Month: August 2017

Would an adult child’s obligation to support a parent be dischargeable in a Virginia bankruptcy?

Parents and spouses are not the only parties who may have a legal duty to support another person.  Adult children may have not only a moral obligation, but also a legal obligation to support their parents.  Many states, including Virginia, have enacted filial responsibility statutes that make adult children responsible for supporting their parents in certain instances.  While approximately thirty states have such filial responsibility statutes, very few of those states actually enforce the law so there is very little case law on the issue.  Neglect of Older Persons: An Introduction to Legal Issues Related to Caregiver Duty and Liability, by Lori Stiegel, Ellen Klem and Jenette Turner (American Bar Association on Law and Aging, 2007). 

 Virginia Code Section 20-88 provides that “[i]t shall be the joint and several duty of all persons eighteen years of age or over, of sufficient earning capacity or income, after reasonably providing for his or her own immediate family, to assist in providing for the support and maintenance of his or her mother or father, he or she being then and there in necessitous circumstances…”  The Virginia Juvenile and Domestic Relations District Court has exclusive original jurisdiction of all cases arising under Virginia Code Section 20-88, presumably because the judges of that court have jurisdiction over family law matters (other than divorce) and extensive experience in understanding family finances, income, expenses and support.  In Virginia, “necessitous” is defined as “living in or characterized by poverty; needy,” and as “narrow, destitute, pinching, pinched.”  Mitchell-Powers Hdwe. Co. v. Eaton, 171 Va. 255, 198 S.E. 496 (1938).

The adult child is only responsible for his or her parent after reasonably providing for his own family.  Bagwell v. Doyle, 187 Va. 844, 48 S.E.2d 229 (1948).   Although the triggering condition required is “necessitous circumstances”, the level of support required of the adult children is actually closer to that of permanent spousal support (which recognizes a right to continue the standard of living established during the marriage) consisting of “…such support and maintenance as comport with the health, comfort and welfare of normal individuals according to their standards of living considering his or her own means, earning capacity and station in life…”  Mitchell-Powers at 262 (1938).  This compares with a spouse’s contract or tort liability to a third party for a spouse’s necessaries codified in Virginia Code Section 55-37 and for emergency medical treatment of a spouse codified in Virginia Code Section 8.01-220.2, in addition to possible criminal prosecution for desertion or nonsupport of a spouse or child under Virginia Code Section 20-61.

There are two exclusions to the statutory duty to support one’s parent: (1) the desertion, neglect, abuse or willful failure to support the child by the parent; and (2) the receipt by the parent of public assistance or services under a federal or state program, with the exception that the Commonwealth of Virginia or one of its departments, including the Department of Medical Assistance Services or the Behavioral Health and Developmental Services, might seek reimbursement for a portion of the costs of such assistance or services from the adult children in the place of the necessitous parent.  Va. Code §20-88 .  The reason for the dearth of cases involving filial responsibilities statutes is probably this second exclusion.  Many elderly people in Virginia who might otherwise be in necessitous circumstances are taken care of in nursing homes under Medicaid coverage.   In Virginia, the Department of Medical Assistance Services administers the Medicaid program through the localities, which helps pay for nursing home care not otherwise eligible for Medicare coverage, for persons 65 years and older, who have limited income and resources.

Would such a filial support obligation to the parent or the Commonwealth of Virginia be dischargeable in bankruptcy by the adult child?  Bankruptcy Code Section 523(a)(5) creates an exception to discharge for a domestic support obligation.  “Domestic Support Obligation” is defined in Bankruptcy Code Section 101(14A) as follows:

“(14A) The term “domestic support obligation” means a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is—

(A) owed to or recoverable by—

(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or

(ii) a governmental unit;

(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;

(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of—

(i) a separation agreement, divorce decree, or property settlement agreement;

(ii) an order of a court of record; or

(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and

(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative for the purpose of collecting the debt.”

