Alimony Part of Bankruptcy Estate

Posted by NCBRC - June 14, 2013

Relying on South Dakota treatment of alimony, the BAP for the Eighth Circuit found that post-petition alimony payments were part of the bankruptcy estate. Mehlhaff v. Alfred (In re Mehlhaff), No. 13-6012 (B.A.P. 8th Cir. June 4, 2013). The debtor argued that the chapter 7 estate did not include alimony payments paid post-petition because section 541(a)(5)(B) which captures property the debtor acquires within 180 days of the filing of the petition does not reach alimony awards. See Kelly v. Jeter (In re Jeter), 257 B.R. 907 (B.A.P. 8th Cir. 2001). The court agreed, but found that section 541(a)(5)(B) was irrelevant because, under South Dakota law, the debtor’s right to the payments vested prior to the petition and therefore, the payments were an “interest” of the debtor’s prior to filing within the meaning of section 541(a)(1). The court explained: “We agree with the Bankruptcy Court that, if alimony is the kind of property right to which a lien can attach, it is the kind of property right that becomes property of the estate when a bankruptcy is filed.” In Jasper v. Smith, 540 N.W.2d 399 (S.D. 1995), the South Dakota Supreme Court found that alimony was subject to attachment. Therefore, the Mehlhaff court found that debtor’s post-petition alimony payments are property rights as contemplated by section 541(a)(1). The court rejected the debtor’s public policy argument finding that the statutory language and the operation of state law prevail over equitable considerations.

Other courts have found that alimony does not become part of the bankruptcy estate. Peters v. Wise (In re Wise), 346 F.3d 1239 (10th Cir.2003) (under Colorado law alimony is a personal right rather than a property right and the Bankruptcy Code does not include alimony in the bankruptcy estate); Phillips v. Rinehart (In re Rinehart), 352 B.R. 427 (Bankr. E.D. Va. 2005). In dismissing Wise as being dependent upon Colorado law, the Mehlhaff court glommed onto the issue of how Colorado treats divorce settlements and ignored the basic teachings of Wise. The Wise court found that once it is determined under state law that a particular divorce settlement is alimony, the federal treatment of alimony prevails over any state treatment such as amenability to attachment. “Because there is a difference between property settlements and maintenance, we assume Congress acted intentionally and purposefully in excluding spousal maintenance or alimony from the statutory language. See Barnhart, 534 U.S. at 452, 122 S.Ct. 941.” Wise, 346 F.3d at 1243. In Rinehart, the court, relying on the reasoning of Wise, found that once the support at issue is determined to be alimony rather than a property settlement, the application of state law becomes irrelevant. The Bankruptcy Code simply does not include alimony in the bankruptcy estate.

Mehlhaff opinion

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