September 23, 2005
Case Law Development: Marital Property Characterization During Bankruptcy of Married Couple
Students sometimes have a real difficulty in understanding that the laws governing characterization of property at divorce are not the same as the laws governing characterization of property during marriage. The United States Bankruptcy Court for the Eastern District of Wisconsin recently faced this same confusion in a debtor’s argument that he could claim as exempt from the bankruptcy estate, property that was his wife’s under marital property law because he had contributed to its maintenance.
In re Czerneski, 2005 Bankr. LEXIS 1726 (E.D. Wis. September 13, 2005)
This was a joint bankruptcy petition, filed in anticipation of the couple’s divorce. Wife had some land that had been gifted to her during the marriage and which she had retained in her separate name. She claimed the allowable exemption for a portion of that land. Husband sought to exempt a portion of the land as his own exemption, stacking his exemption with wife’s so as to keep the land out of the bankruptcy estate. He relied on cases holding that, upon divorce, a spouse could be awarded a portion of their spouse’s separate property to compensate for contributions to the property. However, the court held that these cases did not apply to the determination of ownership during the marriage. Citing other instances in which the Wisconsin courts had been asked to apply property principles upon divorce outside that context, the court held that contribution to the maintenance of separate property does not transmute the property into marital property.