November 1, 2014

Financial Obligations to Ex-Spouse Set Out in Divorce Decree May Survive Bankruptcy

The Georgia Supreme Court recently considered the issue of whether a debtor/ husband could be held in Contempt of Court in Superior Court for refusing to pay a joint marital debt.  In the case of McGahee v. Rogers, the trial court denied the contempt motion on the grounds that (1) the debtor/husband had discharged his obligation to pay the debt and (2) because the debts had been discharged, contempt relief was inappropriate.

The Georgia Supreme Court reversed and remanded, holding that (1) the Bankruptcy Court had not specifically ruled on whether this joint debt was in the nature of alimony and support – and therefore non-dischargeable, and (2) that the Superior Court judge had "concurrent" jurisdiction to make this dischargeability determination.  The Supreme Court then sent this case back to the Superior Court judge for a dischargeability determination.

What does this mean?

Firstly, it appears that the Georgia Supreme Court is going beyond the question of whether the debtor/husband is liable for contempt.  If the Superior Court judge finds that the joint marital debt obligation is in the nature of support/alimony (Bankruptcy Code Section 523(a)(5) debt) then the debtor/husband will still be responsible to pay this debt [for the benefit of his wife] despite the bankruptcy discharge, and can be punished by contempt remedies, including jail, if he does not pay.  If the Superior Court judge holds for the wife, it would appear that the husband's financial obligation under the divorce decree remains due and owing.

Second, it re-establishes that the Georgia Superior Court judge has the authority to make a ruling on whether a debt is dischargeable pursuant to the Bankruptcy Code.  

Third, it is instructive to note that the applicable Bankruptcy Code used in this case was the pre-October 17, 2005 Code.  The October 17 amendments changed both Section 523(a)(5) and (a)(15) to expand the exception to discharge for marital debts.  Gone is the "balancing test" of former Code Section 523(a)(15).  Under the current Code, it appears that just about every debt arising from a divorce is non-dischargeable.  The practical impact of this will be to eliminate the strategy of using a bankruptcy filing to get rid of a divorce related debt.

Finally, as a matter of strategy, I am suggesting to my colleagues in the domestic relations bar that they should specifically include in every divorce settlement agreement a provision that clearly excepts marital debts from bankruptcy discharge.  In turn, if the ex-spouse does file bankruptcy it should be very easy to get a quick (and inexpensive) ruling from the Bankruptcy Judge holding that the marital debt is non-dischargeable.  Hopefully the net effect of cases like McGahee and the new Code provisions will reduce the need for costly litigation.

Along the same lines, it might make sense for divorcing parties to consider filing a joint bankruptcy prior to the divorce for the purpose of eliminating joint debt and potential problems.

Remember, even if you can hold your ex-spouse in contempt for failing to pay a joint debt, your rights against your ex-spouse have no effect whatsoever on the creditor.  The creditor can sue you, garnish your wages and bank accounts – it becomes your problem to force your ex-spouse to make you whole again.

Thanks to Scott Riddle and his Georgia Bankruptcy Blog for highlighting this case. 

[tags] divorce and bankruptcy, georgia bankruptcy, georgia divorce, 523(a)(5), 523(a)(15) debts in the nature of alimony and support [/tags] 

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Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need personal bankruptcy protection. In practice for over 25 years, Jonathan teaches bankruptcy law and practice at legal continuing education seminars and he is a founding member of the Bankruptcy Law Network. Jonathan lives with his wife and children in Atlanta.
About Jonathan

Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need personal bankruptcy protection. In practice for over 25 years, Jonathan teaches bankruptcy law and practice at legal continuing education seminars and he is a founding member of the Bankruptcy Law Network. Jonathan lives with his wife and children in Atlanta.

Comments

  1. Lisa Nuttall says:

    Really hard to fing info on illinois related things. I brief my ex-husband is filing chap. 13 and owes IRS 36,000.00 for tax years 2000-2002. In our divorce papers he is responsable for the debt not me but………….IRS has taken my 2006 tax refund of 5,073.00, garnished my wages and put a bank levy on my account.They have not went after him. In his chap 13 papers he listed my domestic support and his new tax debt of 18,000.00 for 2004-2006 but…………not the old tax debt in the divorce papers. need help because meeting og creditors is coming up fast. What do I need to do?

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