Phegley v. Phegley (In re Phegley) - 443 B.R. 154 (B.A.P. 8th Cir. 2011)

Rule:

Whether a particular debt is a support obligation or part of a property settlement is a question of federal bankruptcy law, not state law. A divorce decree's characterization of an award as maintenance or alimony does not bind a bankruptcy court but is however a starting point for the determination of the award's intended function. Due deference should be given to the state court's characterization of the award. The burden of proof under 11 U.S.C.S. § 523(a)(5) is on the party asserting that the debt is nondischargeable. Factors considered by the courts in making that determination include (1) the language and substance of the agreement in the context of surrounding circumstances, using extrinsic evidence if necessary; (2) the relative financial conditions of the parties at the time of the divorce; (3) the respective employment histories and prospects for financial support; (4) the fact that one party or another receives the marital property; (5) the periodic nature of the payments; and (6) whether it would be difficult for the former spouse and children to subsist without the payments.

Facts:

John J. Phegley ("John") and Sheri L. Phegley ("Sheri") were married on May 9, 1998, and lived in Missouri. On June 3, 2009, the Circuit Court of Jackson County Missouri entered a Judgment and Decree of Dissolution of Marriage ("Decree") that dissolved the marriage of John and Sheri. The Decree ordered John to pay child support to Sheri in the amount of $325.00 per month. It further stipulated that John shall pay to Sheri the sum of $1,250 per month for contractual maintenance for a period of 48 months beginning on July 1, 2009. The decree also ordered John to pay a portion of Sheri’s attorney’s fees in the amount of $9,178.69. On September 2, 2009, John filed a Chapter 13 bankruptcy petition. Subsequently, Sheri filed a complaint to determine dischargeability of indebtedness pursuant to 11 U.S.C. § 523. Sheri alleged that the monthly maintenance payments and the attorney’s fees were non-dischargeable as domestic support obligations pursuant to U.S.C. § 523(a)(5). John asserted that the debts were not domestic support obligations, but instead were a division of marital property and should not be excepted from discharge. The bankruptcy court ruled in favor of Sheri. John appealed.

Issue:

Were the monthly maintenance payments and the attorney’s fees non-dischargeable as domestic support obligations pursuant to U.S.C. § 523(a)(5)?

Answer:

Yes.

Conclusion:

The court held that the requirements of 11 U.S.C.S. § 101(14A)(A) and (C) were satisfied. The court noted that the decree of dissolution specifically held that the monthly maintenance payments were necessary so that the debtor's ex-wife could continue her education and pursue her teaching certificate and that she could not presently earn sufficient income to support herself. In addition, the decree provided that the monthly maintenance payments would terminate upon death or remarriage. Those factors were indicative of domestic support obligations. The bankruptcy court's determination that the function and purpose of the maintenance payments were to provide support to the ex-wife was amply supported by the record and was not overturned. The record also supported the bankruptcy court's finding that the attorney fee award was in the nature of support.