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Bankruptcy – Dischargeability – Alimony – Exception

Where the debtor’s marital settlement agreement with his former wife provided, among other things, that the child support payments by the husband would continue as spousal support as each child reached 18 years of age, these and other payments intended as spousal support are exempt from discharge in bankruptcy.

Section 523(a)(5) of the Bankruptcy Code excepts from discharge debts to a spouse in connection with a divorce decree if the debts are actually in the nature of alimony, maintenance, or support. The spouse who seeks to have a debt excepted from discharge under this section has the burden of proving by a preponderance of the evidence that the obligation at issue is in the nature of alimony, maintenance or support and therefore not discharged under 11 U.S.C. § 727.

In the context of a voluntarily executed marital settlement, the test for whether the payments are “actually in the nature of alimony, maintenance or support” is whether it was the parties’ intention that the payments be for support rather than for property settlement.

In this case, the parties entered into a settlement agreement later incorporated in their divorce decree. In dispute are the dischargeabiilty of three obligations of debtor under the agreement, that is, whether they are spousal support or property payments.

The debtor contests several obligations under the agreement. Under the agreement, the debtor is to repay defendant, his former wife, one-half of his monthly military retirement pay. Upon his retirement, the husband is to pay the former wife a sum in addition to one-half of his monthly retirement which would bring the combined total payment of to $2,500 per month. Also under the agreement, as each child reached age 18, the child support payments would continue as spousal support.

That spousal support was the parties’ intent is manifest from their settlement agreement and divorce decree, and this court finds that all of the three contested items are in the nature of spousal support and therefore excepted from discharge pursuant to 11 U.S.C. § 523(a)(5).

The $250 monthly payment per child provided int he agreement addendum is plainly stated to be spousal support as each child reaches 18. And although the retirement pay provision for debtor to pay a monthly total of $2,5000 were included under a heading of their agreement entitled “Division of Property,” there are other more compelling indications within the agreement that in fact this was intended to be traditional spousal support. Thus, not only was debtor’s monthly $2,500 obligation labeled “alimony” elsewhere in the agreement but also the operative paragraph stated that defendant was to include her receipt of this sum in her income tax return.

Evidence at trial established that defendant has included all the disputed payments in her income tax returns and that debtor in his own returns has claimed them as deductible alimony. This is further persuasive evidence of the parties’ intent to treat debtor’s obligations as spousal support.

There are other grounds for holding that the defendant former wife’s right to receive one-half of debtor’s monthly retirement pay is not dischargeable in bankruptcy. It may well be considered here that by the property agreement and divorce decree, defendant was awarded a direct property right in debtor’s retirement pay which would be unaffected by debtor’s bankruptcy discharge.

This conclusion is reinforced by the provisions of the divorce decree ordering debtor to name and maintain defendant as sole beneficiary of survivor benefits under his retirement plan and requiring defendant to execute a voluntary allotment when defendant reaches age 65 by which the retirement pay will be paid directly to defendant.

Finally, aside from traditional alimony versus property dischargeability issues, debtor’s counsel has argued that Virginia law prohibits the treatment of debtor’s divorce obligations as spousal support after his former spouse’s remarriage.

Judgment will be entered for the debtor’s ex-wife.

Manning v. Wetterberg (Tice) No. 92-10192-T, Nov. 6, 1993; USBC at Alexandria, Va.; Richard A. Bartl for debtor; Richard J. Stahl for defendant * VLW 093-4-003, 10 pp.

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