Category: Uncategorized

Can a husband be ordered to pay part of his stay-at-home wife’s student loan debts in a Virginia divorce?

The Virginia Court of Appeals upheld a divorce court’s equitable distribution ruling that a husband be ordered to pay 25% of his wife student loan debt incurred during the marriage, even though she did not work until after the parties separated, in the unpublished opinion of Layne v. Layne, Record No. 0978-09-3, October 20, 2009, .    The court restated the general rule that debt incurred during the marriage is presumed to be marital debt.  In this case, the wife testified that she used the student loans for household expenses.  Even though husband would not benefit from wife’s education, the family benefited from the proceeds of the student loan debts.

In addition, the trial court found that the condominium owned by husband before the marriage was hybrid property, part separate and part marital, in which the wife had an interest since the parties had lived in the property for a year and rented it out for several years while they were married.  The divorce court found that the wife’s contributions to the real property were more than nominal and that she should be entitled to share in its appreciation by receiving half the marital share of the property.

You should consult with your Virginia divorce lawyer concerning the equitable distribution of your marital property and debts.

How does living on credit cards affect a wife’s right to receive spousal support?

In an unpublished opinion, the Virginia Court of Appeals affirmed a Circuit Court judge’s award of fifty percent (50%) of a husband’s net military retirement pay and spousal support where the wife was living on credit cards, social security, and food stamps.  Darley v. Darley, No. 1216-09-4, October 6, 2009.  Although neither party had filed bankruptcy, the case is noteworthy as it addresses a common situation in both bankruptcy cases and divorce cases: a party living on debt instead of earned income.

The wife had obtained a spousal support order from the Juvenile and Domestic Relations District Court.  The husband obtained a divorce in Panama and filed a complaint for affirmation in a Virginia Circuit Court of the divorce from a foreign country, but did not appear to testify in the case.  The wife lost her job in April 2008 and was unemployed at the time of the evidentiary hearing in Virginia.  The wife’s income and expense statement showed a monthly deficit of $2,000.  The wife was living off credit cards, social security, food stamps, and the spousal support from the Juvenile and Domestic Relations District Court order.

In the equitable distribution portion of its decision, the Circuit Court awarded to the wife, fifty percent (50%) of husband’s military retirement pay, even though there was no evidence that the husband received income from any other source.  The court pointed out that equitable distribution is different from support and is based on the accrued rights of the wife in the distributed property, as distinct from the current financial situation of the husband and wife.

Nevertheless, the income from the distribution of his pension could be properly considered in determining the husband’s support obligation to his wife.  The fact that wife had a monthly deficit and was living off credit cards demonstrated her need for support, the first step in obtaining spousal support in Virginia, with the second step being the other spouse’s ability to pay support.  The court found that the award of spousal support to the wife did not exceed her standard of living established during the marriage.

You should consult with your Virginia bankruptcy or divorce lawyer to discuss the application of the law to the facts of your particular situation.

How long will my spouse’s bankruptcy delay my Virginia divorce?

As discussed in the answer to the question, “Will a bankruptcy filing stop my Virginia divorce case?”, the bankruptcy filing may stop aspects of a Virginia divorce case from continuing.  The length of the delay due to bankruptcy depends upon the type of bankruptcy filed by your husband or wife.

A chapter 7 case typically takes 4 to 5 months from the order for relief on the filing date until the order of discharge.  The automatic stay protecting the debtor, property of the debtor, and property of the estate starts as soon as the case is filed.  The first meeting of creditors is set 20 to 40 days after the filing date.  A creditor may file a complaint objecting to the discharge of the debtor, or a complaint objecting to the dischargeability of a particular debt, by filing an adversary proceeding within 60 days after the meeting of creditors.  If no complaints are filed, the clerk of the court may issue an order of discharge after about 10 days after the 60 day period expires.  Unless a party is granted relief from the automatic stay, the automatic stay expires against property when the property is no longer property of the estate and against the debtor when the discharge is granted or denied in a chapter 7 case or when the case is closed or dismissed.  The chapter 7 trustee may abandon property from property of the bankruptcy estate anytime after the case is filed, although the abandonment is usually announced at the meeting of creditors.  After the automatic stay ends, the debtor will be protected from collection of discharged debts by the discharge injunction.  As discussed in the answer to the question, “Can my spouse discharge a family law debt in bankruptcy?”, some family law debts can be discharged.

