Thursday, August 2, 2007

Case Law Development: Dividing Proceeds of Wrongful Death Award upon Divorce

The Iowa Supreme Court addressed equitable division of a wrongful death award.  The case involved a couple who were divorcing after a 22-year marriage.  Fifteen years earlier, the couple's oldest son was killed in an auto accident.  His mother witnessed the accident.  Both parents filed wrongful death actions and settled their separate claims, with mother receiving a settlement of over $400,000 more than father.  Both parents received payments on the settlements, which were treated as marital income by the couple.  Upon divorce, the court divided the future payments made to either party to be divided equally.  Mother argues that  she should have been awarded a larger share of the payments because the difference between her and her husband's awards represented the compensation for the emotional distress she suffered from witnessing the accident.  However, the court was unable to determine the portion of the award that was attributable to her emotional distress and concluded that an equal division of the award was not inequitable.

In re Marriage of Arends, 2007 Iowa App. LEXIS 846 (July 25, 2007)
Opinion online (last visited August 1, 2007 bgf)

August 2, 2007 in Property Division | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 31, 2007

Case Law Development: Dividing Increase in Asset Value

In a case that would provide a fine basis for a class discussion problem, the Supreme Court of Iowa considers equitable distribution of asset appreciation in a 15-year marriage.  The court held that the trial court had erred in not dividing the increase in the value of both spouses’ premarital assets.  The trial court had awarded each spouse the passive increase in the value of their premarital assets but had divided the increase it attributed to marital efforts. 

The Supreme Court reversed, finding that marital contributions were of little help in determining what was equitable in a 15-year marriage: 

We do not find the parties’ respective contributions to the marriage justify treating the parties differently. Michele’s biggest criticism of Ted is his “failure without good cause to contribute financially to the marriage consistent with his earning capacity.” However, we have never held or even insinuated that spouses should maximize their earning potential or risk being punished in the distribution of the parties’ property.

Iowa is a no-fault state. … It is important to remember marriage does not come with a ledger. … Spouses agree to accept one another “for better or worse.” Each person’s total contributions to the marriage cannot be reduced to a dollar amount. Many contributions are incapable of calculation, such as love, support, and companionship. “Financial matters . . . must not be emphasized over the other contributions made to a marriage in determining an equitable distribution.” … Nor do we find it appropriate when dividing property to emphasize how each asset appreciated—fortuitously versus laboriously—when the parties have been married for nearly fifteen years.

The court did, however, allocate to husband $22,000 of debt that he had incurred after wife’s petition for divorce.  Because husband was unable to explain why he had incurred this debt or how it had been spent, the court found it equitable to allocate this debt exclusively to husband.  The opinion provides a fine summary of Iowa law on dissipation of marital assets and division of debt.

In Re Marriage of Fennelly, (July 20, 2007)

Opinion online (last visited July 30, 2007 bgf)

July 31, 2007 in Property Division | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 5, 2007

Largest Divorce Award in History?

"An energy magnate's estranged wife was awarded $184 million Monday in what appears to be one of the biggest divorce verdicts in U.S. history.

Citing irreconcilable differences, Maya Polsky, a 55-year-old art gallery owner, filed for divorce from her husband, Michael Polsky, in 2003.

Judge William Boyd ruled in October that Maya Polsky was entitled to half of the Chicago couple's cash and assets, with her share valued at $176 million. On Monday, the judge amended his decision to include previously omitted assets that increased the value of her award to $184 million.

Maya Polsky's attorney, Howard Rosenfeld, said more than $170 million of the award is nontaxable cash. He said that in researching the case he could find nothing in which a homemaker wife received such a significant award.

"She's very much satisfied with the court's decision. She thinks she was fairly treated by the court," Rosenfeld said."  AP, CNN.com Link to Article (last visited 6-5-07 NVS)

June 5, 2007 in Property Division | Permalink | Comments (1) | TrackBack (0)

Monday, February 26, 2007

Case Law Development: The Costs of Divorce

The Missouri Court of Appeals decided a case involving a divorce from a 27-year marriage in which maintenance, division of property and attorneys fees were disputed.  The court affirmed the trial court's decision to award maintenance to wife, who had been a homemaker for most of the marriage and who had health problems and few job skills, and to award her a portion of the husband's retirement account, as well as the decision to award attorneys fees. 

That the trial court's decisions were upheld is not particularly surprising given the high degree of deference given to trial courts on these issues and the fact that Missouri allows marital fault to impact these decisions. 

