A "rogues' paradise"? A review of South Dakota's property exemptions and a call for change.

• Author: Craig, James A.
• Position: Introduction through II. Living Under Nineteenth Century Standards in the Twenty-First Century C. Review of South Dakota Bankruptcy Court Decisions 7. Exemptions - Head of Household f. In re Schmidt, p. 257-284

This article explores South Dakota's property-exemption statutes, their history, and recent case treatment. The philosophy of a person's relation to the state, as well as the competition between the interests of capital and those of debtors will be discussed briefly. Next, I will discuss the historical context and competing interests in this area of the law. Finally, I will argue that changes need to be made to comply with the South Dakota Constitution's requirement that the comforts and necessaries of life shall be recognized by wholesome laws exempting from forced sale a homestead and a reasonable amount of personal property.

1. HOW DID WE GET HERE?

   The story of South Dakota's property-exemption statutes is necessarily historical, as the statutes have changed little since territorial days. It was not until 1859 that a permanent settlement took root in Yankton, "The Mother City" of the Dakotas. (2) Dakota Territory was created in 1861 (the year the Civil War began). (3) It was split into the states of North Dakota and South Dakota in 1889, and our state undertook the process of creating the Constitution and statutes by which it would govern. (4)

   1. A NATION IN CRISIS: THE PANIC OF 1873 AND THE POLITICAL CLIMATE THAT FOLLOWED

   As the infant State of South Dakota began setting out its constitution and laws, it was, of course, impacted by events of the times. Primary among these was the so-called economic panic of 1873. In 1873, a major economic downturn spread from Europe to the United States. It was precipitated on this side of the pond by unregulated industrial growth and the fall of Jay Cooke and Company, the country's preeminent investment banking firm and principal backer of the Northern Pacific Railroad. Jay Cooke, acting in an era of wide-spread American political corruption, obtained numerous government subsidies for the railroad by

   Eventually Mr. More's position prevailed, leading Mr. Jones of Miner to exclaim excitedly, "[t]his is the rogues' paradise!" (26)

   Second, the convention members debated whether exemption amounts should be firmly set in the Constitution or whether they should be left to the legislature to set. Delegate distrust of future legislatures is a recurring theme in the debates. No doubt this was a reflection of general distrust in government, given the national abuse reflected in the scandals of the age by moneyed interests. Some delegates favored enacting a strict constitutional limit on future legislatures to protect the credit of South Dakota. Others insisted the Constitution should be a broad expression of policy, with the legislature determining the specifics, as required at any given time. In the end, the delegates adopted the recommendation of the Committee on Exemptions Real and Personal, leaving the amount to be set by the legislature. Mr. Allen of Turner County (member of the Committee on Exemptions Real and Personal appointed in 1883) explained:

   The majority of the Committee who framed this article for the Constitution had in view the article from Wisconsin, thinking it would answer the purpose for Dakota just as it would for Wisconsin. It exempts simply the homestead, and leaves the legislature to determine its value; whatever they may determine is the reasonable value to place upon the homestead, it will so remain. We thought it was going too much into legislation for this Convention to fix that amount. It also exempts a reasonable amount of personal property, it does not state the amount; we think the necessity for exemptions is liable to change at any time; what may be a reasonable exemption of personal property today in ten or twenty years from now may be very unreasonable. So it was thought to leave this matter entirely to the legislature and let them fix the amount of the exemptions, real and personal, as they think the people demand. The Legislature comes directly from the people and they will know just exactly what they want. We are of the opinion that this matter ought to be left entirely to the legislature. (27) Finally, the delegates addressed the important question whether the exemptions should be limited to "heads of family," and, if so, what was meant by that phrase. The issue was complicated by the fact that the territorial code referenced only "debtor." (28) Mr. Fowler believed that the exemptions should be denied to single men, whom he did not consider "heads of families." He explained:

   If the minority report is adopted I should feel like adding a provision to it to comply with the provision of the majority report, so that it should include only the heads of families. I don't believe in including in exemptions those great able-bodied men who have got nothing to do but take care of themselves. A man who is able-bodied and wants the benefit of this statute ought to emigrate from this country, he ought to be ashamed of being in this country, and nobody but a booby (29) would expect to do it. (30) Shortly thereafter, the delegates were asked to consider an amendment to the report of the majority committee, which would have deleted the reference to "heads of families."