A chapter 13 case will typically last from 3 to 5 years.  In a chapter 13 case, property of the estate includes property acquired while the case is pending and earnings from services performed by the debtor during the case.  Unless otherwise provided in the chapter 13 plan, confirmation of the plan vests all property of the estate in the debtor.  These two provisions may complicate efforts by divorce counsel to address any portion of the debtor’s post-petition earnings in a separation agreement or property settlement agreement, particularly since actions taken in violation of the automatic stay may be void or voidable.  The better practice will often be for one of the spouses to file a motion for relief from the automatic stay in the chapter 13 bankruptcy case to continue and conclude the Virginia divorce case.

You should consult with your Virginia bankruptcy or divorce attorney to discuss how long your husband or wife’s bankruptcy will delay your separation or divorce proceedings.

How will a “strategic default” on my mortgage affect my Virginia divorce?
A strategic default is an intentional default on a mortgage loan by borrowers who are able to make the mortgage payments.  Recent surveys have shown that as many as 25% of all mortgage defaults are now strategic defaults.  In some areas where housing prices skyrocketed, home values have now decreased substantially to the point where the mortgage payoff may be considerably more than the fair market value of the home.  The greater Richmond metropolitan area of Chesterfield County, Hanover County, Henrico County, and the City of Richmond has not experienced the kind of run up in real estate values that some other areas of Virginia, most notably Northern Virginia and the Tidewater area, have experienced.  In those areas where home values skyrocketed and fell, some married couples have decided that it is better financially to stop making the mortgage payments and surrender the property to the lender rather than continue to make mortgage payments on a home that is upside down.

For most married couples, their home, the marital residence, and their retirement plans are the primary assets in a divorce and in a bankruptcy.  In a divorce case, the husband and wife must decide how to divide the marital share of real estate and the 401(K) plan or pension, or submit the decision to the Virginia Circuit Court judge by requesting equitable distribution.  The couple must also address who will pay the mortgage, hazard insurance, real estate taxes and utilities, and who has the right to occupy the real property until its final disposition.  If the husband and wife have children, often the parent with primarily physical custody will prefer to remain in the former marital residence if he or she can afford the payments with a combination of income, spousal support or alimony, and child support.  If the husband or wife can afford the mortgage, the other party will typically request a sale or refinance of the property to eliminate his or her responsibility for the debt or liability.  This may not be possible where the mortgage payoff is greater than the value of the home.  Alternatively, a husband or wife may agree in a separation agreement or property settlement agreement to pay the mortgage in lieu of paying support until the property is sold or refinanced at some point in the future when values increase, and then begin paying support to the other spouse or former spouse.

When a borrower defaults on a mortgage loan in Virginia, the lender usually has a right to pursue the borrower for a deficiency – the amount still owed on the loan after the net proceeds of the foreclosure sale have been applied to the loan balance.  Both husband and wife would each be liable to the lender for the full balance of this joint debt, although a separation agreement or a court order may allocate responsibility for payment of the debt between the husband and wife.  In such an instance, either or both spouses may decide it is in their best interests to discharge the liability to the lender with a chapter 7 bankruptcy.  If the parties are still married, the husband and wife have the option of filing a joint chapter 7 case, even though they live separate and apart, to get rid of the deficiency from the strategic default.

You should consult with your Virginia bankruptcy or divorce lawyer to discuss how to address the debts or liabilities resulting from your separation and divorce.

Do I need to do anything in my separated spouse’s bankruptcy?

Although you may not be required to do anything in your estranged spouse’s bankruptcy, your best interests may be served by examining the information filed by your spouse and by participating in his or her bankruptcy.

A bankruptcy filing always contains treasure trove of useful financial information about the debtor.  A person who files bankruptcy must sign the petition, schedules and statements under penalty of perjury.  The debtor must reveal current or projected income and expenses, lists or schedules of current assets and liabilities, descriptions of current lawsuits, foreclosures, repossessions, and past information such as income received from employment or business, income from all other sources for the last three years, prior bankruptcies, and history of other names used and addresses for the past three years.  The person filing bankruptcy must also disclose information about businesses owned, or in which the filer participated, during the last six years, and whether the debtor engaged in certain types of transactions such as estate planning or creating a trust during the last eight years.  In addition, the person filing bankruptcy must submit documents supporting the disclosures, such as paystubs, bank statements, tax returns, deeds, investment and retirement account statements, and DMV records to the chapter 7 or chapter 13 trustee appointed in his or her case.

