New Indiana Court of Appeals Decision - Paying off a Marital Debt

Husband was to pay $9,000.00 in installments to wife, husband does pay as ordered but instead starts paying out of a pension payment, and then stopped those payments after paying $7,502.66. (Marriage of Hurt, pages 2 -4). Apparently, they lived together after the divorce.

At a contempt hearing, the parties disputed whether the money sent by husband to wife was meant to pay off the judgment.

Problems for the husband:

1. The parties seemingly forgot that there was a court order and decided to do their own thing.
2. Because of 1, husband never got an explicit agreement that his payments wee against the judgment; and
   
3. Husband never got a satisfaction of judgment which would have put an end to everything.

The Indiana Court of Appeals put it this way:

Here, the record reveals that during 2007 when the funds were being directed into
Wife’s accounts, Husband and Wife had reunited, and they were paying bills jointly.
During this time period, Husband was not receiving any additional disbursements from his pension. Wife used much of the funds paid to her on joint expenses, including paying for auto insurance on Husband’s truck and for a life insurance policy insuring Husband’s life. Wife also spent the funds on food, hardware, utilities, and trips to the drug store which benefitted both Husband and Wife. Also, Wife testified at the hearing that the reason for the pension funds being directed into accounts solely in her name was so the funds would not “show up in [Husband’s] account while he was doing the bankruptcy.” Transcript at 13. Also, in January 2008, soon after Husband and Wife again separated, Husband redirected the monthly payments from his pension to pay to an account in Husband’s name, and to stop all payments to Wife’s accounts. As Husband attested to at the hearing, however, he never filed, nor requested that Wife file, a satisfaction of the judgment.

(Opinion at 8 -9).

Recently, I have seen a few cases where people decided that the court's Orders did not apply to them for some reason known only to them. Think more along the lines obliviousness than something more malevolent. This case seems to fit in this pattern.

Remember that whether your case is a divorce or paternity case, your life is now joined with the court and its Orders. Do not follow those Orders at your peril.

One last thing, if the issue in your head was the value of a lawyer then think about this: husband has still to pay $9,000.00 to wife after he thought she was paid off plus paying for trial and appellate counsel. How much would have calling his lawyer before he started making payments have saved him? My guess is $15,000.00. And probably whole lot less frustration.

Thinking of Filing Bankruptcy After a Divorce? Read This!

Thanks to a tweet from Jay Fleischman on Sunday I ran across You Mean My X-Wife Will Find Out About My Bankruptcy?. I decided it might benefit my readers. Go read the whole post, but the points that jumped out to me are:

If there’s an alimony or child support obligation, the former spouse will get notice of the bankruptcy—even if the support obligations are current. And if there are debts which the debtor has been ordered to pay for which the former spouse is jointly liable, the former spouse must also get notice as a co-debtor.

I always tell my clients to plan on the former spouse getting a copy of their bankruptcy schedules and reading every words on those schedules. This isn’t because I think my clients are liars; it’s because even an innocent, inadvertent omission will look very bad if the former spouse reports the omission to the trustee.

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Even more so than with “normal” cases, I would suggest that those of you who are divorced should make absolutely certain that all your income, expenses, assets, and liabilities—along with all other information—are completely accurate. Go slow, and be thorough. Don’t leave anything out.

See, there are family law attorneys who will go into the bankruptcy court to keep non-dischargeable debts from being discharged. (Give my What happens when your former spouse files bankruptcy on a marital debt? a read on that subject). Best practice is not to play games with the bankruptcy court.

What happens when your former spouse files bankruptcy on a marital debt?

First that not all debts can be gotten rid of in bankruptcy. For family law cases, these parts of 11 U.S.C. 523(a) (that is the formal citation to the Bankruptcy Code) set out the non-dischargeable debt:

(5) for a domestic support obligation;

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(15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit;

Yes, (a)(15) is a bit more complicated than (a)(5). However, (a)(5) has a bit of strangeness for those thinking of support in terms of Indiana law. In the bankruptcy court, support includes more than child support but also maintenance and attorney fees.