What is striking about the case from a teaching perspective are the numbers:

Wife stayed at home for most of the marriage and never had earned more than $2000 a year. 
At the time of trial, Husband had a monthly income of $3900, working as a machinest.

The couple had arrived at a settlement agreement and divided most of their marital property and debts.  After the trial court divided the retirement account, the total property Wife received under the judgment was $9908. The total value of the property awarded to Husband, less the marital debt, came to $14,341. The trial court ordered Husband to pay modifiable maintenance to Wife in the amount of $550 per month.

Each party incurred about $3000 in attorneys fees for the dissolution action. For the appeal, Wife was awarded $6000 attorneys fees for her representation on appeal; Husband paid $18,000 for his representation on appeal.

Russum v. Russum, February 20, 2007
Opinion on the web (last visited February 26, 2007 bgf)

February 26, 2007 in Attorneys, Maintenance (alimony), Property Division | Permalink | Comments (0) | TrackBack (0)

Thursday, February 15, 2007

Case Law Development: Use of Liens to Secure Divorce Judgments to Be Paid Over Time

The Iowa Supreme Court reviewed a property division in an unusual case involving a couple who, during their 10-year marriage, built up a business together with assets of over ten million dollars, but who kept all the business assets in wife's name to protect them from creditors.   The trial court had ordered that wife be granted the business assets but that she make payments to her ex husband over a period of  years, with each payment to become a judgment when due.  The court granted husband an equitable lien on the company to secure these payments. 

However, the Iowa Supreme Court found the trial court's approach to leave husband with too little protection.  First, the court found that the trial court should have issued a judgement for the entire amount, with an allowance of periodic payments, so that a judgment lien would attach to the business's real property. Second, it found the trial court's refusal to assess interest on the judgment to be in error.  Finally, it reversed the grant of the equitable lien, finding a combination of a judgment lien and a UCC lien to be the best combination of protections for the ex husband.

In re Keener, 2007 Iowa Sup. LEXIS 13 (February 9, 2007)
Opinion on web (last visited February 11, 2007 bgf)

February 15, 2007 in Property Division | Permalink | Comments (0) | TrackBack (0)

Sunday, January 21, 2007

Divorcing Couple Divide House - Literally

The BBC News reports that a bickering New York couple have had a dividing wall constructed inside their home as part of an acrimonious divorce. Chana and Simon Taub, both 57, have endured two years of divorce negotiations, but neither is prepared to give up their Brooklyn home.  Now a white partition wall has been built through the heart of the house to keep the pair apart. Mr Taub asked a judge to allow him to erect the partition when the couple's divorce stalled over financial details.

Read the story and see the picture (last visited January 22, 2006 bgf)

January 21, 2007 in Property Division | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 13, 2006

Case Law Development: Kentucky Rejects Distinction between Enterprise and Personal Goodwill

In a case in which the value of wife's solo medical practice was the subject of considerable dispute, the Kentucky Court of Appeals refuses the invitation to join the majority of state that distinguish between enterprise goodwill and personal goodwill in valuing a business upon dissolution.  The court reviewed a number of cases from other jurisdicitons on either side of the issue and concluded that "After considering the issue and the facts of this case, we are not inclined to deviate from long-standing precedent by creating a wholesale change of law holding that "personal" and "enterprise" goodwill should be distinguished for purposes of property valuation in a divorce proceeding - even given that [Wife's] practice is a sole proprietorship. Issues of stare decisis aside, we believe that "[i]t would be inequitable to hold that the form of the business enterprise can defeat the community's interest in the professional goodwill. Such a result ignores the contribution made by the non-professional spouse to the success of the professional ...."  The court noted that the husband made a number of contributions directly to the wife's medical practice, including "training a number of administrative personnel and handling a number of financial aspects of the practice."

A dissenting judge found the arguments in favor of distinguishing between the two forms of goodwill, but agreed with the majority that that matter was for the Kentucky Supreme Court.

Gaskill v. Robbins, 2006 Ky. App. LEXIS 364 (December 8, 2006)
Opinion on the web (last visited December 13, 2006 bgf)

December 13, 2006 in Property Division | Permalink | Comments (1) | TrackBack (0)

Wednesday, October 25, 2006

Case Law Development: Division of Debt Caused By One Partner Spouse's Criminal Conduct

Just in time for Halloween, the Michigan Court of Appeals decides a case in which the husband's arguments for assigning fault in the characterization of debt as marital sound like something an Edgar Allen Poe character would construct.