Similarly, during a Virginia separation and divorce, a spouse may be compelled to file a monthly income and expense statement or a list of property and liabilities for determining pendente lite relief, child support, spousal support, and equitable distribution.  The husband or wife in a Virginia divorce, custody or support case may use discovery to obtain sworn answers from his or her spouse about assets, debts, income, expenses and property.  By examining the bankruptcy filing, a husband or wife can compare the information submitted in each proceeding by his or her spouse, and discover additional matters to investigate.

You may receive a Proof of Claim form along with a Notice of the Meeting of Creditors in your husband or wife’s bankruptcy case.  In a no-asset Chapter 7, you will probably be instructed not to file a proof of claim.  In a Chapter 7 case where assets will be administered and in every Chapter 13 bankruptcy, you should file a proof of claim with supporting documents.  In every Chapter 13 bankruptcy, you should also examine the proposed Chapter 13 plan to determine the accuracy and treatment of your claims.

You may want to attend the meeting of creditors where you will be given a brief opportunity to ask questions of your husband or wife after he or she has been sworn in to testify under oath.  A more detailed examination of your spouse can be obtained through a Rule 2004 deposition.  You can compel the production of documents at the Rule 2004 examination and you may ask about the acts, conduct, or property of the debtor, the liabilities and financial condition of the debtor, and any matter that affects the administration of the bankruptcy estate or the debtor’s right to a discharge.

You should discuss with your attorney the advisability of obtaining relief from the automatic stay in your husband or wife’s bankruptcy case in order to continue your Virginia divorce case.  Actions taken in violation of the automatic stay or discharge order may be void or voidable, and may subject you to liability for damages, sanctions and attorney’s fees in the bankruptcy court.

You should consult with your Virginia bankruptcy or divorce lawyer to discuss whether you should participate in your spouse’s bankruptcy.

When a former husband filed bankruptcy after a Virginia divorce but before transferring title to his former wife, can their real property be sold in the former husband’s bankruptcy case?

In a divorcing couple’s Property Settlement Agreement, a husband and wife agreed to split the net equity in the former marital residence.  The parties further agreed that the husband would make all the payments on the property and claim all the tax deductions, and that title would be transferred to the wife in the future.  The Property Settlement Agreement was incorporated into the final decree of divorce in Virginia.  As provided under Virginia law, the former husband and wife became tenants in common of the real estate upon divorce.  Neither the divorce decree nor the separation agreement were recorded in the land records in which the property was located.  The ex-husband subsequently filed chapter 7 bankruptcy before conveying title to his ex-wife.  The trustee sought to sell the former husband’s one half interest in the property.

The former wife claimed that the separation agreement created a constructive trust with respect to the real estate, completely divesting the ex-husband of his interest, leaving the ex-husband with bare legal title.  As opposed to an express trust created by the parties, constructive trusts are trusts imposed by law to prevent what would otherwise be a fraud by the party who holds legal title.  A constructive trust can arise in two instances: (1) where the title was acquired by fraud or improper means, or (2) where allowing the owner to retain the property for his benefit would be contrary to fairness.

In ruling on a summary judgment motion in the 2006 bankruptcy court decision of In re Robinson, 346 B.R. 172 (Bankr. E.D. Va.), the judge held that the contract to convey real estate did not create a constructive trust. In Robinson, the judge found that the Property Settlement Agreement was atypical and was driven by the husband’s attempt to keep his entire military pension and to minimize the income tax consequences of the divorce. In return for the wife agreeing to give up her interest in the husband’s pension, the husband agreed to pay the mortgages on the former marital residence.  The judge held that the mere fact that the real property had not been conveyed was not sufficient to create a constructive trust, reasoning that the parties agreed to transfer title at a later date for their mutual benefit.  By providing for a future transfer of title, the parties had assumed the risk of possible, but unanticipated, events such as the former husband’s future financial difficulties.  The consequences of the parties’ risky choices in structuring their Property Settlement Agreement as they did, did not justify the application of a constructive trust that would harm third parties, the former husband’s creditors.  In Robinson the judge resolved the tension between balancing the rights of the former husband and wife versus the former husband’s creditors in favor of the former husband’s creditors.  A constructive trust would not be used to defeat the rights of the third-party creditors.

You should consult with your Virginia bankruptcy or divorce attorney concerning how to best structure your separation agreement or property settlement agreement for a possible bankruptcy.

 

 

 

Why did a husband who later filed bankruptcy agree to pay his wife one-half of his monthly pension payments as spousal support or alimony instead of transferring one-half of his pension to her by separate order in their Virginia divorce?