   Mr. Neill: I now insist upon my motion that we adopt the report of the Majority Committee.

   Mr. --: I desire to offer an amendment.... I desire to strike out in the third line the words "heads of families", and the reason why I want that done is because it is not now consistent with Sections 10 and 12 of the report, which says that no special immunity shall be granted to any person or corporation.

   By the President: The first motion is on the adoption of the majority report, offered by Mr. Neill, of Grant. The gentleman from Lawrence proposes an amendment in reference to the heads of families....

   Mr. Dow: I think we have covered a large range of discussion, and I am in favor of leaving something to the Legislature. I do not believe it is necessary for us to prescribe all limits, and for that reason I would favor the original report of the majority Committee; but I will say this; that I believe large exemptions are detrimental to a poor man instead of money loaners. This I believe every man who handles money will agree with me, that large exemptions are to the disadvantage of the poor man. I want to I say while I am on the floor that I am opposed to that amendment, which

   would throw around the married man the protection of the State of Dakota. I believe that the man who has no wife is to be pitied, and he is entitled to the sympathy of the State. A man that has a wife is worth $1000 without any other property, and every child about $500, and I am opposed to the amendment of the gentleman from Lawrence, which makes this distinction, and think it would be better to leave this matter to the legislature, and let them decide the matter. Therefore, I oppose this amendment, and favor the majority report.

   Mr. Frank: I would like to say in answer to the gentleman from Brown county, that I am a poor man, and am trying to accumulate some property to get married.

   Mr. Owen: Mr. President, I would like to ask if this Constitutional Convention in adopting this, prescribes the limitations, in providing for exemptions for heads of families, does it by implication, so far as the right of the Legislature to deny the right to anybody else, so that the poor single wretch might be deprived of his goods.

   Delegate: It is not meant by this that a man must marry as soon as the sign runs out.

   By the President: The question is upon the motion of Mr. Franks which is to strike out the words "of families."

   The vote stood 29 for and 39 against, the amendment is beaten. (31)

   Thus, by eleven votes, the issue of who is "head of the family" would be litigated for decades to come.

2. LIVING UNDER NINETEENTH CENTURY STANDARDS IN THE TWENTY-FIRST CENTURY: THE CURRENT STATE OF SOUTH DAKOTA'S EXEMPTION STATUTES AND CASES

   1. THE STATUTORY FRAMEWORK

      The first property exemption provision was placed in Chapter 37 of the Territorial Code of 1862. In eleven succinct sections, Chapter 37 defined the homestead and personal-property exemptions in the territory. A summary is found in the historical chart appended to this article. (32) It is noteworthy that it made no distinctions among debtors, such as "head of family," "single person," or "non-head of family." It also contained no arbitrary categories of personal property, such as "absolute," "additional," or "alternative property." It contained generous (by today's standards) provisions protecting the debtor from the elements, i.e. food, clothing, and provisions for a year. It permitted the debtor to keep property necessary to get back on his feet, including tools and a mode of transportation in all seasons. Over the years we have strayed from these concepts.

      In 1877, Dakota Territory categorized property exemptions as absolute, (33) additional, (34) and alternative, (35) an approach that was codified at South Dakota Codified Laws Title 43, Chapter 45. A historical chart attached to this article (36) traces what became of those provisions over the years, and provides a perspective of the value of the exemptions by converting the dollar limitations at the time of passage to 2012 values, using the consumer price index as the measure of value. (37) South Dakota codified the homestead exemption at South Dakota Codified Laws, Title 43, Chapter 31.

      Later, other property exemptions were added to the Code and were located outside of Title 43. Annuities, (38) fraternal and society benefits, (39)...