Bankr. W.D.N.C: Smith v. Smith- Equitable Distribution Award or Domestic Support Obligation

Following a trial (which the bankruptcy court described as more akin to a Summary Judgment Hearing), which was preceded by what can almost described as a remand by the bankruptcy court  to the state domestic court to clarify the nature of its award of 50% of the Debtor’s retirement to his ex-wife, the bankruptcy court held that such award was not equitable distribution, which would have been dischargable in the Debtor’s Chapter 13, but a non-dischargable domestic support obligation.

The bankruptcy court applied a non-exclusive four part test that looked to:

(1) The actual substance and language of the agreement;

(2) the financial situation of the parties at the time of the agreement;

(3) the function served by the obligation at the time of the agreement (i.e. daily necessities); and

(4) whether there is any evidence of overbearing at the time of the agreement that should cause the court to question the intent of a spouse.

Because the order from the state court established this to be a domestic support obligation, as the only support to the contrary was that the order was entitled an “Equitable Distribution Order”.  Labels, however, are not binding and the mass of the evidence supporting a finding that these funds were meant as support.

That these questions were sent back to the state court (after an in chambers conference) reaffirms the idea that no matter how bad bankruptcy court can be, divorce court is worse.