The Good, the Bad, and the Ugly: Bankruptcy, Divorce, and Marital Property
By In Larsen-Ball v. Ball, 2010 WL 143854 (Tenn.), the Tennessee Supreme Court held that a $17 million attorney fee acquired by the husband after the divorce action was filed, but before entry of the final decree, was marital property subject to equitable distribution. In January 2006, the wife filed for divorce in Knox County. Seven months later, the husband received a $17 million dollar fee from a class action lawsuit in South Carolina. The final divorce decree was entered a year later in August 2007.
In holding that the $17 million was marital property subject to equitable distribution, the Court interpreted the definition of marital property found at T.C.A. § 36-4-121(b)(1)(A). The Court also considered its previous ruling in Alford v. Alford, 120 S.W.2d 810 (Tenn. 2003), in which it held that “marital debts” include all debts incurred by either or both spouses up to the date of the final divorce hearing.
It would be interesting to see whether this case would have turned out differently if Mr. Ball had filed for bankruptcy protection before receiving the $17 million attorney fee award. One the one hand, normally, a non-debtor spouse would not have the right to claim the income of the debtor spouse. On the other hand, bankruptcy courts in Tennessee have held that a state divorce court’s division of marital property in a divorce action filed prepetition defines what is property of the bankruptcy estate even if the division of property is made after the bankruptcy case is filed. See, e.g., In re Coffey, 348 B.R. 775, 781 (E.D.Tenn. 2006). So, if Mr. Ball had filed bankruptcy after the divorce action was filed, but before receiving the large fee, he would argue that the large fee should be used to pay creditors rather than be available for equitable distribution with his wife. However, Mrs. Ball would argue that, even though the fee was received after the bankruptcy case was filed, the fee constituted marital property such that the divorce court should get to decide how to divide those funds. This is believed to be an unresolved issue of law.
Related content
- Mixing Detainer Actions and Foreclosures
- Non-dischargeability and Intent to Defraud
- Disclosure in Bankruptcy: When Too Little and Too Late Bar a Lawsuit
Previous Post