Bankruptcy and Divorce Definition: Bankruptcy is a legal proceeding in which a person who is financially insolvent requests the Federal Bankruptcy Court to determine the extent of his or her debts and how his or her assets should be used to pay those debts. Property in bankruptcy is usually administered for the benefit of the bankrupt person’s creditors.

General Discussion: There is a general consensus that bankruptcy does not impact the equitable distribution of pensions in divorce cases.

While courts have taken a number of different paths, the destination reached is usually the same. A spouse should not be able to defeat or delay the effect of a property division order by filing bankruptcy. The following quote has been cited frequently to sustain this result:

"We doubt that Congress ever intended that a former wife’s judicially decreed sole and separate property interest in a pension payable to her former husband should be subservient to the Bankruptcy Code’s goal of giving the debtor a fresh start."

Classification: Pension benefits are generally considered marital property and their classification remains unaltered during bankruptcy proceedings.

Valuation: Valuation of the benefits should be performed as it normally would be in accordance with the type of pension benefit in question.

Distribution: Distribution should likewise remain unaffected.

Federal Case Law

Byler v. Byler, 160 B.R. 178, 180-81 (Bankr. N.D. Okla. 1993)
Adamo v. Ledvinka, 144 B.R. 188, 193 (Bankr. M.D. Ga. 1992)
Bigelow v. Brown, 168 B.R. 331, 335 (Bankr. N.D. Ill.1994)
Wilson v. Wilson, 158 B.R. 709, 711 (Bankr. S.D. Ohio 1993)
In re Naydan, 162 B.R. 204, 206 (Bankr. W.D. Ark. 1993)
Zick v. Zick, 123 B.R. 825, 829 (Bankr. E.D. Wis. 1990)

Under the bankruptcy code, an obligation of one spouse made pursuant to a property division is dischargeable. See 11 U.S.C. Sec. 523(a)(5). However, this court concurs with the majority of the federal courts that hold that a division of a pension plan pursuant to a divorce decree does not create an obligation in the employee-spouse but creates two separate property interests that become vested at the moment the decree is entered; and therefore are not dischargeable in bankruptcy.

Walston v. Walston, 190 Bankr. 66 (E.D.N.C. 1995)
Marital property interests in a debtor’s military pension are not dischargeable in bankruptcy.

When a pending claim for equitable distribution concerns property whose status as marital is a matter of some dispute, a former spouse cannot sit on her rights in bankruptcy, only to surface later and lay claim to that property after it had already been subjected to possible liquidation, attachment, or other manner of disposal.

In re Eichelberger, 100 B.R. 861 (Bankr.S.C.Tex.1989)
Court held that required payments under a QDRO escape discharge in bankruptcy.

In re Rook, 102 B.R. 490, 492 (Bankr.E.D.Va.1989)
In the realm of domestic relations litigation, matters which do not bear on a debtor’s economic status, such as the dissolution of the marital relationship, are not stayed by a bankruptcy court.

State Case Law

The following is a summary of case laws we have come across in our research of this topic. If nothing is listed under a particular state it is because we have not found any pertinent cases relative to this topic. If you know of a case that relates to this topic, and do not find it listed here, please e-mail us the citation so that we can include it in this section.
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ALABAMA

ALASKA

Gallant v. Gallant, 882 P.2d 1252 (Alaska 1994)
A spouse should not be able to defeat or delay the effect of a property division order by filing bankruptcy.

ARIZONA

ARKANSAS

CALIFORNIA

COLORADO

CONNECTICUT

DELAWARE

DISTRICT OF COLUMBIA

FLORIDA

GEORGIA

HAWAII

IDAHO

ILLINOIS

INDIANA

IOWA

KANSAS

KENTUCKY

LOUISIANA

MAINE

MARYLAND

MASS.

MICHIGAN

MINNESOTA

MISSISSIPPI

MISSOURI

MONTANA

NEBRASKA

NEVADA

NEW HAMPSHIRE

NEW JERSEY

Digiacomo v. Digiacomo, 607 A.2d 186 NJ Super (1992)
In matrimonial matters, however, the automatic stay provision does not apply to actions to collect alimony, maintenance or support from property that is not property of the estate. The court found that the benefit awarded under a QDRO is not a dischargeable obligation under federal law, and that the order giving wife 50% of her husband’s pension is fully enforceable.

NEW MEXICO

NEW YORK

Clark v. Clark, 631 N.Y.S.2d 467 (1995)
The employee’s subsequent petition in bankruptcy had no effect upon the non-employee’s interest in the employee’s pension fund, for by the time the petition for bankruptcy was filed in September 1992 the nonemployee’s interest in the benefits had already become her sole and separate property and, hence, could not be counted as one of the employee’s debts, nor discharged by order of Bankruptcy Court.

NORTH CAROLINA

NORTH DAKOTA

OHIO

OKLAHOMA

OREGON

PENNSYLVANIA

RHODE ISLAND

SOUTH CAROLINA

SOUTH DAKOTA

TENNESSEE

TEXAS

UTAH

VERMONT

VIRGINIA

WASHINGTON

WEST VIRGINIA

WISCONSIN

WYOMING

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