the Hudson property serving

as a transition area for deer and therefore being excellent hunting ground.

The Debtor acknowledged Ms. Burns’ testimony as to the Hudson

property’s value but said he disagreed with her opinions. Based on his time

living in the community over the years during which he witnessed one

individual buying up land in the area at a premium, the Debtor said that, in

his opinion, the house and surrounding acreage is worth $300,000 and the

farmland is worth between $15,000 and $20,000 per acre.

At the conclusion of the Trustee’s case in chief, Kim Schertz moved for a

directed finding that the Trustee had not established the necessary elements of

her cause of action. The Trustee countered that Mrs. Schertz had stipulated to

two of the four required elements of proof in the parties’ pretrial statement filed

in October 2021. Kim Schertz’s attorney admitted that he had stipulated that

partition of the property was not practicable and that sale of the estate’s

interest alone would bring significantly less than a sale of the whole. This

Court found that the third element requiring that the benefit to the estate of a

sale free and clear of the co-owner’s interest outweigh any detriment to such

co-owner did not place a burden on the Trustee to prove the lack of any

potential harm to Kim Schertz. The Trustee had provided evidence of

substantial benefit to the estate through the sale of the property that would

yield significant proceeds for distribution to creditors. Because Mrs. Schertz

had not yet presented her defense, including any evidence tending to establish

detriment to her, there was nothing for the Trustee to rebut. The Court also

noted that the fourth element—that the property was not used in the

production or sale of electric energy or natural or synthetic gas—had also been

stipulated to and was inapplicable to the case. The motion for a directed

finding was therefore denied and Mrs. Schertz proceeded to present her

defense.

Mrs. Schertz’s defense at trial was based on her claim that she

reasonably expected to be awarded 100% of the Hudson property in her

pending dissolution of marriage case. That defense was never raised in any

pleadings or documents filed in this proceeding but was repeatedly mentioned

at pretrial hearings. The bulk of her proffered testimony related to the marital

estate’s composition and potential allocation under state law. In addition to the

Debtor, Mrs. Schertz relied on the testimony of two other witnesses: herself and

a certified public accountant (“CPA”).

Nicole Allen was the first to testify. Ms. Allen identified herself as a CPA

and manager at Insight CPAs and Financial, LLC. Her work covers a variety of

areas, including completing individual and business tax returns, bookkeeping,

business consulting, and litigation support. Ms. Allen has worked in the

accounting field for twelve years, holds a CPA licensure in the State of Illinois,

and is a nationally accredited and certified valuation analyst.

Ms. Allen became involved in this matter when Kim Schertz consulted

her in early 2021 regarding litigation support and the Debtor’s bankruptcy

filing. As part of her engagement, Ms. Allen said she reviewed the couple’s

individual and business tax returns for prior years going back as far as 2016 or

2017, as well as the company’s QuickBooks files. She identified a report dated

February 23, 2022, that she had created regarding a net operating loss (“NOL”)

of Schertz Aerial. She explained that, in tax terminology, an NOL refers to

losses from a business that are too large to be offset by the business’s income

but can be carried forward to offset future earnings in later years. Ms. Allen

said that, when an S-corporation such as Schertz Aerial has a loss, it flows

through to the individual owner’s tax returns and can be used to offset the

individual’s income. If there is still excess loss after offsetting such income, the

NOL is carried forward to the next tax year.

Ms. Allen discussed the NOL generated by Schertz Aerial when it was

owned by the Debtor. Due to Schertz Aerial’s status as an S-corporation, the

NOL belonged the Debtor and followed him when his stock was sold to Kim

Schertz. The NOL is therefore available only to him to be used against his

future income. If the Debtor and Kim Schertz were to file joint tax returns,

however, the NOL could be applied to also offset income of Kim Schertz. Ms.

Allen was aware of the pending dissolution of marriage case between the

Debtor and Kim Schertz. She said that the dissolution would not change the

fact that the NOL belongs to the Debtor and, because he and Kim Schertz

would no longer file joint tax returns after finalization of the dissolution, the

tax benefit would only be available to him. The NOL is not transferable.

According to her report on the issue, Ms. Allen determined that the

Debtor had losses available to carry over from 2020 for a total NOL of

$4,224,738. Asked how he would receive the benefit from that loss carryover,

Ms. Allen said the Debtor could apply the NOL against whatever income he has

from whatever source to reduce his tax liability in future years. If he does not

have income in a year or generates income insufficient to exhaust the NOL, it

will continue to carry over until he has income to apply against it. In her

report, Ms. Allen evaluated the potential federal tax benefit of the NOL over

time. Acknowledging that the tax benefit to the Debtor would depend on his

level of income, she opined that, based on current tax rates, the NOL could

yield future tax savings between $422,473 and $1,563,153. To illustrate how

that would work, Ms. Allen explained that, if the Debtor had income of

$100,000 in a year, applying the NOL would result in tax savings—and

potentially a tax refund, depending on his withholding—of $13,117 for that

year. If he had more income to be offset by the NOL, the tax savings would

correspondingly increase. On cross examination, Ms. Allen agreed that the

amount of the benefit to be gained from the NOL is variable and entirely

dependent on the Debtor’s year-to-year income—if he did not have income, the

NOL would provide no benefit.

Ms. Allen identified the 2019 and 2020 joint tax returns for the Debtor

and Kim Schertz, which she said she reviewed and relied on in creating her

report. She agreed that those returns reflected income from the Debtor’s wages

and interest from Schertz Aerial in 2019 totaling $163,063 and wage income

for the Debtor in 2020 of $79,222. But Ms. Allen clarified that income is not

limited to wages and noted, by way of example, that both returns showed

income from IRA distributions.3 In both years, the NOL was used to offset

reported income. According to the tax returns, the amounts of the NOL used in

3 On redirect examination, Ms. Allen agreed that the NOL could also be used to offset Social Security income but,

upon further inquiry from the Court, acknowledged that it would apply only to the extent such income was taxable,

if at all.

2019 and 2020 were $13,544 and $315,600, respectively. The tax returns also

showed refunds of $26,513 in 2019 and $7627 in 2020. As far as the Debtor’s

income and tax circumstances since 2020, Ms. Allen said she did not have

knowledge other than what could be gleaned from the records of Schertz Aerial.

After both parties concluded their examination of Ms. Allen, the Court

sought to clarify her testimony as to her determination of the expected benefit

of the NOL to the Debtor. Ms. Allen agreed that the opinion in her report of an

expected benefit of the NOL ranging between $422,473 and $1,563,153 was a

generic calculation, not based on any personalized assumptions specific to

someone similarly situated to the Debtor. She agreed that, had she been asked

to make a more personalized determination of the benefit of the NOL to the

Debtor, such a calculation would have been based on facts or assumptions

about the Debtor’s age, health, current and future job prospects, and other

factors. Ms. Allen agreed that if she had been provided the necessary additional

information, she could have made the calculation. She acknowledged that,

under the hypothetical she provided whereby yearly income of $100,000 would

create a tax benefit of roughly $13,000 per year, it would take more than 30

years to fully realize even the low-end potential total benefit of $422,473. Ms.

Allen conceded that, for the Debtor to realize the threshold value calculated in

her report any sooner, he would need to generate substantially more than

$100,000 a year in taxable income. She further acknowledged that, when

trying to determine the present value of the expected long-term benefit of the

NOL, a discount rate for the time value of money would need to be determined

and applied to calculate the present-day value of that future benefit. Again, Ms.

Allen represented that she has the expertise to make those calculations had

she been asked to do so.

Mrs. Schertz next recalled the Debtor to testify. The questioning of the

Debtor by Kim Schertz’s attorney focused on his personal finances and

employment and his alleged dissipation of marital assets in recent years. He

also was questioned about the assets of the marital estate.

The Debtor acknowledged having an interest in several vehicles and

financial accounts. He admitted that he is the owner of an unencumbered 2014

Jeep Compass but disagreed with the suggestion by Mrs. Schertz’s attorney

that it is worth $11,000; he described its condition as average and estimated

that it is worth closer to $7000. In addition to the Jeep Compass, the Debtor

mentioned a 2001 Mercury Grand Marquis and a 2003 Mercury Marauder,

both of which he considers to be marital property. He also described a 1968

Ford Mustang that was gifted to Kim Schertz early in their marriage but later

titled in both of their names; he claimed to have spent roughly $70,000 to

repair and maintain the Mustang over the years. He also noted ownership of a

John Deere tractor with an estimated fair market value of $17,000.