A husband and wife entered into a separation agreement which was subsequently incorporated into a Virginia final decree of divorce.  The most significant assets in the Virginia divorce case were the husband’s military pension and the former marital residence.  The husband began receiving his pension as a retired military officer a year before the parties entered into the Property Settlement Agreement.  Instead of dividing the military pension with an order complying with the Qualified Domestic Relations Order provisions, the husband agreed in an atypical Property Settlement Agreement to pay to wife one-half of of his monthly military pension as spousal support or alimony, without a separate court order or any election of survivor benefits.  The former husband filed a chapter 7 bankruptcy case following the divorce, reported in In re Robinson, 346 B.R. 172 (Bankr. E.D. Va., 2006).

The judge in Robinson noted the benefits that the former husband could realize by structuring the Property Settlement Agreement as the parties did. In Virginia, unless otherwise agreed by the parties, spousal support or alimony terminates upon the death of either party or the remarriage of the spouse receiving support, or when the spouse receiving support has been habitually cohabiting with another person in a relationship analogous to a marriage for a year or more.  In Robinson, if the wife had received one-half of the husband’s military pension instead of one-half of his monthly payments as support, the wife would have received one half the total value of the pension regardless of her remarriage.  If the former wife should remarry or cohabit in a relationship like a marriage for more than a year, then she could lose her monthly payments and all interest in her former husband’s pension.

The former husband could also receive an additional benefit by structuring his former wife’s interest in his pension as support.  The former husband could realize tax benefits by paying support to his former wife because payments that meet the statutory requirements of Internal Revenue Code Section 71 would be deductible by the payor spouse as alimony and taxable as income to the payee spouse.

You should consult with your Virginia bankruptcy or divorce lawyer on how to best structure your divorce settlement for a future bankruptcy.

Can a child support order in another state be declared void due to lack of notice?

A registration of a Washington state default judgment for child support was held void by the Virginia Court of Appeals in an unpublished opinion as the putative father was denied his constitutionally protected due process rights in Phifer v. Commonwealth of Virginia, DSS, DCSE, No. 1134-08-4, September 22, 2009.

The case started when the Washington state department of child support sought reimbursement for public assistance paid to the mother of a child.  The putative father was served with papers, denied paternity of the child, and requested genetic testing.  In his answer, the putative father provided an address in New York State as his address for notices.  All notices in the support and paternity case were returned marked as attempted unknown, no such address.  Washington State obtained a default judgment against him establishing parentage at a rescheduled default judgment hearing.  The putative father subsequently informed the court that he had received no notices in the case after his appearance.  The putative father left Washington State and moved to Fairfax, Virginia. The Virginia Department of Social Services, Division of Child Support Enforcement (DCSE), attempted to register Washington state judgments in Virginia.  The Fairfax Juvenile and Domestic Relations District Court dismissed the case for lack of jurisdiction.  The Fairfax Circuit Court found jurisdiction and granted motion to register foreign judgment. DCSE moved for a rule to show cause against putative father for failing to pay child support and for attorney’s fees and costs.  The putative father appealed.

In an unpublished opinion, the Virginia Court of Appeals held that the absence of notice of a default judgment hearing to a defendant, who has not waived his right to notice, is a due process violation rendering the default judgment void.  The court relied on the Supreme Court case Jones v. Flowers  547 U.S. 220 (2006) which held that when mailed notice is returned to the sender, the sender has not satisfied the due process notice standard of Mullane v. Hanover Central Bank & Trust Co., 339 U.S. 306 (1950) that the notice employed must be reasonably calculated to reach the defendant.

Should I file for bankruptcy before divorce, or divorce before a bankruptcy?

The timing of a bankruptcy case or a divorce case in Virginia can be critically important.  There are important factors to consider when contemplating the timing of a bankruptcy and divorce case filing.

One factor to consider is the possibility of obtaining joint relief in bankruptcy.  A husband and wife may file a joint bankruptcy while they are married and both may obtain a discharge of their joint debts.  The discharge of the couple’s joint debts can eliminate a potentially contentious issue that a husband and wife might litigate in a contested divorce case, or that could hold up or prevent the spouses from reaching accord in a separation agreement or property settlement agreement.  Filing a joint bankruptcy case before a divorce could save the married couple from spending thousands of dollars in attorney’s fees and court costs or mediation fees.  Upon granting of a final decree of divorce, the former spouses would no longer be eligible for filing a joint bankruptcy case, and either would have to file an individual bankruptcy case limited to discharging his or her liability alone on a joint debt.

