IN RE: NELSON J. SMITH, 1st Cir., No. 09-9005, November 6, 2009:

The term “domestic support obligation” (“DSO”) is a newly defined term in the Bankruptcy Code, as updated by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”). See Pub. L. 109-8, 119 Stat. 23 (2005). As relevant here, a DSO is defined as

a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law [owed to] a former spouse [and that is] in the nature of alimony, maintenance, or support . . . without regard to whether such debt is expressly so designated.

11 U.S.C. § 101(14A). Thus, pursuant to the statute, for an obligation to a former spouse to be considered a DSO, it must actually be in the nature of support. This issue is one of federal bankruptcy law, and not state law. See In re Werthen, 329 F.3d at 272-73.

DSO creditors receive special treatment in bankruptcy. They are given priority over most other creditors, see 11 U.S.C. §§ 507(a)(1)(A), (B), and their claims are also nondischargeable under chapters 7 and 13. See 11 U.S.C. §§ 727(b), 1328(a)(2). The party seeking to have a debt determined a DSO and thus nondischargeable bears the burden of proving that the obligation is in the nature of support. In re Werthen, 329 F.3d at 271-72 (stating that moving party “bore the burden of showing that the debts were nondischargeable”) (citing Grogan v. Garner, 498 U.S. 279, 287-88 (1991)).

“[S]upport payments are, roughly speaking, what is given to provide for the upkeep of the recipient spouse and children.” In re Werthen, 329 F.3d at 273. The label applied to the obligation by the court or the parties is not necessarily controlling for Bankruptcy Code purposes. Id. We have said that one of the principal issues is “whether the divorce court judge ‘intended’ a particular award to be for support or for something else.” Id. In other words, the intended purpose the obligation was meant to serve. To discern this intent, “courts look to a range of factors, including the language used by the divorce court and whether the award seems designed to assuage need, as discerned from the structure of the award and the financial circumstances of the recipients.” Id. This Court has not adopted a specific multi-factor test used to discern intent when determining whether an obligation is in the nature of support. See In re Soforenko, 203 B.R. 853, 859 (Bankr. D. Mass. 1997) (describing the multitude of multi-factor tests used in this Circuit). Agreeing with the BAP that “[a]s in all fact intensive inquiries, the critical factors depend on the totality of circumstances of a particular case,” we decline to do so now. In re Smith, 398 B.R. at 722.

A trial court may look beyond the separation agreement to discern the parties’ relative financial circumstances at the time of the divorce as evidence of the intent of the parties. See, e.g., In re Werthen, 329 F.3d at 273-74.

However, an obligation to pay a $50 fee per day that the payor is late in alimony payments was “intended to ensure that [the recipient's] need was assuaged, though it was not itself intended to assuage the need.” In re Smith, 398 B.R. at 723. Accordingly, the court concluded that the recipient’s claim is a general unsecured claim not entitled to priority status and can be discharged in the payor’s bankruptcy. See 11 U.S.C. §§ 523(a)(15), 1328(a)(2).

See related Blog Post, published in the New Jersey Family Law blog.

NOTE: This Blog/Blawg, NJ Family Issues, is managed by Paul G. Kostro, Esq., an attorney/lawyer/mediator in Linden, Union County, New Jersey.

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