He acknowledged several personal bank accounts, most of which were

closed or inactive and of nominal value; most recently, he said, he primarily

uses his checking account with Happy State Bank into which his wages are

deposited. The Debtor also has a health savings account with Bank of America

that, at the time of his bankruptcy filing, carried a balance of more than

$20,000. At various times, he also had IRAs with Merrill Lynch, Principal Bank,

and other institutions that he said he since consolidated into an IRA with

Edward Jones, where his current employer also holds a Simple IRA for his

benefit. The Debtor agreed that the value of those accounts is around $12,000.

He is also the holder of roughly 1.7 million airline miles that he asserted have

no meaningful value; to the contrary, he said that there would be a cost to use

the miles. The Debtor did not dispute that he was the holder of life insurance

policies—an AIG policy that was worthless due to nonpayment of premiums

and a Country Life policy worth about $18,000 subject to $14,000 in loans he

had taken against it to fund his legal expenses and a move to Texas.

The Debtor testified that he is currently employed as chief pilot for Jack

Oldham Oil Inc., in Dumas, Texas, where he has worked since May 2022. It is

one of several jobs he has held since leaving Schertz Aerial. The Debtor worked

for the USDA in Utah as a flight training officer from late 2020 to early 2021

before being terminated from the position. He acknowledged earning

$10,838.88 from his employment with the USDA in 2021. During the 2021

farming season, the Debtor was an agricultural pilot in Great Bend, Kansas, for

Tony’s Aerial Spraying Inc., where he said he was compensated on a

“percentage of gross” with no benefits. That resulted in $136,840.70 in income

in 2021, but the Debtor said that the job was seasonal in nature and he had no

expectation that he would be retained for future seasons. After the 2021

farming season in Kansas, the Debtor drove a truck hauling fertilizer and

propane for Mid Continent Transportation, Inc., where he earned $2020.40

through the end of 2021. The Debtor also acknowledged rental income of

$10,200 under a contract with Larry Troyer to farm the Hudson property in

2021, of which he said his half went to the Trustee, as well as modest

distributions from an ExpressJet Airlines 401(k) savings plan. The Debtor did

not dispute that, in total, his tax forms showed 2021 gross income in excess of

$162,000, but he said that the figure was not final or comprehensive of his

income picture because it did not account for losses from Schertz Aerial that

might be available to offset his income. The Debtor also admitted that, through

August 2022, he had earned gross wages of $65,000 and that he was still

working and anticipated earning more wages through the end of the year.

At 61 years old, the Debtor estimated he would work another four to ten

years before retiring. He admitted that he expects to earn at least $150,000 in

2022 but was unsure about his ability to meet the physical demands and other

requirements of his current employment in the long term based on his age and

family medical history. The Debtor anticipates living on Social Security benefits

in retirement but does not expect that his remaining IRAs will yield much

retirement income. At this time, he is mostly debt-free, having been granted his

discharge in the bankruptcy case.

The Debtor was also questioned extensively about a series of transfers

from the various investment accounts held in his name or the name of Schertz

Aerial but under his control. The Debtor did not dispute the occurrence of the

transfers or that the accounts were under his sole control when the transfers

were made. Rather, his testimony was that the vast majority of transfers were

made exclusively to or for the benefit of Schertz Aerial.

The first two transfers at issue were made from an Edward Jones

account held in the name of Schertz Aerial. According to the Debtor, he caused

a direct transfer of $75,000 to be made to Schertz Aerial in August 2017 as

part of a normal transfer between business accounts—the account statement

reflects as much. He said that the transaction was tied to the inheritance he

received from his mother and, in turn, invested into Schertz Aerial. In January

2018, the account was closed after the remaining assets—including 2300

shares of Microsoft and $13,835 in cash—were transferred to a Merrill Lynch

account. According to the Debtor, the Merrill Lynch account into which the

assets were transferred was held in the name of Schertz Aerial. But he

admitted that he had no records for that account that was under his exclusive

control at the time. Rather, he said the account was closed per control

agreements with Compeer, and any record of the transaction would be in the

possession of Compeer or Schertz Aerial.

The other transfers questioned by Kim Schertz were from Merrill Lynch

individual accounts of the Debtor. In February 2018, the Debtor transferred

$55,193 worth of Oracle stock from his Merrill Lynch IRA. He said it was

transferred to his Edward Jones Roth IRA under the advice of his financial

advisor and that he provided the records for that account in state court

discovery. On September 24, 2018, the Debtor transferred another $100,000

from the account that apparently went to Schertz Aerial as part of various

personal loans that he and Kim Schertz made to the company to cover

operating expenses of Schertz Aerial and to pay Compeer. Again, the Debtor did

not have documentation to support his assertion but said that the corporate

records, which he no longer has access to, should evidence as much. In April

2019, the Debtor made two $25,000 transfers from his individual Merrill Lynch

account, which he again said went to Schertz Aerial and should be reflected in

the company’s records as a loan from the Debtor. In May 2019, he transferred

another $55,000 from his Merrill Lynch account. He said the transaction was

required pursuant to the conditions of control agreements entered into with

Compeer. According to the Debtor, the money went to a PNC account and,

other than a small portion being used to pay some ordinary household

expenses like real estate taxes and insurance, was used for company purposes.

Finally, the Debtor caused two more transfers from his Merrill Lynch IRA

in 2020. In May 2020, he withdrew $25,000 that he said was loaned to Schertz

Aerial to cover insurance costs. Another $50,000 was withdrawn from the

Debtor’s Merrill Lynch IRA in August 2020, which he said he used to pay an

outstanding bill to Schertz Aerial from Van Diest Chemical Company. As with

the other transfers, the Debtor said he did not have documentation of where

the funds went but, again, believed the company’s records would confirm his

testimony. Unlike the other transfers, the Debtor said that the 2020 transfers

from his Merrill Lynch IRA were specifically discussed with both Kim and Brian

Schertz. According to him, Kim not only knew of both 2020 transfers but

demanded that the Debtor make them.

In all, the Debtor’s testimony was that the hundreds of thousands of

dollars in transfers from investment accounts since 2017 was used almost

exclusively for the benefit of Schertz Aerial. He acknowledged that many of the

transfers were made as loans to the company but also said that he no longer

had any interest in those debts based on his interest in and claims against

Schertz Aerial having been sold to Kim Schertz through his bankruptcy case.

The Debtor said that he still holds a claim against the company for unpaid

wages. During his tenure with exclusive control over the business, the Debtor

said he was fully committed to Schertz Aerial, devoting both his time and

money to its success.

Finally, Kim Schertz testified on her own behalf. She said she has been

married to the Debtor for 39 years and has lived on the Hudson property for

the last 30 years. For much of her marriage, Mrs. Schertz primarily took care of

the house and children but also helped with Schertz Aerial. According to her,

the Debtor was gone significant amounts of time during the last 10 to 15 years

of their marriage. She never held any outside employment and agreed that the

Debtor was the primary wage earner throughout the marriage. Mrs. Schertz

acknowledged purchasing her husband’s interest in Schertz Aerial through his

bankruptcy case and that she now owns the company but said she still does

not collect wages. According to Mrs. Schertz, her income consists entirely of

temporary maintenance payments from the Debtor of $1000 a month plus 30%

of what the Debtor makes beyond a certain amount, as well as state health and

SNAP benefits. She also acknowledged rental income from the farmland under

contract with Larry Troyer, which she said she segregated into an Edward

Jones account used for joint expenses pending the couple’s dissolution.

As Mrs. Schertz understands it, allocation of her and the Debtor’s

marital estate is controlled by the equities of the situation. In her view, the

Debtor wrongfully dissipated marital assets and mismanaged Schertz Aerial as

part of a ploy to shrink the value of the marital estate to her detriment. In her

estimation, the only way to offset what she sees as a windfall to the Debtor

from his NOL and various IRA withdrawals is to allocate the Hudson property—

and basically everything else—entirely to her, thereby defeating any claimed

benefit to the Debtor’s bankruptcy estate from the sale of the Hudson property.