Either spouse may decide to file a bankruptcy before a divorce in order to preserve an asset for his or her use, or for the use of his or her spouse, or for equitable distribution by a Virginia circuit court judge in a divorce proceeding.  If a Virginia foreclosure sale is imminent, either spouse may file a chapter 13 bankruptcy case to preserve the equity in real estate in their joint names, or to save the former marital residence for continued occupancy by one or both of the spouses.

A spouse may decide to file bankruptcy before a divorce in order to take advantage of the tenancy by the entirety available only to married couples in Virginia.  If the parties have no joint unsecured debt, the tenancy by the entirety will protect property from the claims of either spouse alone, and from administration by the chapter 7 bankruptcy trustee, as long as they remain married.  Upon divorce, the tenancy by the entirety converts to a tenancy in common, and claims or liens against either former spouse may attach to the property.  A property that might not have been administered by a chapter 7 trustee in a filing by either spouse before entry of a final decree of divorce may thus become subject to administration in a filing after the entry of the divorce decree and the conversion of the tenancy by the entirety.

The type of relief needed by either or both spouses may be critically important to the timing of a bankruptcy or divorce.  In some instances, a spouse may wish to discharge attorney’s fees not related to support incurred in a divorce, or a spouse may wish to discharge, in a chapter 13 case, a claim arising out of separation or divorce that is not a domestic support obligation.  That spouse may wish to fully conclude the divorce, allow the claims to come into existence, and determine his or her liabilities before filing bankruptcy.  A spouse contemplating bankruptcy may also want to consider timing with respect to the possibility of a statutory lien for attorney’s fees attaching upon final judgment and the conclusion of disputes concerning marital property.  A husband or wife might also wish to consider the possibility of whether a bankruptcy filing would protect that spouse from being held in civil, non-punitive, contempt of court by a Virginia state court judge for failing to abide by the terms of a family law court order.

With the introduction of means testing in October 2005, either spouse must also consider how and whether income received during the last six (6) months before filing might create a presumption of abuse in a chapter 7 case filing and affect timing of the filing of a case.  Often an estranged spouse, who has been unemployed for a period of time, might lose eligibility for chapter 7 relief after returning to full employment for a sufficient number of months.

The timing of a bankruptcy or divorce case rests on the complex interplay of a number of factors, including the non-exhaustive description of the preceding factors.  You should consult with your bankruptcy or divorce lawyer to discuss how these and other factors may affect the timing of your c

Can separated spouses file or continue a joint bankruptcy case?

A husband and wife are allowed to file bankruptcy together for the sake of ease of administration, even if they are separated.  The married couple may benefit from the lower costs and fees of a joint filing and the ability to discharge joint debts completely.  A discharge of the couple’s joint debts can eliminate a potentially contentious issue in a Virginia divorce: who will pay each joint debt.  This can save the parties from costly attorney’s fees or mediation costs.  Although there is a potential conflict of interest when separated spouses file bankruptcy together, a separated couple might consider filing a joint chapter 7 case unless either one believes that together they are ineligible for chapter 7 relief, or the other spouse has engaged, or will engage, in some conduct that might jeopardize the successful completion of the case, such as transferring or concealing assets to defraud creditors, or committing perjury in the bankruptcy case about their property and debts.  When the spouses are separated, one spouse alone may be eligible for chapter 7 relief by excluding the other spouse’s income with a declaration of separate households.

A chapter 13 case presents greater difficulties than a chapter 7 case for separated spouses because of the ongoing obligation to make plan payments, the evolving goals of husband and wife during the bankruptcy and separation, and the ability of the husband or wife to discharge debts that are not domestic support obligations but that are related to divorce and separation.  The spouses may have different goals and interests: one spouse may prefer liquidation over a plan bankruptcy, or a spouse may not care to preserve a particular asset, or cure an arrearage on a mortgage on real property with no equity that serves as one spouse’s residence.  A major point of contention may be whose income will be used to fund the chapter 13 plan payments.

When a couple separates during a chapter 13 case, counsel may be compelled to withdraw due to an actual conflict of interest between the spouses.  In such an event, the chapter 13 case can be deconsolidated into two separate bankruptcies, allowing each spouse to continue or to convert or dismiss his or her case without the consent of the other spouse.

You should consult with your bankruptcy or divorce lawyer to determine if a joint bankruptcy is in your best interest, based on all the facts and circumstances of your particular situation.