This passage from In Re Bertram, a case from The Southern District of Indiana heard by Judge Metz in 2001, gives a good overview of how one does a case under (a)(15):

7. Debts that arise from a divorce or separation agreement are nondischargeable if they are in the nature of support, alimony or maintenance (~523(a)(5)). If they are in the nature of a property settlement, or are debts that result from the division of marital assets, they are dischargeable under Section 523(a)(5), but are nonetheless nondischargeable under Section 523(a)(15) unless it can be proven that one of two conditions under subparts (A) and (B) of that section exists. The Crosswhite court recognized that §523(a)(15), like §523(a)(8), is structured in the "exception within an exception" format, and therefore, the burden of proving dischargeability falls on the debtor. Crosswhite, 148 F.3d at 886, fn 9.

8. Therefore, the only burden of proof to be carried by a creditor seeking a
determination of nondischargeability under Section 523(a)(15) is the initial burden of proving that the debt owed to the former spouse is not in the nature of alimony, support or maintenance (because, if it were, it would be nondischargeable under Section 523(a)(5)) and that it was incurred by the debtor in the course of the divorce or in connection with the divorce decree or similar agreement. Once the creditor carries its burden as described above, the burden shifts to the debtor to establish dischargeability of the debt by proving one of the two prongs under Section 523(a)(1 5), namely: (1) the debtor does not have the ability to pay the debt; or, if the debtor is shown to have the ability to pay the debt, then (2) the benefit of the discharge to the debtor is greater than the detriment of the discharge to the non-debtor spouse. Crosswhite, 148 F.3d at 884-885. See also, Strayer v. Strayer, NO. 95-71 72-RLB-7, Adv. Pro. 95-535 at p7-8 (Bankr. S.D. Ind., April 10, 1996); Smith v. Brock, No. 96-2647-RLB-7, Adv. Pro. 96-30 1 at p.5-6 (Bankr. S.D. md., Mar. 13, 1997).

The burden then falls onto the debtor to show the hardship or a greater detriment tan to the creditor. In this case, the debtor won:

18. The Court concludes, that, In light of the evidence and the testimony that has been presented in this case, it is clear that even if the Defendant had not met his burden under §523(a)(15)(A), and had the ability to pay the Award, the benefit to him in discharging the Award would outweigh the detriment to the Plaintiff in not being paid the ward. Accordingly, the Court concludes that the Award is dischargeable under §523(a)(1 5).

For a similar case from Judge Dees of United States Bankruptcy Court for the Northern District of Indiana, see In Re Burt (2007).

Second, the Bankruptcy Procedure must be followed closely. If you get a Notice of Bankruptcy, you need to call an attorney immediately. (Well, as soon as possible during business hours). If an objection is not made by the time listed in the Notice of Bankruptcy, there is no relief from the Bankruptcy Court.

For an exception to this, see In Re Burt.

I am licensed to practice in the Northern and Southern Districts of Indiana. However, I do restrict my appearances in the Southern District to Indianapolis and the Northern District to Fort Wayne.

Divorced and Still on Marital Debt?

First, what does the Decree of Dissolution say about this debt?

If it says that one spouse was to hold harmless on the debt and then this spouse does cause harm - such as the other spouse gets sued for the debt - then spouse who was to hold the other harmless is looking at legal action against them. The legal action could be anything from contempt to a civil suit, but the emphasis will be on getting monetary reimbursement.

If the Decree says that other party is to do something positive (and this can be In conjunction with holding the other party harmless) and does not, then the other party is looking at a contempt action to do what was not done. A few months ago I reviewed a case where all the other party was to do was to list a home for sale, and they did that but the house did not sell. No contempt was my opinion. The Decree was just not specific enough about what would happen if there was no sale.

For more information on marital debts, please follow the link below to my archive of articles on this subject.

If you need a lawyer to deal with marital debt, then give me a call at 765-641-7906.

With more people doing their own divorces, I expect this will be an increasing problem - and those same people will find that these errors will mean more attorney fees paid out than if they had hired counsel for their divorce.

