The intersection of matrimonial and bankruptcy law can leave parties to a divorce both confused and aggrieved. Matrimonial courts are charged with straightening out the affairs between the spouses. That often includes allocation of property rights without consideration of the rights of creditors who are not parties to the divorce proceedings. When creditor rights are impacted by divorce proceedings problems can arise. If one of the spouses files for bankruptcy the non-debtor spouse's rights may be negatively and substantially affected by the interests of the filing spouse and his or her creditors.
Matrimonial attorneys generally know that "domestic support obligations" (a term defined in the bankruptcy code) cannot be discharged. But all debts denominated "domestic support obligations" (DSO's) will not necessarily survive bankruptcy. The debt might be discharged regardless of what the parties call it. Accordingly obligations denominated a DSO might not be discharged. That is because the bankruptcy courts are the final arbiters of what constitutes a DSO. To the extent that a determination has to be made as to whether the obligation is in the nature of alimony, maintenance or support the bankruptcy court will decide what debts are discharged. Similarly, while DSO's are given first priority in distribution from assets of a bankruptcy estate, the bankruptcy court will determine whether the debt is a DSO entitled to receive payment before other debts. Factors which the court consider in determining if a debt is a DSO include: (1) Whether the obligation terminates upon the death or remarriage of either spouse, upon any children reaching majority or upon some other similar event; (2) how the obligation is characterized in the parties’ settlement agreement or divorce decree; (3) whether the payments appear to balance disparate income between the former spouses; (4) whether the payments are to be made directly to the spouse or to a third party; (5) whether the payment is payable in a lump sum or in installments over time; (6) whether the parties intended to create an obligation of support or to divide marital property; (7) whether an assumption of debt has the effect of providing unnecessary support to insure that the daily needs of former spouse and any children of the marriage are met; (8) whether an assumption of debt has the effect of providing support necessary to insure a home for the non-debtor spouse and his or her minor children.