A law firm had represented a wife in a divorce proceeding. At the conclusion of the divorce case, the divorce court entered an order awarding the ex-wife $85,000 in attorney fees and directed the debtor/husband to pay the attorney fees directly to the ex-wife’s law firm.
Debtor/husband did not pay the attorney fees; instead, he filed a chapter 7 bankruptcy case and received a chapter 7 discharge. In response, the law firm filed an adversary proceeding against debtor/husband and sought an order excepting the $85,000 attorney fee debt from discharge. Clair, Griefer LLP v. Prensky, 416 B.R. 406 (Bankr. D.N.J. 2009).
The issue before the Prensky court was whether attorney fees awarded to debtor’s ex-wife, but payable directly to the ex-wife’s law firm, are dischargeable under §523(a)(15). Debtor/husband asserted that the attorney fee debt was dischargeable because the debt was not a debt owed to a “spouse, former spouse or child” as required for non-dischargeability under §523(a)(15). Debtor/husband urged the court to adopt a “plain language” interpretation of the §523(a)(15) clause “spouse, former spouse, or child” and find the attorney fee debt dischargeable because the debt was payable to the law firm and not to the spouse, former spouse, or child.
The Prensky court rejected debtor’s argument. The court found that the $85,000 attorney fees were divorce-related debt incurred by debtor in the course of the divorce proceedings between the debtor and ex-wife and were thus non-dischargeable pursuant to §523(a)(15). Key to the court’s decision was the fact that the divorce court awarded attorney fees to the ex-wife, not to the law firm. The court noted that, pursuant to the divorce order, the attorney fee debt was owed to the ex-wife but payment was ordered to be made directly to the ex-wife’s law firm. The court further commented that state law gave the ex-wife the legal right to enforce the award of attorney fees in the event the legal fees were n not paid. In short, the court believed that the attorney fee debt was owed to a “spouse, former spouse, or child” as required by §523(a)(15) and that the divorce order directing the payment to be made directly by debtor to the law firm had not changed the fact that the debt was still owed to a “spouse, former spouse, or child.”
Warmest Regards,
Bob Schaller
Your Bankruptcy Advisor Blog
By: Attorney Robert Schaller (Bob's bio) of the Schaller Law Firm
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Bob is a member of the National Bankruptcy College Attorney Network, American Bankruptcy Institute and the National Association of Consumer Bankruptcy Attorneys.
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For information about Chapter 7 bankruptcy Click Here
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You are invited to contact Attorney Schaller at 630-655-1233 or visit his website at http://www.schallerlawfirm.com/to learn about how the bankruptcy laws can help you.
NOTE: Robert Schaller looks forward to the opportunity to talk with you about your legal issues. But please remember that all information on this blog is for advertising and general informational purposes only. Please read Bob's disclaimer.
I recommend that you review a few other blogs that may be of interest to you. These blogs are identified in the right column and are set forth below: bankruptcy issues blog; bankruptcy and family law issues blog; bankruptcy and employment issues blog; and bankruptcy and student loan issues blog.
Thursday, December 31, 2009
Monday, December 28, 2009
When is Alimony as Defined by the Divorce Court Not Deemed Alimony by the Bankruptcy Court
Family law attorneys must continuously strive to keep abreast of the most current case law. Similarly, family law attorneys must hone their drafting skills so that divorce pleadings and settlement agreements reflect the ever-changing case law.
The intersection of bankruptcy law and family law is one substantive area that family law attorneys must stay abreast of the recently developments. Below is a bankruptcy case you should read. The family law attorney had drafted a settlement agreement that designated as "indirect alimony" the ex-husband's obligation to pay mortgage and car obligations on behalf of the ex-wife. This settlement agreement was approved by the divorce court prior to the bankruptcy case being filed. Nevertheless, the bankruptcy court later rejected the designation. By rejecting the designation, the bankruptcy court effectively changed a non-dischargeable "alimony" obligation into a dischargeable property division obligation.