To that end, Mrs. Schertz testified as to the value and composition of specific

components of the marital estate.4

Beginning with the Hudson property, Mrs. Schertz disagreed with both

the Debtor and Ms. Burns’ valuations of the property. She challenged the

Debtor’s credibility on the subject, claiming that he personally farmed the land

only one time in the past 30 years—most of the time it was subcontracted to

farmers like Larry Troyer. She also downplayed the value of the land for

hunting, stating that the deer blinds built by the Debtor were unsafe and in

disrepair. As for the condition of the house itself, Mrs. Schertz said everything

was dated and that there are material defects from the installation and

construction of various items. For instance, she said field tiles were not

4 Mrs. Schertz presented her Exhibit 1 that consisted of a listing of all assets she claimed were owned by her, the

Debtor, or both of them. On Exhibit 1, she allocated the listed marital property to herself or the Debtor and claimed

certain items to be nonmarital. Attached to the listing were bank statements and other documents that she claimed

supported the valuations listed. She referred to Exhibit 1 repeatedly during her testimony.

properly installed when the shed was built, drywall in the house was not

installed correctly and needs to be replaced, and there are issues with mold in

the basement. According to Mrs. Schertz, she outlined those and other issues

for Ms. Burns the one time she visited the property in late 2021; Mrs. Schertz

said Ms. Burns created her updated report in 2022 without inspecting the

property again or reaching out about any change in condition since her visit.

Mrs. Schertz disputed Ms. Burns’ initial valuation of the Hudson property, but

she did not provide a competing appraisal or valuation and admittedly relied on

Ms. Burns’ 2021 valuation of $736,000 in her proposed allocation.

Mrs. Schertz also downplayed the value of the couple’s personal property.

She said the Mercury Grand Marquis and Mercury Marauder, both in her

possession and proposed to be allocated to her, were worth no more than

$6000 combined. She admittedly did not know what the John Deere tractor is

worth—it was not even listed on her allocation proposal—but she said that she

had expended $12,000 in recent years just to keep it running. Mrs. Schertz

acknowledged holding an account at Marine Bank dedicated solely to

maintenance payments with a recent balance of close to $6000. She also

identified two Edward Jones accounts in her name: a single account with a

balance of a few hundred dollars and a Roth IRA with a balance of $284,759 as

of June 2022.

On cross examination, Mrs. Schertz identified the Edward Jones single

account in her name with a balance of a few hundred dollars as the segregated

account into which she deposited marital funds and that she used to pay joint

expenses. In addition to her half of the 2021 rent check from Larry Troyer, she

agreed that she had deposited into the account another $7000 check from

Larry Troyer representing the first half of the rental contract amount for 2022,

the couple’s $27,000 joint tax refund from 2019, and more. She conceded that

those funds were no longer in the account, asserting that she had used the

money to fix the tractor and pay other maintenance costs for the Hudson

property that exceeded her monthly income. She also volunteered that she

used the account funds to pay $4000 in attorneys’ fees each month.

As for Schertz Aerial, Mrs. Schertz listed the asset as having a negative

value and referred to a purported company balance sheet as her source for the

valuation. Unable to establish any foundation for her assertion, however, she

ultimately conceded under questioning by her own attorney, that she did not

know how to quantify the fair market value of the business. According to Mrs.

Schertz, the company was essentially “bankrupt” in late 2019; she said the

Debtor used personal assets to make several loans to Schertz Aerial and ran up

the company debts in 2017 and 2018 before offering the company up to

Compeer to satisfy outstanding obligations. Mrs. Schertz said she stepped in to

restore operations, repay debts, and move the business forward after the

Debtor abandoned the company. She ultimately bought out the Debtor’s

interest and sought to reorganize the business through its own bankruptcy

filing.5 Although she was vague on the details, she said that she believes

Schertz Aerial is now operating in the positive.

Mrs. Schertz acknowledged that Compeer and the Small Business

Administration (“SBA”) are Schertz Aerial’s major creditors and that a

significant portion of the company’s debts are owed to Compeer. She also

admitted that she and the Debtor are personally liable on the remaining

Compeer debt because they signed the notes and other loan documents as co-

borrowers, although she also claimed to have done so under duress. She also

acknowledged signing the standstill agreements with Compeer, which she

denied ever defaulting on and accused Compeer of not following through on a

previous offer to refinance the debts when she took over the company. Other

than her personal liability on the Compeer notes, Mrs. Schertz has very little

personal debt. She conceded that, absent selling the Hudson property and

depleting retirement accounts, she has no other way of personally satisfying

the Compeer debt. But she also asserted that, in addition to leaving her

homeless, selling the Hudson property would adversely impact the operations

of Schertz Aerial and deprive her of much needed income sources. She said she

would not have the ability to acquire other property in the future. And, at 61

years of age, with bad knees, no job history, and a 40-year-old English degree,

Mrs. Schertz opined that securing employment would be quite difficult.

Prior to gaining control of Schertz Aerial and its assets through the

October 2021 purchase of the company stock, Mrs. Schertz said she had no

5 Schertz Aerial filed a Chapter 11 Subchapter V case on March 16, 2022, in the Central District of Illinois that was

assigned case number 22-70128. The case remains open with confirmation of a Second Amended Plan pending.

control over how company funds were used or where they were distributed. She

agreed that the Debtor was the brains and know-how in charge of the business

while it was under his control. Still, she accused the Debtor of running up

company debt for the purpose of creating the NOL for his sole benefit and her

detriment and moving assets to avoid Compeer. Asked to elaborate, Mrs.

Schertz admitted that she did not have specific knowledge but offered that she

initially filed a petition for marital dissolution in 2018 after she found out that

the Debtor had purchased his sister’s interest in a house inherited from their

late mother without discussing it with her and apparently hiding it from

Compeer as well. On cross examination, she admitted that she was aware of

the Debtor’s inheritance from his late mother but disagreed with the suggestion

that he put that inheritance into Schertz Aerial. For reasons she did not

explain, she viewed his contribution of inherited funds into Schertz Aerial as an

attempt to convert Schertz Aerial from marital to nonmarital property. But she

acknowledged that, whatever the intent, the end result was that the Debtor’s

inheritance became part of Schertz Aerial.

Mrs. Schertz also said she had no knowledge of the transfers and

withdrawals from the Debtor’s investment accounts in 2017, 2018, or 2019

before she took over the company. She did admit, however, that she was aware

of the 2020 transfers. She agreed the May 2020 withdrawal of $25,000 went

toward insurance for Schertz Aerial but said that it was used to replace federal

payroll protection payment loan funds that she said the Debtor improperly

used to pay insurance premiums. As for the August 2020 transaction, she

acknowledged there were cashflow problems at Schertz Aerial and did not

dispute that the $50,000 was used to pay for chemicals or otherwise remedy

cashflow problems of the business. Asked about whether she knew the Debtor

to ever use company assets for personal use, Mrs. Schertz cited his personal

use of the company truck and cell phone, and his charging of interest on

personal loans he made to the business. Ultimately, however, she said that she

simply has no knowledge of how or for what the other withdrawals and

transfers from the various investment accounts were used.

On rebuttal, the Debtor took issue with Kim Schertz’s testimony that she

signed promissory notes under duress. He said she signed on originally in 2015

when business was doing great, and the reality was that, having done so, she

was on the hook for future notes. The Debtor also sought to clarify the

circumstances of his inheritance. He said his mother passed away in February

2017. He and his sister inherited a number of assets that included investment

accounts, some real property, his mother’s interest in Schertz Agricultural

Service—a separate and distinct entity from Schertz Aerial at the time—and

other mementos. The Debtor explained that he inherited the business and the

real estate that came with it and a minority share of their childhood home. His

sister received the majority interest in the childhood home, and the investment

accounts and other cash and securities were split between the two siblings.

The Debtor further explained that Schertz Agricultural and his share of

investment accounts and other securities were merged into Schertz Aerial to

make it stronger. He said he ended up buying out his sister’s share of the

house and intended to keep it before selling the property in 2019 “when all this

blew up.” He reiterated that much of the inheritance was put into Schertz

Aerial, first through the merger of Schertz Agricultural and then by his

contribution of the inherited IRAs over time. He explained that he depleted the

inherited IRAs before other accounts because he knew they would not be

protected in the event of bankruptcy. The Debtor said he had plans to expand

the business with the cash influx, but it did not go very far.

At the conclusion of the trial, the Trustee and the attorneys for Kim

Schertz presented arguments. The matter is ready for decision.

