May 21, 2019

Tenth Circuit: Debt to Former Spouse That Arose In Connection with a Separation Agreement Nondischargeable in Bankruptcy

The Tenth Circuit Court of Appeals published its opinion in Taylor v. Taylor on Monday, December 9, 2013.

As part of Eloisa and Matthew Taylor’s divorce, a Virginia circuit court ordered Matthew to pay $2,500 per month to Eloisa as spousal support. The payments were to continue until the remarriage of Eloisa and the final decree also stated that the spousal support obligation was governed by Va. Code § 20-109. Four years later, Matthew moved to terminate spousal support in the Virginia circuit court, arguing that Eloisa had been living with a man for the past two years and that the two were in a marriage-like relationship. Matthew claimed that Eloisa’s cohabitation should result in the termination of his spousal support obligation under the divorce decree pursuant to Va. Code § 20-109. The Virginia circuit court agreed with Matthew and retroactively terminated his spousal support obligation. The court ordered Eloisa to repay $40,660.59 in overpaid spousal support payments, plus $10,000.00 for Matthew’s attorney fees incurred in prosecuting the motion for termination. Accordingly, the Virginia circuit court entered a judgment against Eloisa for $50,660.59.

Eloisa filed for bankruptcy under Chapter 7. Matthew filed a complaint objecting to the dischargeability of the $50,660.59 judgment, alleging that the overpayment debt was not dischargeable under 11 U.S.C. § 523(a)(15) as it constituted a debt to a former spouse incurred by the debtor “in connection with a separation agreement.” He also argued that the overpayment debt constituted a “domestic support obligation” under 11 U.S.C. § 523(a)(5).

On appeal, the BAP affirmed the bankruptcy court’s ruling that the overpayment debt was not a “domestic support obligation” under § 523(a)(5), as well as the bankruptcy court’s ruling that the overpayment debt did qualify for an exception from discharge under § 523(a)(15). Finally, the BAP ruled that neither it nor the bankruptcy court had authority to award attorney fees under the Marital Settlement Agreement’s (MSA) fee-shifting agreement.

Eloisa appealed the bankruptcy court’s summary judgment ruling that the overpayment debt is nondischargeable under § 523(a)(15); Matthew cross-appealed the bankruptcy court’s dismissal of his § 523(a)(5) claim and the BAP’s ruling on attorney fees.

The Tenth Circuit first analyzed the plain language of 11 U.S.C. § 523(a)(5) and held that to qualify as a “domestic support obligation” under that section, the debt must be in the nature of support to the creditor-spouse. As this was not the case here, the court affirmed the bankruptcy court ruling on that basis.

Next, the court analyzed whether the debt to Matthew was nevertheless nondischargeable under § 523(a)(15). Pursuant to § 523(a)(15)’s plain and unambiguous language, the overpayment debt qualified as a nondischargeable debt: the debt arose as a result of a judgment against a spouse, Eloisa, in favor of her former spouse, Matthew, by the Virginia circuit court “in connection with a separation agreement [or] divorce decree.”

The court affirmed the bankruptcy court’s rulings and the BAP’s ruling that Matthew is not entitled to attorney fees under the MSA.

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