The case involved a division of debt owed to the insurance company due to husband's actions in burning down the marital home on the evening after Wife had left the home and announced her intention to get a divorce.  The trial court allocated to Husband all of the $300,000 is restitution owed to the insurance company. Husband argued that Wife should split that debt with him because he had acted in response to her adulterous affair. 

The court of appeals affirmed, in its unpublished opinion, concluding:

We agree with the trial court that it is difficult to take seriously defendant’s
contention that his wife’s affair so outraged him as to make his act of arson her fault when
indeed he had conducted numerous affairs himself during the course of the marriage. We find illogical, and distasteful, defendant’s attempts to characterize his conduct as different from his wife’s conduct for the reason that he never intended his affairs to end the marriage, while she did. We find puzzling defendant’s suggestion that the trial court should have, and this Court should now, consider the alternative scenario where defendant’s conduct resulted from being physically poisoned by his wife. In short, we find no error in the trial court’s assessment of fault in the breakdown of this marriage.

The court noted that "the courts of this state have not spoken specifically to the issue of whether an innocent spouse may be liable for criminal restitution debt incurred by the partner spouse during the course of the marriage, probably because such an illogical and unreasonable argument has not before been made."

Thanks to Jeanne Hannah, of the Updates in Michigan Family Law Blog, for highlighting this case!

League v League, 2006 Mich. App. LEXIS 3063 (October 19, 2006)
Opinion on the web (last visited October 24, 2006 bgf)

October 25, 2006 in Property Division | Permalink | Comments (0) | TrackBack (0)

Friday, October 20, 2006

Case Law Development: No Duty to Disclose Pending Sales Discussions of Property in Divorce Settlement

The New York Court of Appeals dismissed an action to set aside a divorce settlement in a high-dollar divorce between Actress Lora Kojovic and her husband Neal Goldman, who owned a minority share of an Internet information service Capital IQ.  Wife signed a divorce settlement agreement in August 2004 that gave her nearly $1.5 million.  However, about one month later, Standard & Poor's purchased her husband's company for $225 million, with his share being $18 million.   Wife then brought an action to set aside the settlement agreement on the basis of fraud and unconscionability.

Wife argued that husband affirmatively misrepresented the liquidity of the company and the talks that were underway for purchase of the company.  However, the court disagreed, finding that husband had disclosed the assets and that it was up to wife to inquire further.  However, wife, who had been represented by counsel in negotiating the agreement, had acknowledged that she had the right to inquire further into the financial aspects but waived this right.

The court noted its "disdain for post-divorce claims of concealment" and found that "[T]he wife concedes, as she must, that the husband consistently and accurately disclosed the full extent of his minority interest in Capital IQ, an asset of speculative value at the time the settlement agreement was executed... That the wife now believes her husband privately harbored a more optimistic assessment of the potential value of his minority interest in that company, or even had additional information that he kept to himself, is irrelevant... wife has only herself to blame for her failure to inquire further. Such failure is not, however, a basis upon which to vacate the settlement."

"... given her professional background and the advice furnished by her counsel and accountant, [wife] should have been aware of the distinct possibility that Capital IQ would be sold," the panel held. "That she opted for an immediate and certain payout instead of the uncertainty of an eventual sale does not afford a basis for setting aside the agreement."

Kojovic v. Goldman, (NY App. Div. October 19, 2006)
Opinion on the web (last visited October 20, 2006 bgf)

October 20, 2006 in Property Division | Permalink | Comments (0) | TrackBack (0)

Friday, September 29, 2006

Case Law Development: Third-Party Interests in Marital Property During Divorce

Students often have trouble conceptualizing how a court might treat the interests of third parties in marital property.  This case from the Alabama court of appeals provides a somewhat tidy example:

During the marriage, Husband purchased about 15% of the shares in a closely held corporation, using marital funds.  All the shareholders in the corporation had a buy-sell agreement, giving them the right to purchase stock in the event of an involuntary transfer being ordered.  In a subsequent divorce, the trial court ordered Husband to transfer to Wife 300 shares of the stock or to pay to her the agreed price from the buy-sell agreement.  The court of appeals of Alabama reversed, finding no error in the trial court's order to Husband to transfer the stock, but holding that the court failing to order that the company and the other shareholders have the right to purchase the shares awarded to the wife. The court reversed and remanded the entire property division and maintenance award on the basis of this error (one judge dissented on the basis that the order's allowance to Husband that he could pay the buy-sell agreement price in lieu of transferring the stock was sufficient protection of the shareholders). 