In re McCollum, 415 B.R. 625 (Bankr. M.D.Ga 2009). Debtor was a party to a divorce proceeding in state court prior to filing a chapter 13 bankruptcy case. Debtor was not represented by counsel in the divorce case. Ultimately, the divorce court approved a settlement agreement that created various domestic and non-domestic support obligations, including debtor's obligation to pay the mortgage on the home surrendered to the debtor's ex-spouse and pay the car loan on the car surrendered to the debtor's ex-spouse. Importantly, the settlement agreement indicated that the debtor's duty to pay the mortgage and car loan were "indirect alimony" obligations. Nevertheless, debtor's ex-spouse contacted debtor and requested that debtor NOT list the mortgage and car loan payments as "alimony" expenses on debtor's tax return since debtor's ex-spouse did not intend to claim the mortgage and car payments as "alimony" income.
Debtor filed a chapter 13 case after the divorce court entered judgment. Thereafter, debtor filed an adversary complaint seeking a determination regarding the dischargeability of divorce related debt. Debtor-plaintiff conceded that the majority of the ongoing payments under the divorce settlement agreement are excepted from discharge as domestic support obligations pursuant to Section 523(a)(5). Nevertheless, debtor-plaintiff filed the adversary proceeding to determine the dischargeability of debtor's obligation to pay the mortgage debt and the car loan, contending that these obligations are non-domestic support obligations pursuant to Section 523(a)(15).
The McCollum court noted that Section 523(a)(15) applies to debts that do not fall within the definition of a domestic support obligation but were, nevertheless, incurred by the debtor in the course of divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record. For expediency, debts under Section 523(a)(5) are generally referred to as being in the nature of alimony or support, while debts under Section 523(a)(15) are referred to as being in the nature of property division. Therefore, the court determined that the key issue to be determined was whether the mortgage and car payment obligations at issue were nondischargeable domestic support obligations within the scope of Section 523(a)(5) or property division obligations within the scope of Section 523(a)(15).
Whether or not the debts at issue are in the nature of support or property division is a question of federal law that is guided by reference to state law. In making a decision, the court must look beyond any labels used by the parties and instead determine whether at the time of its creation the parties intended the obligation to function as support or alimony. Factors relevant to this inquiry include: the language of the divorce agreement; the relative financial positions of the parties at the time of the agreement; the amount of property division; whether the obligation terminates on the death or remarriage of the beneficiary; the number and frequency of payments; whether the agreement includes a waiver of support rights; the obligation can be modified or enforced in state court; and whether the obligation is treated as support for tax purposes.
The McCollum court determined that the mortgage and car payment obligations were dischargeable in chapter 13 bankruptcy because these obligations were deemed property division obligations and not alimony or support payment obligations. Citing many factors, the court focused mainly on the following: the parties' relative financial positions at the time of the divorce, the fact that debtor was not represented by counsel and the fact that debtor's ex-spouse contacted debtor and requested that the obligation payments not be classified as "alimony" on IRS tax returns.
Warmest Regards,
Bob Schaller
Your Bankruptcy Advisor Blog
By: Attorney Robert Schaller (Bob's bio) of the Schaller Law Firm
Click for Bankruptcy Lawyer Job Opportunities.
Bob is a member of the National Bankruptcy College Attorney Network, American Bankruptcy Institute and the National Association of Consumer Bankruptcy Attorneys.
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For information about Chapter 7 bankruptcy Click Here
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You are invited to contact Attorney Schaller at 630-655-1233 or visit his website at http://www.schallerlawfirm.com/to learn about how the bankruptcy laws can help you.
NOTE: Robert Schaller looks forward to the opportunity to talk with you about your legal issues. But please remember that all information on this blog is for advertising and general informational purposes only. Please read Bob's disclaimer.
I recommend that you review a few other blogs that may be of interest to you. These blogs are identified in the right column and are set forth below: bankruptcy issues blog; bankruptcy and family law issues blog; bankruptcy and employment issues blog; and bankruptcy and student loan issues blog.
