Bankruptcy Impact on Divorce and Domestic Support

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Bankruptcy and its Impact on Divorce and Domestic Support Responsibilities

Financial troubles are more common than people would like to think. More often than not, people opt for bankruptcy which can help reduce the burden of debt on the filer’s shoulders. However, despite bankruptcy, there are certain debts which cannot be discharged. These include government taxes, student loans, and divorce and domestic support. There is contention whether a private contract made between spouses in a pro se divorce case can be considered equivalent to a non-dischargeable domestic support obligation under the U.S. Bankruptcy Code.

The case in question is between Emory Bellard, III and Rachel Dixon, who entered into a private contract in 2012, prior to their impending divorce, wherein Bellard agreed to pay his wife $3,000.00 per month for 10 years. At the time in question, Bellard earned over six-figure salary in the technology sector. After a few months of the aforementioned contract, the couple filed for a fast-track pro se divorce petition in a Florida state family court. During the uncontested divorce proceedings, neither party made mention of the private contract, as a result of which the final verdict of divorce made no statement regarding the financial agreement between both the parties.

Payments were made by Bellard for two years, till his financial situation went out of his hands. In 2014, he was out of work, newly married with additional dependents and neck deep in debts. He filed for bankruptcy under Chapter 7 for relief from his financial problems, where he listed the debt owed to his ex-wife through the private contract as a disputed and unsecured by tangible property, non-priority claim. Due to this, Dixon had little to slim chance of getting any money as per the privately agreed divorce agreement in 2012. This is so because her claim would be the last one to be disbursed by the Trustee. In order to get the payment she was entitled as per the private contract between Bellard and her, Dixon filed an adversarial claim in bankruptcy court against Bellard for a balance of $62,099.91 due to her.

Discharge of Debts Under §523(a)(5) of The Bankruptcy Code

Dixon filing a countersuit to stake a claim for the money due to her argued that she was entitled to funds under §523(a)(5) of The Bankruptcy Code, since the private agreement fulfilled the definition of a non-dischargeable domestic support obligation, despite it being a private support obligation. Bellard countered that the private agreement was null and void due to no alimony provision in the final divorce settlement and also because the private agreement was never mentioned in the Florida divorce court. For any debt to consider dischargeable, the contract must be valid and enforceable under Florida law. Both applicants filed for summary judgment for relief in the Northern District of Texas.

Lawyers of Los Angeles based law firm Recovery Law Group inform that under §523(a)(5) of The Bankruptcy Code, domestic support obligations are excepted from discharge in a chapter 7 bankruptcy. As per the U.S. laws, “Domestic Support Obligation” is defined as “debt that is owed to or recoverable by a former spouse in the nature of alimony, maintenance or support, regardless of how designated; and arises by a separation agreement.”11 U.S.C. §101(14A). Further, “dischargeability is a matter of federal bankruptcy law, not state law.”Dennis v. Dennis, 25 F.3d 274, 277-78 (5th Cir. 1994). “The applicable state law’s role is merely to shed light on the intention of the parties at the time of the agreement…even if state law does not provide for alimony [in name].”Crist v. Crist, 632 F.2d 1226, 1229 (5th Cir. 1980); Dennis, 25 F.3d at 278.

Northern District of Texas’s Point of View

The adversarial case Dixon v. Bellard was heard in October 2016 by the Northern District to determine whether the private settlement made by the couple prior to their pro se divorce can be considered a non-dischargeable domestic support agreement as per the U.S. Bankruptcy Code. According to the Court, the private agreement did fulfill the Code’s definition of domestic support obligation as it was agreed without any coercion in connection with the parties’ uncontested divorce. The Court also stated that as per the agreement, an obligation was made to Dixon for domestic support payments. According to the court, the Bankruptcy Code “provides that a domestic support obligation is non-dischargeable, period.”

Bellard’s motion for summary judgment was denied and Dixon’s motion for summary judgment was granted by the Court. Post this ruling, Bellard would not be able to get his debts discharged and should make agreed-upon payments as per the terms of the contract. As per the Court’s ruling, a private agreement between divorced spouses made pursuant to divorce for financial support purpose can be considered equivalent to a domestic support obligation, which becomes a non-dischargeable debt in federal bankruptcy court.