In a second appeal arising out of the case, the shareholders had sought to intervene in the divorce action, but the court found no right to intervene  because the husband, who was both a shareholder in the food company and a party to the buy-sell agreement, opposed the trial court's making an in-kind award of stock to the wife, and thus adequately represented the interests of both the company and the other shareholders. 

Kelley v. Kelley, 2006 Ala. Civ. App. LEXIS 579 (September 22, 2006 bgf)

September 29, 2006 in Property Division | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 6, 2006

Case Law Development: Waiver of Trial De Novo of Arbitration Awards

The Oregon Court of Appeals has held that parties cannot by their agreement convert a court-annexed arbitration of property division in divorce into a binding arbitration under the Oregon Arbitration Act, thereby divesting the trial court of its authority to conduct a trial de novo.  However, the court did conclude that parties could waive their right to seek such a review, rejecting an argument that allowing waivers of trials de novo would violate public policy.

In the case before it, however, the court concluded that the parties' agreement that their arbitration would be binding, subject only to appeal to the court of appeals, was based on a mutual mistake in that appellate review was not available from arbitration awards.   Thus the court found this mistake made any waiver of a trial de novo it might have implied to be invalid.

Woods v. Woods, 2006 Ore. App. LEXIS 1242 (August 30, 2006)
http://www.publications.ojd.state.or.us/A124747.htm

September 6, 2006 in Property Division | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 30, 2006

Case Law Development: Attorney Authority to Bind Client to Agreement Amending a Divorce Judgment

The Ohio Court of Appeals clarified the jurisdiction of a court to enforce agreed-to amendments to property division judgments in a case in which the divorce judgment had provided that husband would receive 50 percent of the marital portion of wife's pension. When the first QDRO prepared pursuant to this judgment was rejected by the plan administrator becuase of uncertainty as to the portion of the pension that was marital, the parties signed an amended QDRO which gave husband a full 50 percent of the wife's total pension. Wife sought to amend that QDRO, claiming that she never intended to relinquish her premarital interest in the plan and that she had misread the amended QDRO. The trial court sua sponte vacated the amended QDRO, finding that without the wife's intended consent to the amended QDRO, it lacked jurisdiction to have entered it.

The court of appeals reversed. While the court did agree that the trial court's jurisdiction to enforce a post-decree modification depended on the agreement of the parties, the court concluded that there was no evidence to support wife's claim that she did not agree to the amended QDRO, as she conceded that she had given her attorney authority to sign the QDRO. The court pointed out that "The attorney-client relationship is considered to be a limited agency. The attorney has no implied power to do more than relates to the proper conduct of a suit, and cannot, without specific authority, bind the client. However, it is beyond question that a duly authorized attorney may enter into an agreed judgment entry the terms of which will be binding on his or her client. " Thus, wife was bound by her attorney's actions and the trial court had jurisdiction to enter the order. To the extent relief was available for her mistaken agreement, it would be under Ohio's relief from judgment rule to have the original order set aside.

McGee v. McGee, 2006 Ohio 4417; 2006 Ohio App. LEXIS 4343 (August 28, 2006)
Opinion on the web (last visited August 29, 2006 bgf)

August 30, 2006 in Attorneys, Property Division | Permalink | Comments (0) | TrackBack (0)

Monday, August 28, 2006

Case Law Development: Role of Expected Inheritances in Property Division

The Alaska Supreme Court takes a flexible approach to the questions of whether it is proper to consider prospective inheritance in a property division.  The court noted that the issue is one that has split American jurisdictions, with a majority of American jurisdictions regarding expected inheritance as too uncertain to be used as a factor in property division. However, the court decided to take the approach of a substantial minority of states, and concluded that "it is not inherently improper for a court to consider the possibility of inheritance in some cases. Because property divisions cannot be reopened, however, courts must be cautious in using this factor."  The court outlined factors the court should consider:

An absolute prohibition on considering prospective inheritance is unwarranted, but we think any such consideration (1) must be limited to immediate family members, (2) must be limited to inheritances that are not just possible but virtually certain, and (3) must treat the prospect as simply one factor and not give it inordinate weight. The likelihood of inheritance should not lead to a greatly disproportionate division of assets; but if inheritance is virtually certain, the court may give it some weight in considering how to divide the property.