Remember that unless the debt is not refinanced, you remain obligated on the debt. That is simple contract law. You do not divorce your creditors, only your spouses.

However, credit cards do have a bit of an exception to this rule. A person can be an accommodation party - right to use the card but no obligation to pay. With credit cards, it needs to be known whether a party is truly obligated or merely an accommodation party.

And what if the other party files bankruptcy? If they were required to hold you harmless, then get yourself to a lawyer who knows bankruptcy law. Not all marital debts are dischargeable. I will be writing more on this in the next few months.

What is not clear is what happens if the harm is to one's credit report. If the debt was paid and the card no longer in use, then you need to follow the procedure under the Fair Credit Reporting Act to deal with credit report problems. If the problem is late payments, then it may be possible to use the divorce court's contempt powers to deal with the problem. What will be required is some showing of actual harm (such as a denial of credit).

Indiana's Mortgage Foreclosure Task Force

I am highlighting The Mortgage Foreclosure Task Force web page today. Mostly for the lawyers (because it gives a schedule of CLE for mortgage cases) but there is a map showing the highest foreclosures (with Madison County being one of the highest) and a link to a FTC video (homeowners should go there)

Got Real Estate? Thinking of Getting Divorced?

Then get yourself to Updates in Michigan Family Law and read Divorce and distribution of real estate interests. Ms. Hannah has a post that just cannot be summarized but as being as detailed as possible about the problems facing clients with real estate and the lawyers representing them.

Yes, we have the same problems around here and some since the departure of GM from Madison and Delaware Counties. Problems here have been so bad for such a long time that a trip to bankruptcy court must now be considered with most divorces.

Divorce and what to do with an upside down mortgage?

I ran across this issue on a lawyer listserv and one writer made three suggestions that I think are good ones:

...We are taking three approaches: 1) working with financial planner to help get all finances in order and maximize income, 2) refinancing (hopefully, they aren't as upside down as your situation but I am working with a good mortgage broker) to save money
monthly, and 3) working with opposing party to make sure all sides are happy.

I will make a fourth suggestion, that both parties consult a bankruptcy attorney. Unpleasant and drastic, but there is information to be gotten from a consultation that may help inform the other three approaches.

Divorce Take Care of Your Joint Debt

Those of you thinking about doing your own divorce read Complications with joint credit card debt after divorce:

"The best way to avoid future debt issues is to make sure there is no joint debt remaining at the end of your marriage. So while you are still married you should establish credit in your individual name. You also need to determine any and all outstanding individual and marital debt. One way to do this is by requesting a credit report from each of the three major credit-reporting agencies (Transunion, Equifax and Experian). Detailed in these reports will be a listing of your various accounts, the date each was opened, the credit limit or loan amount, and the account balance and payment history.You can request this information for free online at www.annualcreditreport.com or by phone at 1-877-322-8228 from each of these agencies once every 12 months.

From earlier this year reports of divorces postponed centered around the debt issue. Dividing debts occurs more often in my cases than custody disputes, maybe even more often issues about dividing property.

If you are doing this yourself, then make sure you get the debts divided before the divorce is final.

Divorce and Bankruptcy

I had in mind writing on divorce and bankruptcy until I read Basics of Bankruptcy Discharge and Domestic Support Obligations from the Rochester Family Lawyer blog. I decided I could do no better.

It is long and it probably will not do to skim it, but that is bankruptcy law. Read it if you are thinking of filing bankruptcy or if your spouse (or former spouse) has filed bankruptcy.

Yes, I do represent creditor spouses in the federal bankruptcy court in Indianapolis. If you think you might have a case, give me a call at 765-641-7906.

Indiana Decision: Divorce and Bankruptcy

From The Indiana Lawyer comes Judges disagree on if remand is necessary:

"The Indiana Court of Appeals reversed and remanded a trial court's grant of an ex-wife's petition for additional relief for funds, finding the trial court didn't hear evidence on certain 'critical' factors. The judges on appeal didn't agree as to whether the case should be remanded."