II. Jurisdiction

This Court has jurisdiction over the issues before it pursuant to 28

U.S.C. §1334. All bankruptcy cases and proceedings filed in the Central

District of Illinois have been referred to the bankruptcy judges. CDIL-Bankr. LR

4.1; see 28 U.S.C. §157(a). Matters concerning the administration of the estate,

the sale and distribution of estate property, and other proceedings affecting the

liquidation of the assets of the estate are core proceedings. 28 U.S.C.

§157(b)(2)(A), (N), (O). This matter arises from the Debtor’s bankruptcy itself

and from the provisions of the Bankruptcy Code and may therefore be

constitutionally decided by a bankruptcy judge. See Stern v. Marshall, 564 U.S.

462, 499 (2011).

III. Legal Analysis

The Trustee filed this adversary proceeding to obtain authority to sell the

interest not only of the estate but also of the co-owner, Kim Schertz, in the

Hudson property. She relies on §363(h), which provides in relevant part:

(h) Notwithstanding subsection (f) of this section, the trustee

may sell both the estate’s interest, under subsection (b) or (c) of

this section, and the interest of any co-owner in property in which

the debtor had, at the time of the commencement of the case, an

undivided interest as a tenant in common, joint tenant, or tenant

by the entirety, only if—

(1) partition in kind of such property among the estate

and such co-owners is impracticable;

(2) sale of the estate’s undivided interest in such

property would realize significantly less for the estate than

sale of such property free of the interests of such co-owners;

(3) the benefit to the estate of a sale of such property

free of the interests of co-owners outweighs the detriment, if

any, to such co-owners; and

(4) such property is not used in the production,

transmission, or distribution, for sale, of electric energy or of

natural or synthetic gas for heat, light, or power.

11 U.S.C. §363(h).

The burden of proof under §363(h) rests with the Trustee. Chatz v. Alice

Rhoads Living Trust (In re Rhoads), 572 B.R. 905, 912 (Bankr. N.D. Ill. 2017)

(citation omitted). But “once the Trustee establishes a prima facie case that the

estate would benefit from the [proposed] sale . . . the burden shifts to the

[d]efendants to show why the court should not approve the sale.” Id.

A. The Trustee’s Case

The Trustee established that the Hudson property is owned by the

Debtor and Mrs. Schertz as tenants by the entirety. Property rights are created

and defined by state law. Butner v. United States, 440 U.S. 48, 55 (1979). In

Illinois, property “held in tenancy by the entirety shall not be liable to be sold

upon judgment entered . . . against only one of the tenants[.]” 735 ILCS 5/12-

112. In other words, property held in tenancy by the entirety under Illinois law

is generally protected from sale to satisfy the debt of only one spouse. In re

Tolson, 338 B.R. 359, 370 (Bankr. C.D. Ill. 2005) (citations omitted). “To

enforce a joint debt, however, the property may be sold the same as if title was

held in joint tenancy.” Id. Here, the parties agree that the Debtor and Kim

Schertz owe a joint debt to Compeer. They both signed the loan documents

with Compeer as co-borrowers, and Compeer has since obtained a judgment

and recorded a lien against Kim Schertz’s interest in the Hudson property.

Illinois tenancy by the entirety law is therefore not an impediment to the

Trustee’s ability to sell the Hudson property.

Turning to the statutory conditions set forth in §363(h), only subsection

(3) is at issue. Mrs. Schertz admitted in her answer and the parties’ joint

pretrial statement that subsections (1) and (2) have been met; she stipulated

that partition was impracticable and that sale of the estate’s interest alone

would realize significantly less for the estate than a sale of the whole. There is

also no dispute that subsection (4) does not apply; the property is not used for

the production, distribution, or sale of electric energy or gas. The question then

is whether the Trustee has satisfied her initial burden of establishing that the

sale would benefit the Debtor’s estate, thereby shifting the burden to Kim

Schertz to show why the sale should not be approved. 11 U.S.C. §363(h)(3);

Rhoads, 572 B.R. at 912; Brown v. Phillips (In re Phillips), 379 B.R. 765, 795

(Bankr. N.D. Ill. 2007).

The benefits to the estate of selling the Hudson property are clear.

Claims filed in the Debtor’s bankruptcy case total $3,515,568.99—comprised

almost entirely of the debt owed to Compeer.6 The Hudson property is the only

major asset in the Debtor’s bankruptcy estate, and the estate’s interest is

unencumbered. And, although the Trustee was not required to prove the value

of the property, the evidence at trial was that the Hudson property is worth at

least $736,000 and potentially more. As such, it appears the sale of the

property would yield a significant dividend to estate creditors. Phillips, 379 B.R.

at 796 (payment of a significant dividend to creditors is a substantial benefit to

the estate) (citation omitted). The Hudson property cannot be abandoned or

ignored by the Trustee. Having established such a significant benefit to the

estate, the Trustee met her burden of proof on all issues. The burden then

shifts to Kim Schertz to show why the sale should not be allowed to go forward.

6 Compeer filed its claim for an amount in excess of $3.5 million. Testimony from Kevin Buente was that, after

applying payments made by Schertz Aerial, the claim is now closer to $2.5 million. Since the trial in this

proceeding, roughly $300,000 in cash held by Schertz Aerial that Compeer had a lien against has been turned over to

Compeer, reducing the claim even further. An amended claim has yet to be filed, but the reduction in Compeer’s

claim does not change the analysis. It will receive the vast majority of any distribution made in the case.

B. Kim Schertz’s Defense

Mrs. Schertz’s defense has been somewhat of a moving target. She

claimed in her pretrial statement that the debt to Compeer was fully secured by

business assets and would be paid in full by Schertz Aerial. She also said that

a total refinance of the debt through the SBA was in process. Her position was

that if Compeer was paid in full, it would withdraw its claim and the Trustee

would be able to pay the small amount of administrative expenses and other

claims filed in the Debtor’s case from funds on hand without selling the

Hudson property. But after almost a year, no refinancing through the SBA or

any other lender has been proposed, and the possibility of a refinance was not

even mentioned at the trial. Likewise, Mrs. Schertz made no claim that

Compeer is fully secured by business assets. To the contrary, the pending plan

of Schertz Aerial says that Compeer is undersecured.

Although Mrs. Schertz never amended her pretrial statement and filed no

other documents raising any alternative defense, her attorney asserted at

several pretrial hearings that Mrs. Schertz would likely be awarded 100% of the

Hudson property in the pending dissolution of marriage, resulting in the estate

having no interest in the property and the Trustee having nothing to sell. At

trial, she advanced the argument that, even if the estate has an interest in the

Hudson property, any benefit to the estate of a sale would be outweighed by the

detriment she would experience from a sale. The Trustee made no objection to

the raising of defenses not disclosed in the pretrial statement, and Mrs. Schertz

was generally able to present all her evidence.

1. The Estate’s Interest in the Hudson Property

Mrs. Schertz’s primary defense to the Trustee’s case is premised on her

belief that, under a proper application of Illinois law in the pending dissolution

of marriage case, the Hudson property would be awarded entirely to her.

Indeed, her Exhibit 1 presented a listing of what she said were all of the

couple’s assets and purported to propose a 50/50 allocation of those assets

between herself and the Debtor. Based on her Exhibit 1, Mrs. Schertz would

get essentially everything—Schertz Aerial, the Hudson property, her IRA,

several vehicles, several bank accounts, and other assets—plus an additional

$600,000 payment from the Debtor. She claims the payment would be

necessary to offset the Debtor’s alleged dissipation of marital assets and

expected future tax benefits from the NOL.

Under Illinois law, “marital property” is defined, subject to certain

exceptions, as “all property, including debts and other obligations, acquired by

either spouse subsequent to the marriage[.]” 750 ILCS 5/503(a). When a

petition for dissolution is filed, each spouse is vested with a contingent

property interest in all marital property, no matter how legal title to the

property is held. 750 ILCS 5/503(e); Reinbold v. Thorpe (In re Thorpe), 881 F.3d

536, 540 (7th Cir. 2018). “This contingent interest ripens into a full ownership

interest for any property distributed to such spouse when the divorce court or

the bankruptcy court enters an order of equitable distribution or final

judgment.” In re Zachmann, 2013 WL 1316647, at *2 (Bankr. N.D. Ill. Apr. 2,

2013) (citations omitted); see also Thorpe, 881 F.3d at 540. Section 503(d)

provides for the division of marital property “without regard to marital

misconduct in just proportions considering all relevant factors[.]” 750 ILCS

5/503(d). “Just proportions” means that the allocation of marital property

must be equitable but not necessarily equal. In re Marriage of Morris, 266 Ill.

