Unhappily Ever After: Family Law Issues in Bankruptcy

Unhappily Ever After: Family Law Issues in Bankruptcy

This paper was originally presented to the West Texas Bankruptcy Institute on October 29, 2010.

Love and marriage,
Love and marriage
Go together
Like a horse and carriage
This I tell you brother
You can't have one without the other

--Frank Sinatra

While love and marriage may go together, divorce and bankruptcy are frequently companions as well. Spouses who have had financial difficulties prior to divorce will find that they only get worse once they split up. Then there are the couples who enjoy fighting so much that they will take the battle to any court they can find. The Bankruptcy Abuse Prevention and Consumer Protection Act shifted the battlefield in several areas, some of which are obvious and others of which are more subtle. This paper will examine the intersection between family law and bankruptcy law in the case of three recurring fact patterns:

(a) The couple who has gotten divorced where one spouse files bankruptcy to try to escape the consequences of the divorce (the "Pursued Ex-Spouse");

(b) The couple who is still together where only one spouse files bankruptcy (the "Dilemma of the Non-Filing Spouse"); and

(c) The couple who transfers assets to the non-filing spouse (the "Friendly Break-Up).

However, before getting into the specific scenarios, it is necessary to define some terms. There are two types of marital-related debts in bankruptcy: Domestic Support Obligations and everything else. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 replaced the prior category of alimony, maintenance and support with the newly defined term of Domestic Support Obligation. The defined term "Domestic Support Obligation" appears in 11 U.S.C. §362(b)(2), 507(a)(1), 523(a)(5), 1129(a)(14) and 1325(a)(8).

Under 11 U.S.C. §101(14A):

(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 accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, 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, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child's parent, legal guardian, or responsible relative for the purpose of collecting the debt.

This definition contains a lot to digest. However, at its core, it still covers alimony, maintenance and support.

Read the article in its entirety at A Texas Bankruptcy Lawyer's Blog