The intersection of bankruptcy law and family law is one substantive area that family law attorneys must stay abreast of the recently developments. Below is a bankruptcy case you should read. The family law attorney had drafted a settlement agreement that designated as "indirect alimony" the ex-husband's obligation to pay mortgage and car obligations on behalf of the ex-wife. This settlement agreement was approved by the divorce court prior to the bankruptcy case being filed. Nevertheless, the bankruptcy court later rejected the designation. By rejecting the designation, the bankruptcy court effectively changed a non-dischargeable "alimony" obligation into a dischargeable property division obligation.
In re McCollum, 415 B.R. 625 (Bankr. M.D.Ga 2009). Debtor was a party to a divorce proceeding in state court prior to filing a chapter 13 bankruptcy case. Debtor was not represented by counsel in the divorce case. Ultimately, the divorce court approved a settlement agreement that created various domestic and non-domestic support obligations, including debtor's obligation to pay the mortgage on the home surrendered to the debtor's ex-spouse and pay the car loan on the car surrendered to the debtor's ex-spouse. Importantly, the settlement agreement indicated that the debtor's duty to pay the mortgage and car loan were "indirect alimony" obligations. Nevertheless, debtor's ex-spouse contacted debtor and requested that debtor NOT list the mortgage and car loan payments as "alimony" expenses on debtor's tax return since debtor's ex-spouse did not intend to claim the mortgage and car payments as "alimony" income.
Debtor filed a chapter 13 case after the divorce court entered judgment. Thereafter, debtor filed an adversary complaint seeking a determination regarding the dischargeability of divorce related debt. Debtor-plaintiff conceded that the majority of the ongoing payments under the divorce settlement agreement are excepted from discharge as domestic support obligations pursuant to Section 523(a)(5). Nevertheless, debtor-plaintiff filed the adversary proceeding to determine the dischargeability of debtor's obligation to pay the mortgage debt and the car loan, contending that these obligations are non-domestic support obligations pursuant to Section 523(a)(15).
The McCollum court noted that Section 523(a)(15) applies to debts that do not fall within the definition of a domestic support obligation but were, nevertheless, incurred by the debtor in the course of divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record. For expediency, debts under Section 523(a)(5) are generally referred to as being in the nature of alimony or support, while debts under Section 523(a)(15) are referred to as being in the nature of property division. Therefore, the court determined that the key issue to be determined was whether the mortgage and car payment obligations at issue were nondischargeable domestic support obligations within the scope of Section 523(a)(5) or property division obligations within the scope of Section 523(a)(15).
Whether or not the debts at issue are in the nature of support or property division is a question of federal law that is guided by reference to state law. In making a decision, the court must look beyond any labels used by the parties and instead determine whether at the time of its creation the parties intended the obligation to function as support or alimony. Factors relevant to this inquiry include: the language of the divorce agreement; the relative financial positions of the parties at the time of the agreement; the amount of property division; whether the obligation terminates on the death or remarriage of the beneficiary; the number and frequency of payments; whether the agreement includes a waiver of support rights; the obligation can be modified or enforced in state court; and whether the obligation is treated as support for tax purposes.
The McCollum court determined that the mortgage and car payment obligations were dischargeable in chapter 13 bankruptcy because these obligations were deemed property division obligations and not alimony or support payment obligations. Citing many factors, the court focused mainly on the following: the parties' relative financial positions at the time of the divorce, the fact that debtor was not represented by counsel and the fact that debtor's ex-spouse contacted debtor and requested that the obligation payments not be classified as "alimony" on IRS tax returns.
Warmest Regards,
Bob Schaller
Your Bankruptcy Advisor Blog
By: Attorney Robert Schaller (Bob's bio) of the Schaller Law Firm
Click for Bankruptcy Lawyer Job Opportunities.
Bob is a member of the National Bankruptcy College Attorney Network, American Bankruptcy Institute and the National Association of Consumer Bankruptcy Attorneys.
I encourage you to SUBSCRIBE to this blog by completing the box to the right of this post so you will automatically receive future blog postings. Next, you can review past and future blogs at any time by clicking the "archive" link in the column to the right of this posting. Plus, you are invited to submit a question by utilizing the "question" box in the column to the right of this posting.
