A Bankruptcy Appellate Court has ruled that a Bankruptcy Trial Court did not make a mistake in ruling that monthly support payments were non-dischargeable in Father’s bankruptcy because they were domestic support obligations under 11 U.S.C. 523(a)(5). In the case of In re Phegley, Mother and Father were married in May 1998. When they were divorced in June of 2009, Missouri Trial Court’s divorce judgment awarded them joint legal and physical custody of their two children, ordered Father to pay child support of $325 per month, and further provided that Father would pay Mother "as and for contractual maintenance" $1,250 per month for 48 months, beginning on July 1, 2009, and continuing until the earlier of the date that Father made all payments, Mother remarried, or either party died. That divorce judgment also divided Mother and Father’s marital property, required Father to make $32,371 equalizing payment, and ordered Father to pay $9,178 toward Mother’s attorney’s fees.
After Father filed Chapter 13 bankruptcy petition on September 2, 2009, Mother filed a complaint to determine dischargeability of Father’s monthly maintenance payments and fee order. Mother asserted that those debts were nondischargeable under 11 U.S.C. 523(a)(5) [domestic support obligations are not dischargeable]. U.S. Bankruptcy Court for Western District of Missouri agreed with Mother, and ruled that those debts were nondischargeable as domestic support obligations.
Claiming that maintenance payments were property division offset against "renewal premiums" awarded to him, Father appealed. But, now a Bankruptcy Appellate Court has affirmed the Bankruptcy Court’s decision. The Appellate Court has ruled that (1) characterization of obligation as support or property division depends on the intended function served by the payments; (2) characterization is based on federal bankruptcy law (not state law); (3) Bankruptcy Court must consider (a) language and substance of underlying agreement in context of existing circumstances, (b) parties’ relative financial conditions, (c) parties’ employment history and prospects for financial support, (d) marital property each received, (e) periodic nature of the payments, and (f) difficulty of subsistence of spouse and kids without payments; (4) Bankruptcy Court correctly considered applicable factors (Mother needed payments to continue her education and obtain teaching credential, and could not support herself without them) in determining that payments were in nature of support; and (5) Father’s contentions were not persuasive. The Appellate Court holds that Bankruptcy Court did not make a mistake in concluding that both maintenance payments and attorney’s fee award were non-dischargeable in Father’s bankruptcy.