As part of the divorce process, spouses must resolve various financial matters, including support and division of assets and debts. The resulting marital settlement agreement is enforceable in a court of law, even when one party declares bankruptcy after the divorce has been finalized, as illustrated by a recent New Jersey decision.
In Kauffman v. Shabazz, the New Jersey Appellate Division addressed enforcement of a marital settlement agreement which provided that the ex-husband was equally responsible for an outstanding credit card debt. The ex-husband subsequently filed for Chapter 7 bankruptcy and sought to discharge his responsibility for paying his share of the credit card bill. The trial court and appellate courts reiterated that under bankruptcy law, a Chapter 7 bankruptcy does not discharge a debtor from any debt to a former spouse incurred in the course of a divorce or in connection with a divorce decree. Therefore, the ex-husband was still responsible for paying his equal share of the debt.
So, what recourse does a party who is experiencing financial trouble have if he or she cannot pay debts owed to a former spouse? With respect to support payments, matrimonial law permits a party paying support to file an application with the court to modify alimony or child support where a “changed circumstance” has occurred since the divorce. The ultimate determination as to whether a modification is warranted is based upon a fact sensitive analysis, evaluated by the court. A party experiencing severe financial problems must seek a court order or agreement decreasing their support obligation, because a party is not permitted to unilaterally lower his or her support obligation.
On the other hand, an obligation which is considered “equitable distribution,” is generally not subject to modification. This was the case in Kauffman v. Shabazz, above. Court rules provide very limited options for those seeking to be relieved of an obligation to effectuate equitable distribution to a former spouse, such as the discovery of fraud or a mutual mistake.
It is important to remember that courts favor enforcement of voluntary agreements and will not modify them absent compelling circumstances. Thus, it is important that any marital settlement agreement be prepared with an attention to detail. The attorneys at Donahue, Hagan, Klein & Weisberg can provide the advice necessary to prevent problems after a divorce has been finalized.