For information about Chapter 7 bankruptcy Click Here
For information about Chapter 13 bankruptcy Click Here
You are invited to contact Attorney Schaller at 630-655-1233 or visit his website at http://www.schallerlawfirm.com/to learn about how the bankruptcy laws can help you.
NOTE: Robert Schaller looks forward to the opportunity to talk with you about your legal issues. But please remember that all information on this blog is for advertising and general informational purposes only. Please read Bob's disclaimer.
I recommend that you review a few other blogs that may be of interest to you. These blogs are identified in the right column and are set forth below: bankruptcy issues blog; bankruptcy and family law issues blog; bankruptcy and employment issues blog; and bankruptcy and student loan issues blog.
Automatic Stay Lifted to Allow Parties to Litigate in Divorce Court
Here is an interesting article about the scope of the automatic stay and the criteria for lifting the automatic stay in a pending bankruptcy court case when the debtor is simultaneously a party in a pending divorce action.
In re Taub, 413 B.R. 55 (Bankr. E.D.N.Y. 2009). A debtor/wife filed a chapter 11 bankruptcy while she was a party to a pending divorce case in state court. The debtor's estranged husband filed a bankruptcy motion for relief from the automatic stay pursuant to Section 362(d)(1). The estranged husband sought the bankruptcy court order terminating the automatic stay to allow the husband and debtor/wife to procced to conclusion with the divorce action, including the entry of a judgment by the divorce court, with enforcement thereof in the bankruptcy court.
Not surprisingly, the debtor/wife opposed the motion to lift the automatic stay and argued that the bankruptcy court was the proper forum to resolve the comlex matrimonial issues.
The bankruptcy court noted that the filing of the bankruptcy petition triggered a stay of any action to commence or continue a judicial, administrative, or other court action to recover a prepetition claim against the debtor/wife and stayed any act to exercise control over property of the bankruptcy estate. The Taub court further noted that the automatic stay was effective immediately upon the filing of the bankruptcy petition without any further action.
The bankruptcy court stated that the automatic stay does not prevent a debtor/spouse and estranged husband from seeking a dissolution of their marriage. See Section 362(b)(2)(A)(iv). But, the automatic stay in the Taub case did prohibit the estranged husband from proceeding in the divorce court against property of the debtor/wife's estate without first obtaining a bankruptcy court order lifting the automatic stay.
The bankruptcy court entertained 12 factors prior to ruling that the estranged husband had demonstrated sufficient "cause" supporting the motion to lift the automatic stay. The bankruptcy court granted the motion to lift the automatic stay and held as follows:
*permitting the divorce court to determine issues including rights of parties in separate or marital property would resolve significant open issues and assist in plan confirmation, so that factor favored finding cause for relief from stay;
*state court had significant expertise in domestic relations matters and was well qualified to determine property entitlements and obligations, so that factor weighed in favor of finding cause for relief from stay; and
*creditors' rights could be protected by granting limited relief from stay to permit divorce action to proceed only up to entry of judgment, and so that factor weighted in favor of finding cause for relief from stay.
Warmest Regards,
Bob Schaller
Your Bankruptcy Advisor Blog
By: Attorney Robert Schaller (Bob's bio) of the Schaller Law Firm
Click for Bankruptcy Lawyer Job Opportunities.
Bob is a member of the National Bankruptcy College Attorney Network, American Bankruptcy Institute and the National Association of Consumer Bankruptcy Attorneys.
I encourage you to SUBSCRIBE to this blog by completing the box to the right of this post so you will automatically receive future blog postings. Next, you can review past and future blogs at any time by clicking the "archive" link in the column to the right of this posting. Plus, you are invited to submit a question by utilizing the "question" box in the column to the right of this posting.
For information about Chapter 7 bankruptcy Click Here
For information about Chapter 13 bankruptcy Click Here
You are invited to contact Attorney Schaller at 630-655-1233 or visit his website at http://www.schallerlawfirm.com/to learn about how the bankruptcy laws can help you.
NOTE: Robert Schaller looks forward to the opportunity to talk with you about your legal issues. But please remember that all information on this blog is for advertising and general informational purposes only. Please read Bob's disclaimer.
