By Morgan Decker, Rubin & Levin PC
During the COVID-19 pandemic, couples separating and ultimately filing for divorce seemed to be more and more prevalent given the stressors and the relationship issues that surfaced during the lockdown. CNBC reported earlier this year that even in the U.K., there was a 95 percent surge in divorce inquiries and companies that provide legal forms reported a 34 percent increase in the sale of their boilerplate divorce agreements.
Recently, in a Texas bankruptcy court, the court found a debtor's employment contract with his ex-wife should be construed as a domestic support obligation. In re Wibracht, No. 21-50477 (Bankr. W.D. Tex. March 31, 2022). The debtor (ex-husband) executed an employment contract with his ex-wife for her to help him, as the president of his company, in caring for their four children and dealing with "personal family matters as requested." After defaulting, the ex-wife obtained a six-figure judgment, and the ex-husband filed his chapter 7. The court analyzed section 101(14A) of the Bankruptcy Code and several Fifth Circuit cases. In its analysis, it determined while the employment agreement was ambiguous, the extrinsic evidence supported the conclusion that the employment agreement was domestic support. The court examined several factors, which generally favored the ex-wife, and included how long the obligation was to continue (the timeline tracked the typical alimony duration), the ex-wife’s entitlement to bonuses to pay down marital debt, the obligation was binding upon any of the debtor’s businesses and the agreement was merged into the divorce decree. The court interpreted the term "domestic support" broadly, with an emphasis on protecting an ex-spouse who depends on the debtor for financial support.
This case serves to remind us of the various areas of law that intersect with bankruptcy daily. The way a divorce decree (or related employment agreement) is written is extremely important in fact-sensitive cases such as this one. While the pandemic is hopefully behind us, divorces will continue to be filed and these types of issues will be raised. For a full analysis and review, check out the National Consumer Bankruptcy Rights Center post.
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