Bankruptcy and Divorce

The United States District Court (Sixth Circuit) recently affirmed a decision wherein the Trustee in the Wife’s bankruptcy sought to set aside a property division the parties divorce case. The case is In re Karen E. NEAL, Debtor, Andrew W. Suhar, Plaintiff–Appellant,v.Craig Bruno, Defendant–Appellee. Case No. 12–4206.

FACTS: Chapter 7 trustee brought adversary proceeding to set aside, on constructive fraudulent transfer grounds, debtor-wife’s transfer of former marital asset to her ex-husband pursuant to terms of agreed marital dissolution decree. The United States Bankruptcy Court for the Northern District of Ohio, Kay Woods, J., 461 B.R. 426, entered judgment in favor of trustee, and ex-husband appealed. The Bankruptcy Appellate Panel (BAP), C. Kathryn Preston, J., 478 B.R. 261, affirmed in part and reversed in part. Trustee appealed.

Decision: In affirming in part the decision of the lower court the Court of Appeals held that under Ohio law, both debtor-wife’s credit card debt and the loan from her parents, as debt incurred during the marriage and used for marital purposes, constituted “marital” debt for which debtor-husband was equally responsible, even though he was not contractually liable on the debt,and so such debt had to be included in determining whether debtor-wife received reasonably equivalent value during division of assets and liabilities in pre-petition divorce. Decision of bankruptcy court affirmed.