App. 3d 277, 281 (1994).

The relevant factors for determining an equitable allocation of marital

property as set forth in the statute include:

(1) each party’s contribution to the acquisition, preservation, or

increase or decrease in value of the marital or non-marital

property, including (i) any decrease attributable to an advance

from the parties’ marital estate under subsection (c-1)(2) of

Section 501; (ii) the contribution of a spouse as a homemaker or

to the family unit; and (iii) whether the contribution is after the

commencement of a proceeding for dissolution of marriage or

declaration of invalidity of marriage;

(2) the dissipation by each party of the marital property,

provided that a party’s claim of dissipation is subject to the

following conditions:

(i) a notice of intent to claim dissipation shall be given no

later than 60 days before trial or 30 days after discovery

closes, whichever is later;

(ii) the notice of intent to claim dissipation shall contain, at a

minimum, a date or period of time during which the

marriage began undergoing an irretrievable breakdown, an

identification of the property dissipated, and a date or period

of time during which the dissipation occurred;

(iii) a certificate or service of notice of intent to claim

dissipation shall be filed with the clerk of the court and be

served pursuant to applicable rules;

(iv) no dissipation shall be deemed to have occurred prior to

3 years after the party claiming dissipation knew or should

have known of the dissipation, but in no event prior to 5

years before the filing of the petition for dissolution of

marriage;

(3) the value of the property assigned to each spouse;

(4) the duration of the marriage;

(5) the relevant economic circumstances of each spouse when the

division of property is to become effective, including the desirability

of awarding the family home, or the right to live therein for

reasonable periods, to the spouse having the primary residence of

the children;

(6) any obligations and rights arising from a prior marriage of

either party;

(7) any prenuptial or postnuptial agreement of the parties;

(8) the age, health, station, occupation, amount and sources of

income, vocational skills, employability, estate, liabilities, and

needs of each of the parties;

(9) the custodial provisions for any children;

(10) whether the apportionment is in lieu of or in addition to

maintenance;

(11) the reasonable opportunity of each spouse for future

acquisition of capital assets and income; and

(12) the tax consequences of the property division upon the

respective economic circumstances of the parties.

750 ILCS 5/503(d). The standard for valuation of property for purposes of

apportionment is that of fair market value as of the date of trial or such other

time as agreed by the parties or ordered by the court. 750 ILCS 5/503(f), (k).

Mrs. Schertz’s proposed allocation sets forth a list of assets and debts,

ascribes a value to each, and apportions them between herself and the Debtor.

Among the most substantive allocations, the proposal values the Hudson

property at $736,000—the value as determined by Ms. Burns’ initial report—

and Schertz Aerial at a negative $1.3 million—using a simple calculation of

purported balance sheet values of assets less liabilities. Awarding both items to

herself, along with her $285,000 Roth IRA, her checking accounts worth about

$6000 total, the two Mercury vehicles valued at roughly $7000, and a few other

small items, Mrs. Schertz concludes that such allocation would result in her

being nearly $300,000 in the negative. Awarding the Debtor his NOL that she

valued at $422,473, his alleged dissipation of the marital estate that she valued

at $424,000, his various accounts worth roughly $45,000, the Jeep Compass

at $11,000, life insurance policies at $20,000, and airline miles she valued at

$20,000, Mrs. Schertz calculates the Debtor’s allocation to be worth $922,579.

The proposal then purports to balance the allocation by requiring the Debtor to

offset the difference between his $900,000 portion and Mrs. Schertz’s negative

$300,000 portion with a $600,000 cash payment from him to her. There are

obvious problems with this proposal; several of the most glaring problems will

be discussed.

i. The Value of Schertz Aerial

No basis was provided for Mrs. Schertz’s valuation of Schertz Aerial at a

negative $1.3 million. Mrs. Schertz did not prepare and did not even claim to

be familiar with the balance sheet about which she tried to testify. When the

foundation for her testimony was challenged, Mrs. Schertz quickly admitted

that she did not have any idea how to value the business. Her attorney moved

on to discuss other assets and never went back to the issue of the value of

Schertz Aerial. Mrs. Schertz’s valuation of Schertz Aerial as set forth in her

proposal is not credible and cannot be relied upon. In re Marriage of Liszka,

2016 IL App (3d) 150238, ¶56 (a court’s valuation of marital asset cannot be

based on testimony that is not supported by a proper foundation).

At trial, the Court questioned whether balance sheet values are an

indicator of fair market value. Illinois courts appear to be unsettled on the

issue. Compare Blackstone v. Blackstone, 288 Ill. App. 3d 905, 913 (1997)

(questioning the utility of “book value” as a measure of value of a business),

with In re Marriage of Brenner, 235 Ill. App. 3d 840, 845 (1992) (although no

precise rules govern, book value is an appropriate starting point to determine

the value of closely-held corporation). This Court’s view is that an unadjusted

balance sheet provides little, if any, assistance in determining the fair market

value of a business. Asset values on the Schertz Aerial balance sheet are clearly

identified as being based on acquisition costs from which accumulated

depreciation is then deducted. There is no presumption and there was no

testimony that the acquisition cost of any asset of Schertz Aerial was at fair

market value even at the time of acquisition. And there is no presumption and

there was no testimony that accumulated depreciation calculated for tax

purposes plays a role in determining fair market value.

Compounding matters, the Schertz Aerial balance sheet Mrs. Schertz

relies on appears to be inaccurate on its face. The balance sheet, dated as of

May 31, 2022—after the Schertz Aerial bankruptcy case was filed—lists among

the company’s assets property known through the course of proceedings before

this Court as the “Gridley facility.” But the Gridley facility was sold as part of

the standstill agreement with Compeer before the Schertz Aerial Chapter 11

petition was filed, the proceeds of which were used to pay down the debt owed

to Compeer. Curiously, the balance sheet does reflect the debt reduction from

the sale by listing the outstanding Compeer debt at $2.57 million despite still

listing the Gridley facility as an asset. The Gridley facility was not listed as an

asset in Schertz Aerial’s bankruptcy schedules, and the Court sees no reason

that it should be included on the post-petition company balance sheet. Absent

testimony from a witness qualified to clarify or explain the discrepancy, the

document lacks trustworthiness and should not have been relied upon by Mrs.

Schertz and her attorneys.

Determining the value of a closely held corporation for purposes of

allocating marital property in a dissolution “is an art, not a science, and the

court must rely on expert witnesses . . . who may differ significantly in both

methodology and valuation.” Liszka, 2016 IL App (3d) 150238, ¶41 (citation

omitted) (likening valuation of closely held corporation to valuation of

professional corporation). There are several recognized methods of business

valuation, and it is the role of the valuation expert to identify the proper

methodology for a particular business as part of any opinion as to value. With

no expert called, the Court cannot find that there is any evidence of the value

of Schertz Aerial or that the balance sheet methodology suggested by Kim

Schertz is even an appropriate valuation method for Schertz Aerial.

Because Mrs. Schertz could not establish any foundation for her

testimony and she proffered no witness qualified to testify on the value of

Schertz Aerial, the Court cannot place any fair market value on the business.

Mrs. Schertz paid the Trustee $20,000 for the stock and related claims only a

year ago and testified that she believes she can turn the business around—

indeed she believes the company is now operating in the positive and is hopeful

about its reorganization. She obviously wants the business and believes that it

has or will have value to her. Under the circumstances, valuing the business

for purposes of marital allocation at a negative $1.3 million is not credible; that

number cannot be used to support either an equal or an equitable allocation of

marital property.

ii. The Value of the Debtor’s NOL

Mrs. Schertz valued the future benefit to the Debtor of the NOL generated

by Schertz Aerial at $422,000 and allocated that amount to the Debtor in her

proposal. Because the NOL is only available to the Debtor, it must be allocated

to him. It is, however, important to determine a realistic value of what the NOL

may be worth to the Debtor. Mrs. Schertz’s valuation is not realistic and not

supported by her own evidence and expert witness.

Mrs. Schertz’s tax expert, Nicole Allen, prepared a report suggesting that

the NOL could be worth something within a range of $422,000 and $1.5 million

over time. But Ms. Allen also admitted that the ranges were based on generic

calculations and not tailored to any specifics related to the Debtor. She agreed

that it would take several decades at a yearly income of $100,000 for the

benefits to be fully realized, even at the low end of the range. Her calculation

was simply what might be recognized if a person with such a large NOL were

able to work at a high enough income for enough years to use up the entire

NOL.