I recommend that you review a few other blogs that may be of interest to you. These blogs are identified in the right column and are set forth below: bankruptcy issues blog; bankruptcy and family law issues blog; bankruptcy and employment issues blog; and bankruptcy and student loan issues blog.
In re Taub, 413 B.R. 55 (Bankr. E.D.N.Y. 2009). A debtor/wife filed a chapter 11 bankruptcy while she was a party to a pending divorce case in state court. The debtor's estranged husband filed a bankruptcy motion for relief from the automatic stay pursuant to Section 362(d)(1). The estranged husband sought the bankruptcy court order terminating the automatic stay to allow the husband and debtor/wife to procced to conclusion with the divorce action, including the entry of a judgment by the divorce court, with enforcement thereof in the bankruptcy court.
Not surprisingly, the debtor/wife opposed the motion to lift the automatic stay and argued that the bankruptcy court was the proper forum to resolve the comlex matrimonial issues.
The bankruptcy court noted that the filing of the bankruptcy petition triggered a stay of any action to commence or continue a judicial, administrative, or other court action to recover a prepetition claim against the debtor/wife and stayed any act to exercise control over property of the bankruptcy estate. The Taub court further noted that the automatic stay was effective immediately upon the filing of the bankruptcy petition without any further action.
The bankruptcy court stated that the automatic stay does not prevent a debtor/spouse and estranged husband from seeking a dissolution of their marriage. See Section 362(b)(2)(A)(iv). But, the automatic stay in the Taub case did prohibit the estranged husband from proceeding in the divorce court against property of the debtor/wife's estate without first obtaining a bankruptcy court order lifting the automatic stay.
The bankruptcy court entertained 12 factors prior to ruling that the estranged husband had demonstrated sufficient "cause" supporting the motion to lift the automatic stay. The bankruptcy court granted the motion to lift the automatic stay and held as follows:
*permitting the divorce court to determine issues including rights of parties in separate or marital property would resolve significant open issues and assist in plan confirmation, so that factor favored finding cause for relief from stay;
*state court had significant expertise in domestic relations matters and was well qualified to determine property entitlements and obligations, so that factor weighed in favor of finding cause for relief from stay; and
*creditors' rights could be protected by granting limited relief from stay to permit divorce action to proceed only up to entry of judgment, and so that factor weighted in favor of finding cause for relief from stay.
Warmest Regards,
Bob Schaller
Your Bankruptcy Advisor Blog
By: Attorney Robert Schaller (Bob's bio) of the Schaller Law Firm
Click for Bankruptcy Lawyer Job Opportunities.
Bob is a member of the National Bankruptcy College Attorney Network, American Bankruptcy Institute and the National Association of Consumer Bankruptcy Attorneys.
I encourage you to SUBSCRIBE to this blog by completing the box to the right of this post so you will automatically receive future blog postings. Next, you can review past and future blogs at any time by clicking the "archive" link in the column to the right of this posting. Plus, you are invited to submit a question by utilizing the "question" box in the column to the right of this posting.
For information about Chapter 7 bankruptcy Click Here
For information about Chapter 13 bankruptcy Click Here
You are invited to contact Attorney Schaller at 630-655-1233 or visit his website at http://www.schallerlawfirm.com/to learn about how the bankruptcy laws can help you.
NOTE: Robert Schaller looks forward to the opportunity to talk with you about your legal issues. But please remember that all information on this blog is for advertising and general informational purposes only. Please read Bob's disclaimer.
I recommend that you review a few other blogs that may be of interest to you. These blogs are identified in the right column and are set forth below: bankruptcy issues blog; bankruptcy and family law issues blog; bankruptcy and employment issues blog; and bankruptcy and student loan issues blog.
Court Lacks Discretion to Balance Hardship of Property Division Debt
Here is an interesting case regarding the limit of the court's discretion to reduce the hardship imposed upon the paying spouse and thereby reduce the proceeds received by the receiving spouse.