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In Harold E. Bean Jr. v. Carol A. Bean, No. 49A05-0807-CV-390, the appellate court considered whether the trial court properly adjudicated certain of Harold Bean's dissolution debts to be nondischargeable for the purpose of the federal bankruptcy proceedings; whether the trial court erred in ordering him to pay half of the Beans' children's college expenses; and whether it erred in ordering Harold to pay Carol Bean's attorney fees.

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When considering whether Harold's dissolution debts, such as the second mortgage and tax liability were nondischargeable, the Indiana Court of Appeals noted important evidence on certain factors was missing. The record didn't contain evidence of their incomes and earning potentials when they entered the settlement agreement, and neither party presented evidence about the actual need for support or the adequacy of support without the award, wrote Judge Elaine Brown.

Without a record of the parties' financial situations when they entered into the settlement agreement, the Court of Appeals was unable to tell whether the second mortgage assigned to Harold was intended to be in nature of maintenance or support or part of a property division, which would determine whether the debts were nondischargeable. The appellate court reversed the award reimbursing Carol for her payment of the second mortgage and payment of the tax liability.

This raises a couple of points: 1) a reminder that evidence is what matters when one gets into court; 2) that Indiana trial courts share jurisdiction with the federal Bankruptcy Court in determining dischargeability of debt; and 3) not all debts are dischargeable in bankruptcy and the creditor ex-spouse needs to be consult their attorney as soon as they get a Notice of Bankruptcy.

Dealing with Finances Post-Divorce

Read Managing Your Finances after Divorce from Divorce and Family Law in Tarrant County, Texas.

Being of a very pessimistic mind lately, I feel the need to add that both parties need to be aware that they may find themselves in bankruptcy court.

Regarding bankruptcy, take a look at Divorce and Bankruptcy: When families are facing both, which should come first? from Missouri Divorce & Family Law Blog. There is nothing below where Indiana cannot be substituted for Missouri.

If you can avoid bankruptcy, that is the best option. However, if required, it may be better to file bankruptcy before the divorce, considering:

• Missouri and Federal bankruptcy law will allow married couples to file jointly, eliminating the need for two separate bankruptcy filings and two separate attorney fees after the divorce.
• The parties can exempt (protect) double the amount of property if they file jointly
• Most married couples have joint debt. Even though the divorce court can divide the debt, it cannot alter the contract with the creditor, meaning that if the spouse ordered to pay doesn’t, creditors are going to come after whoever’s name is on the account. Then the only remedy is a contempt of court proceeding, which is time consuming (up to a year) and costly. All the while, the other spouse has to make the payment or suffer the credit consequences. Joint bankruptcy can eliminate the debt all together and avoid the problem of who pays who.
• Joint filing before the divorce will eliminate the need to litigate issue of debt in the divorce, which reduces the time and expense of the divorce, and avoids the result described above. Remember, a divorce decree is just a piece of paper, enforcing it is a whole different matter.
• Although the bankruptcy law will not allow a divorcee to discharge debts ordered in the divorce, the problem of collection and contempt may cause greater credit problems than the bankruptcy itself.
• Joint filing before divorce will allow for a higher income threshold for Chapter 7 qualification (means test avoidance)
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• It most likely (almost guaranteed) that you can rebuild and re-establish your credit much faster than you could ever have paid off the debt, while at the same time getting the past problems behind you and truly getting a “fresh start”.
• Bankruptcy is not the end of the world. It can be an effective solution to a real problem that real people have during these times.

Unpaid Marital Debts - After the Divorce

What to do when you are getting calls from a collection agency demanding payment of a debt the divorce court ordered your former spouse to pay?

By now the only solution is citing the former spouse for contempt. Hopefully, you know the former spouse's location and that they are employed.

Always consider the other spouse's ability to pay the debts that you want them to pay. Just because the divorce decree says the other spouse is to pay the debt does not mean that they will or that the creditor will leave you alone.