Ms. Allen agreed that in order to more accurately determine the value of

the NOL to the Debtor, she would need to make certain assumptions about his

future earnings, the number of years he might continue to work, and what

other income or deductions he might have in any particular year. With that

information, she said, she could calculate more precisely a total potential value

of the NOL to the Debtor. She acknowledged that to give an opinion on the

current fair market value of the NOL to the Debtor, she would apply a discount

rate to that total. Ms. Allen had not been asked by Mrs. Schertz to actually

attempt to calculate and give an opinion on the fair market value of the NOL to

the Debtor and, accordingly, gave no such opinion.

A threshold requirement of expert testimony is that it be both relevant

and reliable. Fed. R. Evid. 702; Daubert v. Merrell Dow Pharm., Inc., 509 U.S.

579, 597 (1993) (analyzing Rule 702); Kumho Tire Co., Ltd. v. Carmichael, 526

U.S. 137, 147 (1999) (confirming that Rule 702 and the Daubert standard

applies to all expert testimony). An expert’s specialized knowledge and

experience in a discipline goes to the reliability requirement and that expert’s

capacity for providing relevant testimony that will assist the trier of fact in

resolving a pertinent issue. Kumho, 526 U.S. at 149 (citing Daubert, 509 U.S. at

590, 592). The Court found Ms. Allen to be credible and has no concerns about

her qualifications or reliability as an expert on accounting and tax principles.

The issue is the relevance of her testimony in the context of this specific case.

To be relevant, the expert’s testimony must be “sufficiently tied to the

facts” of a particular “case.” Id. at 150 (citing Daubert, 509 U.S. at 591). Mrs.

Schertz offered no evidence of what the Debtor’s future income might be and

did not ask her expert to consider any such evidence in rendering her opinions.

In the absence of evidence regarding any of the Debtor’s specific circumstances

and financial prospects, Ms. Allen’s testimony, while helpful to understanding

the mechanics of an NOL, did not aid the Court in determining the current fair

market value of the NOL to the Debtor. Mrs. Schertz failed to present any

credible evidence on the fair market value of the NOL for purposes of making

an allocation of marital property.

iii. Dissipation

Mrs. Schertz claimed that the Debtor dissipated the marital estate and

that $424,000 in dissipated assets should be allocated to him in the division of

their marital estate. Dissipation occurs when a spouse uses marital property

for their sole benefit, for a purpose unrelated to the marriage, while the

marriage is undergoing an irreconcilable or irretrievable breakdown. In re

Marriage of Brown, 2015 IL App (5th) 140062, ¶66 (citation omitted); In re

Marriage of O’Neill, 138 Ill. 2d 487, 495 (1990). Importantly, the Illinois statute

governing the issue conditions the availability of such a claim upon notice

being given of a party’s intent to claim dissipation that identifies the property

said to be dissipated, the period during which dissipation occurred, and when

the marriage began undergoing an irretrievable breakdown. 750 ILCS

5/503(d)(2). Indeed, absent evidence of compliance with the express

requirements of the statute, a claim of dissipation should not even be

considered. In re Marriage of Hamilton, 2019 IL App (5th) 170295, ¶¶76, 90.

Mrs. Schertz may have filed a notice in her dissolution proceeding, but she did

not offer a copy of any such notice into evidence at trial and presented no other

evidence of the contents of such filing here. Thus, Mrs. Schertz failed to

present the minimum evidence necessary for this Court to even consider the

issue of dissipation.

The failure to present evidence on the issue is more than a technicality;

without the required information, this Court is unable to determine whether

the contents of any notice filed in state court comports not only with the

specific requirements of the statute but also with Mrs. Schertz’s claims of

dissipation at trial here. See, e.g., Hamilton, 2019 IL App (5th) 170295, ¶90

(court could not consider dissipation of property not identified in notice of

intent to claim dissipation). The statutory notice requirement is grounded in

notions of fairness to the party charged with dissipation. Id. at ¶¶74-76. Absent

evidence about the contents of the statutorily-required notice of intent filed in

the dissolution proceeding, the Court cannot presume Mrs. Schertz has

provided fair notice of her specific claims in this proceeding.

Further, raising a dissipation claim does not subject every expenditure

made during a marriage to review and critique no matter how misguided the

spending; the claim must be specifically tied to the period during which the

marriage was undergoing an irretrievable breakdown. See O’Neill, 138 Ill. 2d at

492-97. Mrs. Schertz presented no evidence regarding when the marriage was

becoming irretrievably broken, and, without knowing the contents of any notice

of intent, the Court is unable to determine when the marriage began

undergoing an irretrievable breakdown and likewise unable to find whether the

alleged dissipation occurred within the period contemplated by the statute.

Where, as here, “the record does not contain evidence that clearly establishes

the point at which the marriage began to break down, dissipation must be

measured from the time the parties separated or a petition for dissolution is

filed.” Hamilton, 2019 IL App (5th) 170295, ¶86 (citations omitted). Mrs.

Schertz filed her pending petition for dissolution on December 9, 2020, by

which point it might be assumed the marriage was irretrievably broken.

Because all the transfers alleged to be dissipation occurred before the filing of

the pending dissolution, however, that date is not helpful to Mrs. Schertz’s

claim.7

An argument might be made that the marriage had begun to break down

by the time the Debtor took a job away from home with ExpressJet Airlines in

2019 or at some point thereafter as his absences became longer and more

frequent and his involvement in matters at home and with Schertz Aerial

7 The Debtor and Mrs. Schertz both made passing reference in their testimony to a 2018 dissolution case filed by

Mrs. Schertz. According to the Debtor, that case was dismissed voluntarily by Mrs. Schertz the same year. The

Court heard no testimony on the specifics of the prior dissolution petition or its import here. But that apparent

circumstance only raises further questions and highlights the importance of establishing when the marriage began

undergoing an irretrievable breakdown.

diminished. But the Debtor had another reason for initially leaving home to

take on outside employment: Schertz Aerial was struggling financially, and the

Debtor needed to earn a living. And, according to Mrs. Schertz, the Debtor was

away significant amounts of time throughout their marriage, so his leaving in

2019—or any time before or after—was apparently typical behavior. Every

marriage is different, and not every conflict signals that a marriage is

irretrievably broken. In re Marriage of Romano, 2012 IL App (2d) 091339, ¶91.

This Court will not presume that the Debtor’s absence in 2019 or 2020

signaled that the couple’s marriage was then becoming irretrievably broken.

Even were the Court able to determine that at some point before

December 2020 the couple’s marriage began its irretrievable breakdown, and

that Mrs. Schertz had otherwise complied with the statutory notice

requirements, the evidence presented suggests that most if not all the allegedly

dissipated funds went into Schertz Aerial—a marital asset. Some of the

transfers were between corporate accounts, which were not marital property

but rather property of Schertz Aerial. Other transfers, even though from

individual accounts in the Debtor’s name that were marital property, were

admittedly transferred to the marital asset, Schertz Aerial. As the Debtor said

at trial, the money went “from one marital pot to another marital pot.”

Generally, transferring one marital asset to another marital asset, without

more, will not constitute dissipation. In re Marriage of Miller, 342 Ill. App. 3d

988, 996 (2003) (citing Hellwig v. Hellwig, 100 Ill. App. 3d 452, 464 (1981)).

The Debtor’s unrebutted testimony was that nearly every dollar

transferred went directly to or was used for the benefit of Schertz Aerial. For

the few transactions not independently justified as such by the documentary

evidence or specifically admitted to by Mrs. Schertz, the Debtor asserted that

each should be accounted for in the Schertz Aerial records in Mrs. Schertz’s

custody that he can no longer access.8 Mrs. Schertz simply said that she does

not know how or for what any of the money was used notwithstanding her own

admissions and documentary evidence to the contrary. She further seemed to

be in agreement with the Debtor about how the funds were used, citing loans

he made to Schertz Aerial using personal assets to support her accusation that

he drove up the company debts for sinister purposes. Her claimed ignorance,

despite being the custodian of the corporate records the Debtor says would

corroborate his testimony, was not credible.9 Add to that fact Kim Schertz’s

failure to present evidence of her filing of the statutory notice of her intent to

8 Generally, the party charged with dissipation must present clear and specific evidence to refute the charge and

cannot merely state that the funds were used for proper purposes. Hamilton, 2019 IL App (5th) 170295, ¶87 (citation

omitted). But courts recognize the impossibility of accounting for every penny of cash spent over a period of several

years and therefore have found that such statements paired with documentary evidence confirming at least some of

the expenditures and a broader explanation about the circumstances of the expenditures can suffice to refute a charge

of dissipation. Id. Here, the evidence suggests that the transfers were part of a broader effort to fund Schertz Aerial’s

growth and operations. Whether the Debtor’s testimony on the matter was credible is an issue that need not be

reached because Mrs. Schertz did not present enough evidence to shift the burden to the Debtor. Id. at ¶90.

