When couples divorce, it is not uncommon for the spouse with a higher income to pay the other spouse alimony or spousal support. For readers who are unfamiliar with the term, alimony is a financial obligation that a court can require in the divorce decree to help provide assistance to the spouse with lesser means. In Minnesota, the court refers to it as spousal maintenance. While most people are familiar with the basics of spousal maintenance, what some people may not know is that it is not dischargeable in bankruptcy.
In a recent case before the U.S. Court of Appeals for the 10th Circuit, the court heard arguments concerning a Chapter 7 debtor's wish to discharge $50,000 in overpaid alimony payments. According to reports, the debtor's ex was ordered to pay $2,500 a month in support until his ex-wife remarried. A few years later, the man asked the court to terminate the award because his ex-wife was living with another man. The court agreed and ordered the ex-wife to pay $40,000 in back alimony plus attorney's fees. Shortly thereafter, the ex-wife filed for bankruptcy.
In the bankruptcy proceedings, the woman asked to discharge the money she owed to her ex-husband, but the ex-husband objected and initiated an adversary proceeding. In that proceeding, the lower court judge found in the ex-husband's favor and concluded that the debt was in fact not dischargeable in bankruptcy. On appeal, the appellate court affirmed the lower court's decision holding that the overpayment was not dischargeable because the debt arose as the result of a judgment in connection with a divorce decree.
Court-ordered domestic support obligations are serious business. In addition to being legally enforceable if not paid, they are also nondischargeable in bankruptcy. Because of this, it is important to discuss the type of payments or obligations and how best to structure them for the given situation. Getting it right the first time is the best way to avoid serious headaches and frustrations down the road. Anyone who has ever had to deal with spousal support in the past knows exactly how important getting it right really is.
Source: Bloomberg Law, "Debt Owed To Ex-Husband For Overpayment of Spousal Support is Nondischargeable," Diane Davis, Dec. 13, 2013
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