So, your divorce is final—you have agreed on a settlement of property and debts, and the final decree has been entered. Now you’re thinking of filing bankruptcy to discharge the debts you received from the divorce decree. Some debts from a divorce decree can be wiped out in a Chapter 13 bankruptcy but not in a Chapter 7 case.
First, we break down the debts from the divorce decree and put them into one of two categories: Domestic Support Obligations (DSO) or property settlement debts. A DSO is an obligation in the nature of alimony, maintenance, or support that arises before, on, or after the filing of a bankruptcy petition under a divorce decree, separation agreement, or other order under state or administrative law. Property settlements are usually everything else handed down in the property settlement agreement and included in the divorce decree. This agreement may have required you to pay debts arising from the marriage. The debt could be a jointly owed debt, your own individual debt, or even only debt your ex-spouse owes.
Debts that are considered DSO’s are not dischargeable in bankruptcy and you will be required to continue paying those debts during your bankruptcy case. Debts that are considered Property settlement debts can be discharged in a Chapter 13 bankruptcy. Property settlements debts are not dischargeable in a Chapter 7 bankruptcy.
The tricky part is determining if the debt is a DSO or a property settlement debt. A recent court opinion, In re Michalski, Nos. 20-40276 Chapter 13 Adv, 20-07014, (Bankr. D. Kan. Feb. 3, 2021), illustrates the difficulty in determining if a debt assigned in a divorce decree is dischargeable and who has the burden to prove the debt is a DSO. The non-debtor spouse has the burden to show the debt is non-dischargeable.
How does the court determine if the debt is a DSO or a property settlement debt?
Many of the debts listed in a property settlement in a divorce decree are hard to categorize and the labels can be misleading. The first thing to look at is whether or not the debt is truly a property settlement debt or is it structured alimony or support payment. The label given to the debt in the divorce decree is not binding on the bankruptcy court. The bankruptcy court is allowed to look behind such language to determine the real nature of the debt. However, the label assigned to the debt is persuasive evidence of the intent of the parties and is entitled to weight when determining what type of debt it really is.
When determining if the obligation is a DSO the court will apply a dual inquiry. First, the court will examine the parties’ intent and if they intended the payment to be support or part of a property settlement. Then the court will determine whether the payment is, in substance, support. So really the question is: does the payment have the purpose and effect of providing support to the ex-spouse? Factors that have indicated the debt is DSO rather than property settlement debt are:
Payments terminate upon death or remarriage of spouse receiving them.
Payments are contingent on future earnings.
Payments are over a period of time rather than a lump sum.
Payments are for a mortgage or medical care.
In Kansas, the following have qualified as DSO and were not dischargeable in bankruptcy.
Court ordered child support or alimony.
Payment of mortgage directly to the lender while ex-spouse and children still living in marital home. See In re Rivet, No. 13-11726, 2014 Bankr. LEXIS 2069, at *1 (Bankr. D. Kan. May 8, 2014)
Attorney’s fees incurred and awarded in custody matters Jones v. Jones (In re Jones), 9 F.3d 878, 879 (10th Cir. 1993)
The following have qualified as property settlement debts and have been discharged in a Chapter 13.
Husband seeking reimbursement from wife after he paid her share of tax debts given to her in divorce. In re Charlton, No. 07-22136-13, 2008 Bankr. LEXIS 3675, at *24 (Bankr. D. Kan. Dec. 3, 2008)
Balancing payment was a property settlement. Bohlander v. Bohlander (In re Bohlander), Nos. 16-20952, 16-6119, 2017 Bankr. LEXIS 3130, at *2 (Bankr. D. Kan. Sep. 14, 2017)
Wife seeking reimbursement after paying husband share’s of a home equity line of credit. In re Blad, No. 07-12436, 2008 Bankr. LEXIS 2442, at *1 (Bankr. D. Kan. Aug. 22, 2008)
Attorney’s fees for discovery costs Waller v. Waller (In re Waller), 525 B.R. 473, 484 (Bankr. D. Kan. 2014)
Each situation is different, and this post only illustrates some situations where debts can be discharged. Speak with one of our attorneys to look at your divorce decree and discuss what options are right for you.