Divorce

Divorce

Monday, June 27, 2016

Bankruptcy and MSAs, Judgments--BEWARE...You Can Lose Big Time...........

SO..when is spousal support  "exempted"  in Bankruptcy?  How about under CCP 703.140?





..........What if the "MSA was purportedly ambiguous?"

..............What if the court thinks the MSA lists the spousal support--- but it's really not spousal?

................What if the alleged support was not reasonably necessary for such support?

---->  Must the Court look beyond the labels provided for in the MSA?

An evidentiary hearing in Bankruptcy Court is very interesting. (See ftp://38.98.2.146/DKupetzArticle.pdf )
..............."While there are significant differences between adversary proceedings and contested matters, the similarities between them are greater than appellant assumes. 
In a contested matter, there is no summons and complaint, pleading rules are relaxed, counterclaims and third-parties practice does not apply, and most pre-trial procedure is either foreshortened or dispensed with in the interest of time and simplicity.

 Nevertheless, . . . discovery is available, testimony regarding contested material factual disputes must be taken in the same manner as in an adversary proceeding, and the court must make findings of fact and conclusions of law before entering an order that has the status of a judgment." ]

And in this particular case, the Trustee objected to the purported spousal support exemption under the CCP code cited above.  Also noted, Trustee mentioned that the item was purportedly concealed before but that was not  made very clear.

Both parties had attorneys, both parties had attorneys during the MSA process, and the wife had expert. Wife stood to lose about $200,000. and yes,
she did lose it.

...[T]he court initially noted that nearly all cases regarding whether an award is in the nature of spousal support are in the context of nondischargeability under § 523(a)(5), as opposed to an exemption, which was "a different situation." Hr'g Tr. (Jan. 20, 2012) 88:2.      Nevertheless, the court proceeded to discuss In re Combs, a nondischargeability case, and the factors a court can consider in determining whether an award in a divorce decree is in the nature of spousal support or a property settlement. 
     In considering the Combs factors, the court concluded that the Met Life Account was not spousal support; it was a division of property, and therefore not exempt under CCP § 703.140(b)(10)(D). The court further noted that the MSA's express provision for spousal support which, under Stout, could be considered in determining whether an award in a divorce decree is support or property division, was an important factor in its decision to disallow the exemption.
The bankruptcy court entered an order sustaining Trustee's objection and disallowing Diener's exemption of the Met Life Account as spousal support under CCP § 703.140(b)(10)(D) on February 10, 2012. Diener timely appealed.
http://www.leagle.com/decision/In%20BCO%2020121128926.xml/IN%20RE%20DIENER  (read case at this link)



You will likely need to be an attorney to understand it, but then again, maybe not.The bottom line is-- if your client may end up in bankruptcy court to salvage assets, you better be sure that the MSA will work under bankruptcy rules and state exemptions, otherwise, as can be seen here, it can open a brand new issue never decided by a bankruptcy court before, and your client is the guinea pig.


Had the wife accepted payments of support without the need for later claiming that the award was an intended buy out for spousal (which was not apparently stated) in the MSA, perhaps she could have left that provision subject to open jurisdiction to enforce; but by taking the money all at once, and since it was not deemed spousal (which would make it taxable to wife) it appears that the Trustee realized this, because the debtor kept amending the Schedule C Exemptions. 
                                 Which is likely a red flag in our opinion....Oops......