Divorce and finances

San Francisco Family Law Blog has a longish post with the title How Will My Divorce Affect My Credit?. Until October of 2005 I practiced bankruptcy law and I got to say that many of bankruptcies came from divorces. I found only one point I disagree with.

Notify Creditors of Your Divorce — Once you have separated/canceled all of your joint accounts/debts, you are no longer legally bound to your former spouse's current debts. Call all of the creditors who have been bothering you and alert them to this fact. In a perfect world, they would apologize for the inconvenience and never call you again. However, it may take awhile before such calls cease entirely. In addition to notifying the proper collectors, you should right a letter to them as well. That will help them to expedite their file updates.

Let me explain why I have a problem with this paragraph. If the debt is a joint debt, the fact of a divorce does not change the obligation. The parties divorced each other and not their creditors. If the debt is not a joint debt and the one sending the letter is not obligated on the debt, then the letter is just a waste of a stamp for most debts. Indiana has its Doctrine of Necessities but that doctrine is complicated enough that most creditors will not waste their time with it.

With the exception of that one paragraph, I would say it is a good column to read and put into practice. I did notice one solution unmentioned was a prenuptial or post-nuptial agreement.

Reading around - prenuptial agreements

Smart Money has an online article I do. (However ...) that covers the legal and non-legal issues of a prenuptial agreement quite adequately.

Conceived and carried out correctly, prenups don't have to be antagonistic or punitive. Dealing with the financial nitty-gritty, happy prenup owners say, is a healthy way to get communication flowing — in all areas. Why not get the hot-button issues aired now rather than later? To Marcy Syms, it wasn't about communication. For her, a prenup was simply the prudent thing to do. Back in 1985 she was already the president and COO of her family's business, New Jersey-based clothing retailer Syms Corp. Syms believes that anyone in her position "absolutely must have a prenup, to keep the business in the family." When she brought up a prenup with her fiance, a Wall Street analyst, it was "very well received," she says. "I knew he'd think it was the intelligent thing to do."

The article also has a short questionnaire for determining if you should have a prenuptial agreement.

New Jersey Family Law Blog is another posting on post- nuptial agreements. If you didn't make a pre-nuptial agreement, it's not too late to consider a post-nuptial agreement:

Both parties would be required to provide full financial disclosure and each would need to have separate legal representation. A post-nuptial agreement might sound unromantic and is not something for everyone, but it is not unreasonable if you have children from another marriage and want to protect their inheritance or you have partners in a new business venture who are worried about business ownership in the event of a divorce. If you didn’t make a pre-nuptial agreement, it’s not too late to consider a post-nuptial agreement.

Armchair Millionaire has a slightly different slant on prenups. Call it the difference between lawyers and businesspeople. The article is Saying "I Do" with a Prenup in Hand.

When we asked members of the Armchair Millionaire community their thoughts about prenups, the comments we heard showed how much it depends on each couple:

Burned once. "I did not have one but would have been more than willing to sign one if my husband wanted. He had been in a bad divorce before I met him which consumed his assets, including an inheritance from his grandmother." --Jennifer

Just common sense. "We didn't have a prenup when we got married--we were young and had nothing to fight over, except a little debt. I think prenups make sense for people who go into their marriage with sizeable assets, or for second or third marriages. It might take away the romance, but it's common sense!" --Gina

Family Law Professor has a range of articles on prenuptial and post- nuptial agreements that ends last year. These articles are here. Nothing specifically Hoosier in these posts, so I will just note them for now. One post raised a question in my mind but the hour being late I will put off research till another day.

I am uncertain how to describe the publishing history of Marriage Later in Life Tricky for Estate Planning. That history is on the site.

Findlaw has a prenuptial FAQ page here. The lawyer in me pauses suggesting this site because the site tries to fit the law of fifty states into one FAQ. There are wrinkles, and you know you need to talk to an attorney. If the site provides makes you ask questions of that attorney, then it is a good site. So much for lawyerly reservations, exceptions and so forth.

Suze Orman has a 2005 piece titled The Case For The Prenup.

A blog that seems dead but still might provide some good nuggets of information is Love and Marriage, Family Affairs.