Krize v. Krize, 2006 Alas. LEXIS 123 (Alaska Supreme Court August 25, 2006)
Opinion on web (last visited August 27, 2006 bgf)

August 28, 2006 in Property Division | Permalink | Comments (0) | TrackBack (0)

Friday, August 25, 2006

Case Law Development: Division of Tribal Income

American Indians who enjoy sizable monthly payments from their tribe's casino profits may have to split the cash in a divorce — even when the former spouse isn't a tribal member, the Minnesota Court of Appeals has ruled. In a decision that may be a first in the nation, the court decided the $84,000 a Prior Lake woman received each month as a Shakopee Mdewakanton Sioux Community member is income, not a gift or an inheritance.  Since the money is income, "any such payments received during the tribal member's marriage are marital property subject to division upon dissolution," the court concluded.

Read the news report from the St. Paul Pioneer
Zander v. Zander (August 22, 2006)
Opinion on the web (last visited August 25, 2006)

August 25, 2006 in Property Division | Permalink | Comments (1) | TrackBack (0)

Case Law Development: Credibility and Property Division

An unpublished opinion from the Michigan Court of Appeals provides a good example for students to see how the courts assess credibility and the impact of a determination that a party is attempting to hide assets or otherwise mislead the court.

There were many issues addressed in the case, but one of the most fascinating was the isssue of the court's authority to split Husband's interest in a business.  Wife had added husband's business partners as necessary partners in the divorce, alleging that they had conspired with Husband to try to conceal marital assets.  Husband claimed that the court was without jurisdiction to split the business (located in Arizona) because it was property of his partners. The court of appeals affirmed the trial court's finding that there was insufficient proof that the partners had any interest in the property. 

There was no written agreement evidencing [partner's] ownership interest in
the business. His name was not included on the real estate deed, nor was it ever
included in any bank documents, nor any corporate documents on file with the
Arizona Corporations Commission. His name was never even identified on the
corporate books and records of the company. The transaction was not recorded
anywhere. The (business’) accountant . . . testified that he never met [partner].
There was no indication on [partner's] tax return that he had an ownership
interest in [the business]

Even if there had been partners, the court of appeals noted that the trial court properly refused to

ignore reality when defendant obfuscates his various property holdings through a maze of real or nonexistent entities. Although the trial court determined that plaintiff had not proven that a conspiracy existed, the trial court nonetheless had the authority to determine the extent of defendant's interest in various properties for the purpose of adjudicating a fair and equitable division of marital property.

(citation omitted)

Similarly, the trial court's determination to divide the income from Husband's sale of a business interest was influenced by the Husband's credibility.  Husband claimed that the $28,000 he had received had been spent on marital debts.  The court held that the Wife had met her bruden of proving that there was a sale and amounts were owed Husband as a result of the sale.  Husband had the burden to prove that the money had been received and spent on marital debts.  As he failed in that proof, the trial court treated the income as a marital asset.

To read more about the case, see the blog post and comments by Jeanne Hannah at her Michigan Family Law Blog (thanks Jeanne!)

Birry v. Birry, (August 24, 2006)
Opinion on the web (last visited August 25, 2006 bgf)

August 25, 2006 in Property Division | Permalink | Comments (0) | TrackBack (0)

Sunday, July 30, 2006

Case Law Development: Splitting Pensions Means Splitting Risk and Reward

The Indiana Court of Appeals provides a concise and well-written opinion on valuation of pensions that I especially like because of the lesson one can impart to students about the importance of learning from precedent when drafting settlement agreements.

Indiana courts have previously held that "absent express language stating otherwise, a settlement agreement dividing a pension plan implicitly contemplates that both parties will share all of the rewards and risks associated with an investment plan."  In this case, the divorcing couple entered into an agreement that stated:

wife is awarded one-half of the value in the husband's 401(k) and one-half of the value in the husband's pension plan as of this date and that the Court should enter a Qualified Domestic Relations Order (prepared by wife's attorney) to convey wife's interest in husband's pension and 401(k) plan. This Court retains jurisdiction to amend the Qualified Domestic Relations Order as may become necessary.

As of the date of this agreement, one-half of husband's pension would have been $80,700.64.  But the actual division of the pension was considerably delayed, so that at the date of the division of the pension, one-half its value would be $90,711.13.  Husband argued that the settlement agreement dictated the prior amount; Wife argued that the language was ambiguous regarding subsequent increases or decreases in value so that the latter sum was the proper allocation in light of prior precedent.

