Post-Divorce Judgment Legal Fees Generated By Custody Dispute Constitute a Non-Dischargeable Debt Pursuant to 11 U.S.C. §523(a)(15)

Posted by Jessica Grossarth

March 25, 2014

Section 523(a)(15) of the Bankruptcy Code provides that a discharge “does not discharge an individual debtor from any debt…to a spouse [or] former spouse, … in the course of a divorce…or…divorce decree or other order of a court of record….” 11 U.S.C. §523(a)(15).  Prior to to the implementation of any amendments made to this section pursuant to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), , to discharge these debts, a court was required to determine that the debtor did not have the ability to repay the obligation, and that the discharge of the debt would yield a benefit to the debtor that outweighs the detriment of the discharge to the former spouse or child of the debtor. Gilman v. Golio (In re Golio), 393 B.R. 56, 61 (Bankr. E.D.N.Y. 2008). However, under BAPCPA, all debts owed to a spouse, former spouse, or child of a debtor are non-dischargeable if incurred in the course of a divorce proceeding, notwithstanding the debtor’s ability to pay the debt or the relative benefits and detriments to the parties.

In Lustgarten v. Vann (In re Vann), 2014 WL 505257 (Bankr. D. Conn. 2014), the bankruptcy court first noted that the defendant overlooked BAPCPA’s amendment of the provision that eliminated the consideration of the debtor’s ability to pay, and thus, found no need to engage in the pre-BAPCPA balancing analysis relied upon by the defendant.

The court then addressed the more substantive issue of whether post-divorce judgment legal fees incurred in connection with a custody dispute are legal fees “incurred during a divorce proceeding” such that they constitute a non-dischargeable debt pursuant to 11 U.S.C. §523(a)(15).  The court rejected the defendant’s argument that “the legal fees were not incurred during a divorce proceeding” for two reasons. First, the defendant’s admission of facts in the complaint concerning the parties, the divorce, the original custody arrangement, the attempt by the defendant to modify the custody arrangement, and the legal fees awarded to the plaintiff after her failed attempt to modify custody established the ambit of a “former marital relationship” for purposes of section 523(a)(15). Second, the court found that it is indisputable that the parties’ custody fight, the defendant’s subsequent attempt to change the awarded custody and the consequential legal fees were within the scope of the plaintiff’s and defendant’s litigious divorce, and thus, within section 523(a)(15).

Despite the statute’s language “in the course of a divorce” and “in connection with,” the bankruptcy court’s broad reading of section 523(a)(15) arguably equates to the result that legal fees arising from a dispute between two former spouses will likely be found to be non-dischargeable despite the amount of time that passes after the divorce judgment enters and the post-judgment dispute ensues.

 

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