9 Although lacking probative value here, the Court notes the Debtor’s recently filed objection to Schertz Aerial’s

pending Chapter 11 plan to which he attached what he deemed to be relevant portions of a purported “consultant

report” that identified shareholder contributions to the company between 2017 and 2018. Among those contributions

totaling nearly $1.5 million was a $100,000 wire transfer from the Debtor to Schertz Aerial on September 24,

2018—the same date and amount of a transaction from the Debtor’s Merrill Lynch IRA that Kim Schertz alleges

was dissipation here. The Debtor previously sought to compel production of certain “consultant reports” in a

separate proceeding brought by Kim Schertz against the Debtor to deny his discharge in bankruptcy (Kimberly D.

Schertz v. Robert Scott Schertz, Adv. No. 21-07029). Whether the “consultant report” referenced in his objection in

the corporate case is one of those that the Debtor sought to compel Kim Schertz to produce in her action against him

is unclear; Mrs. Schertz voluntarily dismissed that proceeding before the matter was resolved. It suffices to say that

the selective production of discoverable information depending on the needs of its proponent has been an issue

throughout each of the related Schertz cases.

claim dissipation or any evidence of when the marriage was undergoing an

irretrievable breakdown, the Court finds that she failed to make a prima facie

case for dissipation. It will therefore not be considered here.

iv. Allocation of Other Assets

Having addressed the major assets and issues surrounding them, a few

others deserve attention before reviewing Mrs. Schertz’s proposed allocation.

First, Mrs. Schertz allocated to the Debtor 1.7 million airline miles, assigning a

value of $20,000. But she presented no evidence as to how that value was

determined, and every indication is that the Debtor does not even want the

miles. As the Debtor said, there would likely be a cost to use the miles. Second,

the proposal did not include the $17,000 tractor that Mrs. Schertz and the

Debtor agreed is marital property and is used on the Hudson property. It must

be accounted for. Likewise, the Debtor testified that both he and Mrs. Schertz’s

names are on the title to the Ford Mustang that she listed as nonmarital. She

did not rebut his testimony, and the asset should be included even if to be

awarded to her. Finally, Mrs. Schertz admitted collecting and spending the

$27,000 tax refund from the couple’s 2019 jointly filed returns. It too must be

included.

v. Mrs. Schertz’s Proposed Allocation is Neither Equal nor Equitable

Mrs. Schertz’s proposal skews in her favor by reason of her valuation of

Schertz Aerial at a negative $1.3 million. That negative value, under her theory,

compels the allocation of virtually everything else of value to her to equalize the

shares. But the proposal is neither equal nor equitable.

The purchase of the Debtor’s stock in Schertz Aerial was voluntary on

the part of Mrs. Schertz, and the transaction was approved by both this Court

and the state court. She paid $20,000 for the stock and related claims only a

year ago. Valuing the stock now at zero or, perhaps, $20,000 is likely fair and

would provide a more equitable result. This is particularly true as Mrs. Schertz

has no expert witness for valuation and apparently never intended to obtain

such a witness; her attorney reported that discovery is closed in the dissolution

case. Using an unadjusted balance sheet for valuation is simply not right, and

her allocation based on the balance sheet figures is, again, just not credible.

Likewise, the valuation of the NOL at $422,000 on Mrs. Schertz’s

proposed allocation is wrong. She had her accountant figure a potential benefit

for the NOL if the holder of the NOL worked long enough to use the NOL in its

entirety. But she failed to have her accountant personalize the calculation to

take into consideration reasonable assumptions based on the Debtor’s age,

health, and expected future earnings. And even the generic calculation was not

discounted to present value—a step her accountant admitted would be

necessary. Similarly, the allocation of $424,000 to the Debtor’s side of the

equation for dissipation is not appropriate. As explained above, Mrs. Schertz

did not even make a prima facie case for that allocation.

If Mrs. Schertz’s proposal is adjusted to remove the negative value for

Schertz Aerial, the incorrect valuation of the NOL, and the unproven

dissipation claim, and she were still awarded the Hudson property and

everything else she claims should be allocated to her, she would receive more

than 90% of the marital estate. That is far from the equal split she said she

was proposing. When the Court pointed out during arguments the problems

with the asset valuations in Mrs. Schertz’s proposed allocation and suggested

that the result was not at all equal, her attorney pivoted to argue that the just

apportionment of the marital estate requires that the division be equitable but

not necessarily equal. But the proposal is also not equitable.

Mrs. Schertz is correct that fair and equitable division of marital

property under the Illinois Marriage and Dissolution of Marriage Act does not

require an equal division; one spouse may be awarded a larger share if the

circumstances warrant such a result. Romano, 2012 IL App (2d) 091339, ¶121

(citation omitted). The statute only requires that the division be in “just

proportions” upon consideration of all relevant factors. 750 ILCS 5/503(d).

Only certain of the statutory factors are relevant here.

The Debtor and Mrs. Schertz have been married for 39 years. Both are

61 years of age and not especially optimistic about their own health or wage-

earning prospects. Throughout the marriage, the Debtor was the sole wage

earner while Mrs. Schertz cared for their home and children. The Debtor

continues to work earning significant wages. And with years of high wage

income behind him, the Debtor expects to receive meaningful Social Security

income in retirement. Mrs. Schertz, on the other hand, is not nearly as

employable as her husband. Having no job history and therefore no vocational

skills, her prospects for generating income for herself are certainly dimmer

than those of the Debtor.

But Mrs. Schertz is in a much better position than the Debtor when it

comes to the couple’s IRAs and other retirement accounts. And, as the owner of

Schertz Aerial, Mrs. Schertz at least has the potential to generate capital assets

or income if the company successfully reorganizes—the pending plan in the

Schertz Aerial bankruptcy suggests it will be profitable in the coming years.

Mrs. Schertz is also currently receiving a minimum of $1000 a month in

maintenance from the Debtor under a temporary maintenance order entered by

the state court pending the couple’s dissolution. She may be able to advocate

for significantly more maintenance—she certainly believes she is entitled to as

much—depending on the Debtor’s income in the future and perhaps the

anticipated benefit of his NOL. See 750 ILCS 5/504(a) (income, earning

capacity, and tax consequences of the property division upon the respective

economic circumstances of the parties among factors to consider when

determining maintenance award).

In all, an equitable division resulting in as much as a 60/40 or even

65/35 split in favor of Mrs. Schertz might be fair and reasonable and might be

the expected result of a state court trial. A more disparate division such as the

90/10 split she actually proposes seems unlikely, especially if Mrs. Schertz

expects to also receive maintenance. In re Marriage of Heroy, 385 Ill. App. 3d

640, 660-63 (2008) (while awarding both maintenance and a disproportionate

share of marital property is not prohibited, maintenance award must be

considered when equitably dividing marital property). Dividing the Hudson

property 50/50 would leave the state court with the flexibility to still award an

overall 60/40 split or something similar in Mrs. Schertz’s favor. And if Mrs.

Schertz is later able to meet her burden in the dissolution proceeding of

establishing what she could not here—the value of the NOL or her dissipation

claim for example—nothing would preclude the state court from awarding her

an equalization payment to the extent necessary to attain an equitable

distribution. In re Marriage of Price, 2013 IL App (4th) 120155, ¶¶43-47

(whether to award lump sum or installment equalization payments is within

the court’s discretion). Mrs. Schertz makes no credible case that a 50/50 split

of the Hudson property would be anything other than equitable; she has not

made her case that the state court would likely award her the entire Hudson

property.

