Can a Virginia divorce court judge enforce discovery sanctions despite a bankruptcy filing through equitable distribution?
In the case of Spreadbury v. Spreadbury tried in the Circuit Court of Fauquier County, Case No: CH04-125 (February 20, 2009) and affirmed on appeal to the Virginia Court of Appeals, a judge enforced his discovery sanctions order by providing that wife would receive no less than a certain amount for her unsecured creditors. The case started when wife filed for a divorce in the Virginia Circuit Court. Husband sent discovery requests, Interrogatories and Requests for Production of Documents, to wife which wife failed to answer. Husband filed a motion to compel wife’s responses to discovery. The husband and wife then settled the case before trial. On the original trial date, the wife disavowed the settlement and the parties continued discovery with a new trial date. The husband filed a second motion to compel responses to discovery and the case was rescheduled for a trial. The court entered an order compelling wife to answer husband’s interrogatories. The husband filed a motion for sanctions. When wife still refused to answer discovery, the divorce court judge entered an order limiting wife’s opposition to husband’s claims and defenses and limiting the evidence that wife could introduce at trial.
After the discovery sanctions order was entered, the wife filed a chapter 11 bankruptcy case. The bankruptcy court judge modified the automatic stay to allow the divorce case to proceed to trial with the condition that the wife would have the rights of a debtor in possession with all the claims and defenses of a chapter 11 trustee, without the limits imposed by the Virginia divorce court’s discovery sanctions order, including the trustee’s avoiding powers as a hypothetical judicial lien creditor, creditor with an execution, or bona fide purchaser under Section 544(a) of the Bankruptcy Code.
The divorce case trial was rescheduled again for 8 months later. Although the husband and wife each introduced evidence of fault grounds at trial, the divorce court judge granted the parties a no fault divorce. The judge recognized that the wife’s bankruptcy filing was an attempt to collaterally attack the previous discovery sanctions order. In order to protect the rights of the wife’s unsecured creditors, the divorce court judge accepted the husband’s proposed stipulation that the total sum owed to the wife’s unsecured creditors was approximately $691,000 and that the wife would receive at least that amount in the divorce before any evidence was presented to the court. The court approved the husband’s stipulation because it obviated the Bankruptcy Court’s concern for wife’s unsecured creditors and upheld the integrity of the divorce court judge’s order and the discovery process necessary for equitable distribution. The court upheld its previous sanctions order with the provision for at least $691,000 to wife’s creditors. Since the wife was barred from introducing evidence of matters in discovery, the court accepted, in general, husband’s evidence of the valuation of marital property and debts.
The wife disputed the trial court’s jurisdiction over, or right to adjudicate, the property held by the couple in a revocable, intervivos trust, including the marital residence, the parties’ most valuable asset. The divorce court judge held that the property in trust was still marital property as the parties had reserved the right to remove the property from the trust. The judge divided the equity in the marital residence 65% to husband and 35% to wife, with a 50-50 split of the other assets. The divorce court judge provided that the equitable distribution order, the division of property and debts, should be consistent with, and subject to, the relief from stay order in the wife’s bankruptcy case and to the review of the bankruptcy court. The divorce court judge retained jurisdiction of the case to allow the parties to submit the order to the bankruptcy court for approval, and to petition the divorce court to modify its opinion consistent with the bankruptcy court’s order. As the wife had been barred from presenting evidence on her need for spousal support, the divorce court judge did not award any spousal support to wife. In addition, the judge awarded husband $75,000 in attorney’s fees for the abusive procedural actions of the wife.
You should consult with your Virginia bankruptcy or divorce lawyer concerning the effects of a bankruptcy filing on orders entered in a divorce case.