In order to be considered a Domestic Support Obligation not dischargeable in bankruptcy, the support obligation must meet the four requirements found in (A), (B), (C), and (D) above.  A filial support obligation may meet the first and fourth elements of a Domestic Support Obligation in that it is “(A) owed to or recoverable by…(ii) a governmental unit, and is “(D) not assigned to a nongovernmental entity…” , but it would fail to meet the second element in that it is not support to a “spouse, former spouse, or child of the debtor or such child’s parent…” and it may not meet the third element because if the obligation was established in the Juvenile and Domestic Relations District Court, because that court is not “(C)(ii)…a court of record;”, although the argument could be made that the third element is satisfied because the Debtor’s filial support obligation is  “(C)…subject to establishment…by reason of applicable provisions of – …(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit…”

Although it appears that a filial support obligation would be a dischargeable debt in bankruptcy, you should first consult with your Virginia bankruptcy and family law lawyer, or Richmond bankruptcy and family law lawyer James H. Wilson, Jr., to discuss whether your particular family law obligation may be dischargeable in bankruptcy.

Can a chapter 7 bankruptcy trustee sell the debtor’s right to a portion of her former spouse’s 401(k) plan?

Not in the case of In re Carlton, Case No: 300-40223, an unpublished case from U.S. Bankruptcy Court for the District of Oregon, where the judge held that the Debtor has no claim against her former husband, but instead has a right in his 401(k) plan and a right to obtain a Qualified Domestic Relations Order (“QDRO”).

In Carlton, the Debtor wife was divorced from her husband before filing chapter 7 bankruptcy.  In the divorce decree, the state court judge awarded the Debtor wife fifty percent (50%) of her husband’s 401 (k) plan and an equalizing judgment for a sum to compensate her for her share of the husband’s IRAs that he would retain.  The state divorce court retained jurisdiction to enter a QDROs transferring wife’s share of her husband’s retirement plan.  The wife did not obtain a QDRO before filing for chapter 7 bankruptcy to discharge her debts.  In her bankruptcy filing, the wife listed her interest in the 401(k) plan as a contingent, unliquidated claim against her ex-husband on her schedule B of personal property, but did not list it as exempt on her schedule C of exempt property. The chapter 7 trustee appointed in the Debtor’s bankruptcy case negotiated with the Debtor’s ex-husband to sell her interest in his 401(k) plan back to him for the sum of $5,000.  The Debtor wife objected to the trustee’s notice of intent to sell filed in the case to obtain the bankruptcy court judge’s approval of the sale.

The chapter 7 trustee in Carlton argued that the Debtor wife had no interest in her husband’s retirement plan until she obtained a QDRO, but instead had a claim against her ex-husband.  The Debtor wife argued that the divorce decree created an interest in her former husband’s 401(k) plan, which interest was not property of the estate due to the anti-alienation provisions of the Employee Retirement Income Security Act (“ERISA”), 29 U.S. Code Section 1056(d)(1).   ERISA is a federal law that regulates the creation of pension and retirement plans for employees and their beneficiaries, including spouses and children.  In general, interests in an ERISA plan may not be alienated, sold or transferred. This restriction on the alienation of ERISA benefits ensures that these plans are created exclusively to provide retirement benefits to participating employees and their beneficiaries.  Boggs v. Boggs, 520 U.S. 833, 845 (1997) .  One exception to this general rule against alienation was created for former spouses, who can obtain an interest in their spouse’s retirement plan from a divorce by a special order known as a Qualified Domestic Relations Order or QDRO,  29 U.S. Code Section 1056(d)(3)  .  (Spouses may also use a regular Domestic Relations Order in a divorce case to preserve the tax treatment of a transfer of a non-ERISA retirement plan, such as an Individual Retirement Plan or IRA.)

The bankruptcy court judge recognized that the state divorce decree awarding an interest in the husband’s 401(k) plan created the wife’s interest in the plan and limited the husband’s interest in the whole plan, citing Trustees of the Directors Guild of America-Producer Pension Benefits

Plans v. Tise, 234 F.3d 415 (9th Cir. 2000).   Instead of having a claim against her husband, the Debtor had a claim against the 401(k) plan.  The divorce decree gave the wife a right to obtain a QDRO in order to enforce her claim.  The bankruptcy judge ruled that the right was personal to the Debtor wife and could not be exercised by a chapter 7 trustee, who was not within the definition of alternate payee under ERISA, limited to a spouse, former spouse, child or other dependent of the employee participant.  29 U.S.C. 1056(d)(3)(K).  Since the chapter 7 trustee could not obtain a QDRO, he could not sell the interest in the retirement plan.

If you have any questions about a chapter 7 bankruptcy trustee’s rights in your or your former spouse’s retirement plan, call your Virginia bankruptcy and divorce law lawyer or Richmond Bankruptcy and Divorce Lawyer James H. Wilson, Jr.