The court agreed with Wife and concluded that "the best interpretation of the provision in question, as gleaned from the words employed in that provision and elsewhere in the Property Settlement, and consistent with [prior case law], is that [Wife] was entitled to an amount equal to one-half of the amount in [Husband's] pension fund as of March 7, 2003, plus any appreciation in value of that amount as of the date the QDRO became effective, or November 24, 2003.

Shorter v. Shorter, 2006 Ind. App. LEXIS 1462  (July 28, 2006)
Opinion on the web (last visited July 29, 2006 bgf)

July 30, 2006 in Property Division | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 11, 2006

Marital Split Linked to House Explosion

"The graceful town house on East 62nd Street was more than a home to Nicholas Bartha. It was the culmination of his life’s work, proof that he had realized the classic immigrant’s dream. Dr. Bartha, burned and barely conscious, was pulled from the ruins yesterday morning after the house was nearly leveled by a gas explosion, raining bricks on one of the city’s wealthiest streets and sending up thick columns of black smoke. Even before the fires were extinguished, police began focusing on Dr. Bartha as the most likely person to have caused the blast. Just as his historic town house, a landmark used more than half a century ago by American spies, was no ordinary building, Dr. Bartha, 66, was embroiled in a marital split that by all accounts was no ordinary divorce. But he would have done anything to keep that house, including stay married, his lawyer said." By Cara Buckley, NY Times Link to Article (last visited 7-11-06 NVS)

"In a bizarre twist to a hotly disputed divorce in New York State, a doctor blew up his building in Manhattan -- a building that had been appraised at over $5 million. Sounds like "War of the Roses" ! The appellate decision would force him to sell the real estate. His explosion -- which he survived -- was apparently his way of saying, "If I can't have it, then neither can you."" By Jeanne Hannah, Link to Blog with Court Decision  (last visited 7-11-06)

July 11, 2006 in Property Division | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 20, 2006

Case Law Development: Sale of Marital Home Under Market Value to Relatives Constitutes Contempt

The Ohio Court of Appeals upholds a trial court's finding of contempt against Wife, who under the terms of a separation agreement was required to pay Husband $ 14,800 from the proceeds of the sale of the marital home. Wife sold the home, appraised at $143,000, to her sister for $105,000 (which paid off the existing mortgage with no excess funds left to pay husband). The Ohio Court of Appeals found this sufficient evidence to uphold the trial court's finding that the sale was a fraudulent attempt to avoid paying the husband the $ 14,800, thus constituting contempt.

McCleese v. Clemmons, 2006 Ohio 3011; 2006 Ohio App. LEXIS 2882 (June 15, 2006) bgf

June 20, 2006 in Property Division | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 9, 2006

Case Law Development: Effect of Bankruptcy Discharge on State Court Judgements to Enforce Non-Discharged Debts

The United States Court of Appeals for the Fifth Circuit was called upon to revisit what it characterized as the “ceaseless litigation” involved following a couple’s divorce in 1993. The case addresses the issue of discharge of debt in bankruptcy but also provides yet another example of how difficult and contentious efforts to enforce obligations under divorce judgments can be.

After their 1993 divorce action, Husband filed bankruptcy and had discharged certain property settlement obligations but was unsuccessful in discharging his alimony debt. Wife then brought several state court contempt actions to enforce the obligations under the divorce proceeding.  In one of these actions, she obtained a state court judgment for contempt ordering that Husband pay the discharged property settlement (the court being unaware of the bankruptcy discharge at that point), the alimony arrearages of over $96,000, damages for failure to pay alimony (primarily Wife’s lost equity in property that was foreclosed when she was unable to pay her mortgage), and attorneys fees in enforcing the obligations.

Husband then brought an action in bankruptcy court to reopen the bankruptcy and requested the court to void the state court judgments. The bankruptcy court ruled that Husband's prior bankruptcy discharge caused all of Wife's claims, except for the claim for non-discharged alimony, to be barred by res judicata. The decision was affirmed by the district court.

The court of appeals, rejected the bankruptcy court’s use of res judicata to resolve the dispute and focused instead solely on the questions of focus instead on the requirements of section 524(a)(1) of the Bankruptcy Act regarding whether the state court judgments were for debts that had been discharged by the bankruptcy action. Thus, the court pointed out that the state court’s original judgment for non-payment of the property settlement was clearly an attempt to enforce a discharged debt and was void.

