How Bankruptcy Courts Deal With Alimony and Support

child support Fotolia_51994629The starting place for our exploration of bankruptcy and family law is support.

Whether it’s called alimony, maintenance, or support, any amounts due at the commencement of a bankruptcy case are non dischargeable.

Actually, since BAPCPA, it’s called a domestic support obligation.  It got a statutory definition, as well:

(14A) The term “domestic support obligation” means a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest…  that is—

(A) owed to or recoverable by—
(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or

(ii) a governmental unit;

(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;

(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of—
(i) a separation agreement, divorce decree, or property settlement agreement;
(ii) an order of a court of record; or
(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and

(D) not assigned to a nongovernmental entity…   §101(14A)

Section 523(a)(5) makes a domestic support obligation non-dischargeable.  That message is echoed in §1328(a)(2).

So, if it’s a domestic support obligation, it can’t be discharged.

Is it really support

Just when it looked simple, you need to acknowledge the power of the bankruptcy court to look past the labels that the former spouses or the family court attached to an obligation.  Those labels don’t necessarily control the characterization of a debt.

For example, in Shaver, 274 F.2d 1314, the 9th Circuit upheld a Montana bankruptcy court dealing with a divorce decree entered in Indiana, by which the non debtor spouse got $197,000 payable over 10 years in satisfaction, said the decree, of the wife’s “marital and dower rights”.   Payments would end if the wife died during that 10 years.  Despite the label, it was non dischargeable support said the court.

Likewise, the debtor’s divorce obligation to pay the taxes on the half of his military retirement benefits awarded to his wife of 31 years was likewise found to be in the nature of support when the debtor filed Chapter 13.  Denis, 25 F.3d 274.

Even in the face of a state court denial of spousal support in a short term marriage, the 9th Circuit BAP found that the award to the non debtor spouse of  $185,000 in attorneys fees incurred in a custody battle to be in the nature of support.  Gionis, 170 B.R.  675.

Bankruptcy courts will generally look at both the intent of the parties, the function the payments serve, and any events that terminate the obligation to pay, such as remarriage or death in determining if an obligation is support.

No relief from existing order

Clients sometimes appear with an old support order on which there is an outstanding balance.  Despite changes in the spouses’ relative prosperity since the order was made, your prospective client has not returned to family court to get relief from the support order.

The client is unlikely to get relief from that order in bankruptcy court.  While bankruptcy courts are not constrained by collateral estoppel when it comes to the characterization of payments flowing (or not flowing) between ex spouses, the bankruptcy court will not typically revisit the amount of the periodic obligation.

If such relief is necessary, it has to be obtained from the family court or the party to whom the support is now owed.

Next time, we’ll look at the bankruptcy treatment of amounts owed to attorneys and other professionals as a result of proceedings in family court.

Image:  Fotolia.com 

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