In re Morgan, No. 10-67114-elp13 (Bankr. D. Oreg., April 26, 2011)
A recent California Bankruptcy decision dealt with the difference between a property division and a domestic support obligation in a Chapter 13 bankruptcy.
In 2009, the debtor, Ramona Morgan, divorced her husband, Fred Morgan. The divorce judgment dissolved their property, dividing the property relatively equally, and granting Fred a $35,000 judgment against Ramona to be paid in monthly installments of $350 per month until paid in full, with the obligation to terminate upon the death of either party.
When Ramona filed Chapter 13 in 2010, her repayment plan treated the $35,000 obligation as a general unsecured claim. However, Fred argued that the obligation was a domestic support obligation, and therefore a priority claim the debtor must pay in her plan.
A Chapter 13 plan must provide for full payment of priority claims. Although technically unsecured, a domestic support obligation to a former spouse is entitled to first priority under the bankruptcy code. Thus, the outcome of the case depended on the characterization of that $35,000 obligation. In determining its character, a court looks beyond the language of the decree to the intent of the parties and the substance of the obligation. The intent of the parties at the time of the dissolution was determined by the court by assessing factors such as whether the recipient spouse needed the support at the time, whether the payments terminate on death, and whether the payments were made directly to the spouse in installments.
The court held that Ramona's $35,000 obligation was not a domestic support obligation. Rather, it was a judgment equalizing the assets of the parties. The parties labeled the obligation an "Equalizing Judgment", the parties' income was relatively equal, and therefore there was no strong evidence that the obligation was intended to be one of domestic support.