Indiana Court of Appeals issues new marital property case

Husband challenged the make up of the marital pot and division of the marital pot in Delbert Hill v. Sarah Hill (PDF format). The new case does a good job of explaining the marital pot theory used by Indiana courts and how that pot is to be divided, but also how to treat a spouse secreting assets from another spouse.

Husband argued that since his pension paid in monthly installments, this was not property. The Court of Appeals held on this issue:

We disagree. Indiana Code § 31-9-2-98(b) provides, in pertinent part:"Property", for purposes of IC 31-15 [regarding dissolution], IC 31-16, and IC 31-17, means all the assets of either party or both parties, including:
(1) a present right to withdraw pension or retirement benefits[.]

As Husband is currently receiving payments from his pension plan, he clearly has "a present right to withdraw pension or retirement benefits" under subsection (b)(1)

Husband also challenged inclusion of real estate bought before the marriage and property bought with son in Florida.

I thought it strange that Husband raised the issue of real estate bought before the marriage. That all marital property goes into the marital pot is black letter law. So why raise this issue the way that Husband did? To me, the better argument ought to have been this: the court ought to have included only the value accrued in the property from date of marriage. This value becomes an issue of evidence but the evidence would be in the record for arguing before the Court of Appeals. (However, the trial court seems to have given Husband the value of his pre-marital investment when dividing the property.)

The Florida properties clearly shows an evidence problem. One that the Court of Appeals pointed out with emphasis: "though Husband apparently intended to transfer the Florida real estate to his son from a previous marriage, the deeds evidencing the transfer were not recorded until April 26, 2004, eleven days after Wife filed for dissolution."

The Court of Appeals discusses the means of dividing the marital property. Considering how reviewing a property division comes down to comparing numbers, I am convinced that the only way to properly present a large asset case is with a spreadsheet. The spreadsheet gives counsel the means of examining the numbers in the division and controlling their presentation. In this case, Husband appealed on the issue of an equal division of the property even though he received a higher net distribution of that same property. I am not seeing the sense Husband's argument here but then neither did the Court of Appeals.

Finally, the trial court found that Husband hid money from Wife. The amount hidden came to about $40,000.00. Hiding that money influenced the trial court's division of the assets.

An interesting case setting out in clear terms what is marital property and the criteria for dividing the marital property. However, as with many cases, the story behind the case seems a good deal more interesting.

The liability of married people for their spouse's debts

I cannot generally fault the online Indiana Code that the State of Indiana has on its website. However, today I can because I really wanted to check the legislative history of a statute and I cannot. The online version only shows the date that Indiana revised Title 31 back in 1997. That it does not have the full legislative history shows a basic good sense. For the statute I am interested in, I really do not need to know the date that the statute first passed into Indiana law. I know it has been a very long time. It is just that I get asked quite frequently about a wife's or a husband's responsibility for a debt of the other and I would like to be able to say "Since 18- or 19-, Indiana law has been ....." Oh, well, I will take a look at the courthouse library. Following here is the law on the liabilities of married couples:

IC 31-11-7-1
Abolition of legal disabilities of married women to make contracts
31-11-7-1 Sec. 1. All legal disabilities of a married woman to make contracts are abolished.
As added by P.L.1-1997, SEC.3.

IC 31-11-7-2
Married women's property rights
31-11-7-2 Sec. 2. A married woman has the same rights concerning real and personal property that an unmarried woman has.
As added by P.L.1-1997, SEC.3.

IC 31-11-7-3
Tort liability of married women
31-11-7-3 Sec. 3. A married woman is liable for torts committed by the woman.
As added by P.L.1-1997, SEC.3.

IC 31-11-7-4
Husband's immunity for wife's contracts or torts
31-11-7-4 Sec. 4. A husband is not liable for the contracts or torts of his wife.
As added by P.L.1-1997, SEC.3.

Bottom line: if one incurred a debt only in their own name, then the other cannot be liable for the debt. However, if they both incur a debt in both their names, then both are liable.