In re Blackburn, 412 B.R. 710 (Bankr. W.D. Pa 2009). A chapter 7 debtor's ex-wife objected to the discharge of her claim pursuant to Section 523(a)(5) and (a)(15). Because it was clear that the obligation was incurred in connection with a divorce decree, the court ruled that the claim was nondischargeable. The debtor asked the court to reconsider, arguing that the court had discretion to find the debt to be dischargeable. The debtor said he was 50 years old and physically unable to work. He asserted that payment of the debt to his ex-wife would cause him to suffer a substantial hardship. Nevertheless, the court denied the debtor's request for reconsideration, noting that the bankruptcy courts no longer have discretion to allow the discharge of matrimonial obligations in chapter 7 cases.
Warmest Regards,
Bob Schaller
Your Bankruptcy Advisor Blog
By: Attorney Robert Schaller (Bob's bio) of the Schaller Law Firm
Click for Bankruptcy Lawyer Job Opportunities.
Bob is a member of the National Bankruptcy College Attorney Network, American Bankruptcy Institute and the National Association of Consumer Bankruptcy Attorneys.
I encourage you to SUBSCRIBE to this blog by completing the box to the right of this post so you will automatically receive future blog postings. Next, you can review past and future blogs at any time by clicking the "archive" link in the column to the right of this posting. Plus, you are invited to submit a question by utilizing the "question" box in the column to the right of this posting.
For information about Chapter 7 bankruptcy Click Here
For information about Chapter 13 bankruptcy Click Here
You are invited to contact Attorney Schaller at 630-655-1233 or visit his website at http://www.schallerlawfirm.com/to learn about how the bankruptcy laws can help you.
NOTE: Robert Schaller looks forward to the opportunity to talk with you about your legal issues. But please remember that all information on this blog is for advertising and general informational purposes only. Please read Bob's disclaimer.
I recommend that you review a few other blogs that may be of interest to you. These blogs are identified in the right column and are set forth below: bankruptcy issues blog; bankruptcy and family law issues blog; bankruptcy and employment issues blog; and bankruptcy and student loan issues blog.
In re Blackburn, 412 B.R. 710 (Bankr. W.D. Pa 2009). A chapter 7 debtor's ex-wife objected to the discharge of her claim pursuant to Section 523(a)(5) and (a)(15). Because it was clear that the obligation was incurred in connection with a divorce decree, the court ruled that the claim was nondischargeable. The debtor asked the court to reconsider, arguing that the court had discretion to find the debt to be dischargeable. The debtor said he was 50 years old and physically unable to work. He asserted that payment of the debt to his ex-wife would cause him to suffer a substantial hardship. Nevertheless, the court denied the debtor's request for reconsideration, noting that the bankruptcy courts no longer have discretion to allow the discharge of matrimonial obligations in chapter 7 cases.
Warmest Regards,
Bob Schaller
Your Bankruptcy Advisor Blog
By: Attorney Robert Schaller (Bob's bio) of the Schaller Law Firm
Click for Bankruptcy Lawyer Job Opportunities.
Bob is a member of the National Bankruptcy College Attorney Network, American Bankruptcy Institute and the National Association of Consumer Bankruptcy Attorneys.
I encourage you to SUBSCRIBE to this blog by completing the box to the right of this post so you will automatically receive future blog postings. Next, you can review past and future blogs at any time by clicking the "archive" link in the column to the right of this posting. Plus, you are invited to submit a question by utilizing the "question" box in the column to the right of this posting.
For information about Chapter 7 bankruptcy Click Here
For information about Chapter 13 bankruptcy Click Here
You are invited to contact Attorney Schaller at 630-655-1233 or visit his website at http://www.schallerlawfirm.com/to learn about how the bankruptcy laws can help you.
NOTE: Robert Schaller looks forward to the opportunity to talk with you about your legal issues. But please remember that all information on this blog is for advertising and general informational purposes only. Please read Bob's disclaimer.
I recommend that you review a few other blogs that may be of interest to you. These blogs are identified in the right column and are set forth below: bankruptcy issues blog; bankruptcy and family law issues blog; bankruptcy and employment issues blog; and bankruptcy and student loan issues blog.
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