As to the judgment for attorney’s fees, the court of appeals noted that reasonable attorneys' fees incurred in collecting support obligations should be treated as support obligations while attorney’s fees related to discharged debts should be considered discharged debt. Wife’s award of attorneys’ fees related to efforts to enforce both discharged and non-discharged debt. The district court had held that, because of this, the entire judgment of attorneys' fees was void under the equitable doctrine of unclean hands. The court of appeals disapproved this use of the unclean hands doctrine, noting that this equitable doctrine may not be used by a federal court to void a state court judgment. Rather, the court held that the state court judgment for fees was void to the extent that those attorneys' fees were incurred in enforcing discharged debt and remanded for a determination of what portion of the attorneys’ fees related to that debt.

As to the damages for foreclosure of Wife’s property, the court noted that because the foreclosure occurred before Husband had filed for bankruptcy, they were “claims” in the bankruptcy and were discharged along with Husband’s other debts. As to losses of other property, the court remanded for a factual determination of how much of that award was for pre-petition and post-petition claims.

In re Egleston, 2006 U.S. App. LEXIS 11296 (May 5, 2006)
Opinion on the web (last visited May 8, 2006 bgf)

May 9, 2006 in Bankruptcy, Maintenance (alimony), Property Division | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 2, 2006

Case Law Development: New Hampshire Supreme Court Addresses Rehabilitative Maintenance Preference, Extended Payments of Property Settlements and Division of Moral Obligations that are not Legal Debts

The New Hampshire Supreme Court reviewed a divorce action with a spectrum of economic issues worth noting.  The couple in the case had been married 13 years and had four children.  Husband owns a dental practice with his father.  Wife earned a law degree early in the marriage but, by agreement between the couple, she remained at home as homemaker and primary caretaker of the children. 

One issue related to the choice of rehabilitative rather than permanent maintenance. The trial court awarded wife $3000 a month alimony for three years, based on the amount of time required for her to prepare herself (in terms of mental health and education and job placement) to return to the job market.  Wife argued that she should have been awarded permanent alimony, given the couple's agreement that she stay home with the children, the fact that the children would still be school aged in three years, and her current depression and anxiety.  The Supreme Court affirmed the alimony order, noting that rehabilitative alimony is the preferred approach and should only be rejected where "a supported spouse suffers from ill health and is not capable of establishing an individual source of income, or where the supported spouse in a long-term marriage lacks the requi-site job skills to independently ap-proximate the standard of living established during the marriage."  Neither situation existed in these facts.  Moreover, the court noted, Wife could petition for extension of the alimony if at the end of three years she was still not in a position to meet her reasonable needs.

A second issue concerned the division of property.  The court divided the marital estate of $ 2.9 million and awarded 55 percent to Wife.  The trial court then ordered that Husband be permitted to pay her the outstanding share of the property settlement over a period of 23 years.  The Supreme Court found such an extended payment schedule to be an abuse of discretion.  The court did observe that case law from other jurisdictions supported extended payment schedules where there were substantial nonliquid marital assets and a lump-sum cash payment would create a serious financial hardship for the obligor. The court further commented that "We acknowledge the frustration and inconvenience that may occur when one former spouse must sell part of his or her assets to make the payments required by a divorce judgment. It is an inevitable result of virtually every property division, however, that a former spouse who is required to turn over assets to the other at the termination of the marriage has fewer assets after the division than before.... Accordingly, we hold that the trial court unsustainably exercised its discretion by allowing the respondent to pay a substantial portion of the petitioner's share of the marital estate over a twenty-three year period."

Finally the court held that the trial court had abused its discretion in ordering reimbursement to Husband's parents of contributions they made to certain marital property.  The court cited the general rule that courts may not divide mere "moral" obligations but only legal debts.  The court concluded that if Husband reimbursed his parents for their contributions, "he would be doing so gratuitously and not as a result of an enforceable legal obligation. Accordingly, the trial court unsustainably exercised its discretion in ordering such a reimbursement and reducing the marital estate by $ 275,000."

Harvey v. Harvey, 2006 N.H. LEXIS 49 (April 26, 2006)
Opinion on  the web (last visited May 1, 2006 bgf)

May 2, 2006 in Maintenance (alimony), Property Division | Permalink | Comments (0) | TrackBack (0)