2. Detriment to Kim Schertz of a Sale

Despite the obvious benefit to the estate, to determine whether that

benefit outweighs any detriment to Mrs. Schertz, “the court must consider the

economic and emotional detriment [she] would face.” Rhoads, 572 B.R. at 913

(citation omitted). “Courts have defined ‘detriment’ as economic hardship, as

well as any loss, harm, injury or prejudice resulting from the involuntary

displacement.” Phillips, 379 B.R. at 796 (citation omitted). Here, Mrs. Schertz

stresses the fact that selling the Hudson property, where she raised her

children and has lived for 30 years, would render her homeless. Again, she

described herself as basically unemployable, without means to generate

meaningful income or acquire property in the future. She relies on the monthly

maintenance payments she receives, as well as modest rental income from the

farmland and state welfare benefits, but she acknowledged that her current

income sources alone are not enough to cover her basic needs and the

maintenance costs of the property.

The Court does not doubt the emotional attachment Mrs. Schertz has to

the property. Nor does it take lightly the detriment to Mrs. Schertz in being

forced to move out of her home and sell her interest in the property. But such

could be said of any co-owner whose interest is to be sold under §363(h). Of

course, Mrs. Schertz needs a place to live but not necessarily a house on 11

acres with another 52 acres of farmland that she cannot even afford to

maintain on her current income. Compounding matters, her interest in the

Hudson property is fully encumbered by Compeer’s judgment lien. To avoid

losing the property through foreclosure, Mrs. Schertz would have to refinance

or sell her interest; her attorney admitted as much in closing arguments. In

other words, Mrs. Schertz is likely to suffer economic hardship or displacement

even if the property is not sold here. Allowing the sale through the Debtor’s

bankruptcy, free and clear of both of their interests, will yield the highest price

and help reduce the significant debt owed to Compeer.10 Thus, a sale would

clearly benefit Mrs. Schertz even if she refuses to admit it. And although selling

10 Compeer has agreed with the Trustee to cooperate in a sale of the property and to facilitate a closing of a sale

transaction by the release of its lien on the property in exchange for the protection of its lien on the proceeds. An

order memorializing their compromise was entered in the main bankruptcy case at docket #200.

the Hudson property would displace her from her current home, it would not

make her homeless. She could likely rent or buy a more modest home at a

lower cost than refinancing the entire property to pay Compeer.

Brief comment is also warranted as to Mrs. Schertz’s contention that

forcing a sale of the Hudson property would adversely impact the operations of

Schertz Aerial and deprive her of much needed income sources. To the extent

Mrs. Schertz contends that the ongoing operation of Schertz Aerial is

dependent on the Hudson property, no such claim has been made by Schertz

Aerial in its bankruptcy case. The company’s pending Chapter 11 plan makes

no mention of the Hudson property or it being necessary to its reorganization.11

It has no interest in the property and, to the extent it has been using it for

business purposes, it has not paid and apparently does not intend to pay for

such use. As for other uses of the property that could serve as an income

source, Mrs. Schertz’s own testimony belies her assertion. She disputed the

land’s value for hunting and acknowledged that, even with increased rents

under the current farm contract with Larry Troyer, the farmland generates just

$14,000 annually—perhaps enough to cover property taxes and other

maintenance costs but nowhere near enough to service the debt to Compeer

were she able to refinance. To that end, Mrs. Schertz’s attorney, again

conceding that his client would have to refinance or otherwise come up with

cash to essentially buy the property from Compeer in order to stay there,

11 Schertz Aerial’s proposed plan does account for a separate “Hudson facility” owned by the company. That

property is wholly distinct from the Hudson property at issue in this proceeding. Any reference to the Hudson

facility or property in the corporate case should not be confused with the property that the Trustee seeks to sell here.

suggested that she would deplete her IRA to subsidize the transaction. But that

proposal makes little sense; depleting her only exempt asset that Compeer

cannot reach and that is a crucial source of future income would result in as

much if not more economic hardship as displacement from a sale here would

cause. And the amounts in her IRAs are not even close to what she would need

to satisfy Compeer.

In this proceeding, Mrs. Schertz initially took the position that Compeer

is fully secured by the assets of Schertz Aerial and that the entire debt will be

paid through a refinance with the SBA in the corporate case. But that position

does not comport with what has occurred in the corporate case and directly

contradicts the position Mrs. Schertz has taken there as president of Schertz

Aerial. Compeer is not fully secured by the assets of Schertz Aerial, and the

terms of the company’s proposed plan of reorganization do not provide for full

payment of Compeer’s debt. There has also been no indication in the corporate

case that Schertz Aerial has or expects to refinance with the SBA. Importantly,

Compeer does not have to wait until Schertz Aerial’s Chapter 11 plan is

complete to pursue its lien on Mrs. Schertz’s interest in the Hudson property.

Still, Mrs. Schertz takes the position that the interests of creditors

should not be a consideration in determining each spouse’s interest in the

Hudson property under the Illinois Marriage and Dissolution of Marriage Act

because the dissolution proceeding was commenced before the Debtor’s

bankruptcy case. But the fact that debt payment is the primary concern in

bankruptcy does not preclude its consideration in resolving the dissolution

issues. Rather, the Illinois statute specifically identifies the liabilities of each

spouse as a consideration in dividing marital property. 750 ILCS 5/503(d)(8).

Indeed, Illinois law presumes that courts will allocate and divide marital

property and debts to avoid the impairment of the rights of and obligations

owed to third parties. Kujawinski v. Kujawinski, 71 Ill. 2d 563, 574 (1978); see

also Reinbold v. Thorpe (In re Thorpe), 546 B.R. 172, 177-78 (Bankr. C.D. Ill.

2016) (citing FirstMerit Bank v. McEnery, 2014 IL App (3d) 130231-U, ¶39),

aff’d, 569 B.R. 310 (C.D. Ill. 2017), aff’d, 881 F.3d 536 (7th Cir. 2018). Here,

both Kim Schertz and the Debtor were liable on the Compeer debt. Compeer

has a lien on whatever Kim Schertz’s interest is in the Hudson property. And

while the Debtor has received a discharge in his bankruptcy case, Compeer still

is entitled to share in the proceeds from the liquidation of property interests of

the estate. With Compeer having a direct interest in the Hudson property no

matter how it is allocated, there is no reason that the debt to Compeer should

not be considered here.

There appears to be no set of circumstances under which Mrs. Schertz

could keep the Hudson property without having to pay Compeer the value of

the property. She has not put forth any serious proposal or theory on how she

might be able to keep the property and not pay Compeer. Both the Debtor and

Mrs. Schertz contributed to the value of the Hudson property and both of their

interests should be used to pay their mutual debt. Awarding the property

entirely to Kim Schertz would, in essence, be to foreclose any meaningful

contribution from the Debtor’s bankruptcy estate in paying down the Compeer

debt while inviting a claim in the dissolution proceeding seeking contribution

from the Debtor when Compeer predictably looks to enforce its lien against the

property. The only sensible path forward is for the Trustee to sell the Hudson

property and pay down the debt that the Debtor, Kim Schertz, and Schertz

Aerial owe to Compeer. That is best accomplished by authorizing the sale and

providing for a 50/50 split of the interests of each spouse.

IV. Conclusion

The Trustee met her burden of proof. She established that selling the

Hudson property would yield a significant dividend to the creditors of the

Debtor’s bankruptcy estate. Absent selling the Hudson property free and clear

of Kim Schertz’s interest, Compeer and the other creditors of the Debtor would

receive little from his bankruptcy estate. Kim Schertz and Schertz Aerial are

also liable on the Compeer debt; blocking the Trustee’s effort to sell the

property and pay down that debt in the Debtor’s bankruptcy would be

detrimental to them.

Nevertheless, Kim Schertz has opposed the Trustee’s effort through

everchanging legal theories. While her defenses were somewhat plausible in the

abstract, each was unsupported by the plainly established facts in the record

or otherwise wholly undeveloped through evidence at trial. This was Mrs.

Schertz’s opportunity to show the Court why the sale of the Hudson property

by the Trustee should not be allowed. But she failed to present any evidence to

support her claims, and relief to the Trustee should not be delayed any further.

See Hamilton, 2019 IL App (5th) 170295, ¶45 (citations omitted) (parties should

not be allowed to benefit on review from their failure to introduce evidence at

trial). The Trustee will be allowed to proceed with selling the Hudson property

free and clear of Kim Schertz’s interest, which will be allocated at one half.

This Opinion is to serve as Findings of Fact and Conclusions of Law

pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.

See written Order.

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