The Maine Bankruptcy Court issued two decisions in the fall of 2011 regarding whether certain debts arising from a divorce judgment were in the nature of domestic support obligations (DSOs) or were property divisions. The cases have somewhat similar factual patterns, but the Court concluded the debt in one case was a DSO, while found the debt in the other case was a property division.
In the first case, Monteith v. Monteith, Adv. Pro. 10-2047, the debtor was ordered by the divorce court to pay 50% of certain marital debts to his ex-wife’s parents, and certain furniture and schooling debts. He was also ordered to pay child support and pay certain medical expenses for his children at a 58% - 42% split with his ex-wife, based upon their income at the time of the divorce. Debtor filed a Chapter 13 case and argued that the marital debts that he was ordered to pay at the 50% level were a property division debts, and thereby dischargeable in Chapter 13. The Bankruptcy Court held that all the debt from the divorce was in the nature of a DSO, and thereby non-dischargeable. The court’s conclusion was based upon a finding that all the debts were related to supporting the family prior to the divorce.
In the second case, Murphy v. Mesmer, Case No. 11-21134, the debtor was ordered by the divorce court to permit his ex-wife to use certain real estate he owned for her child care business, without interference. After the divorce, the debtor actively interfered with the ex-wife’s use of the business premises, forcing her to close the business and relocate, and incur substantial income losses as a result. The ex-wife asked the divorce court to award her damages for the debtor’s misbehavior, which resulted in the divorce court awarding the ex-wife a judgment against the debtor in the amount of $109,000. The debtor thereafter filed a Chapter 7 bankruptcy, and sought to avoid the ex-wife’s judgment lien against his property, asserting the ex-wife’s claim was not a DSO (non-DSO liens can be avoided by debtors if the liens impair the debtor’s exemptions). The Bankruptcy Court concluded that the $109,000 divorce court judgment was not a DSO, even though it was intended to replace the ex-wife’s income taken from her by the debtor’s post divorce misbehavior.
Reconciling the two cases is difficult, since the debtor’s obligations in the second case arising from the original divorce decree were intended to permit the ex-wife to support herself (and thereby not require the debtor to pay her alimony). These cases demonstrate the unpredictability of the Bankruptcy Court’s likely decisions when parties bring disputes before the Bankruptcy Court as to whether a divorce debt is either a DSO or part of a property division