When considering a divorce, couples may want to take some precautions to prevent unexpected surprises. In many states, including Colorado, overpayment of spousal support may not be dischargeable when filing for bankruptcy. Under the marital separation agreement, the debt must qualify as a domestic support obligation. There are currently four prerequisites for domestic support obligation: The debt must be owed to a spouse, in the nature of alimony, the result of a legal separation and the debt must not be assigned to a non-governmental entity.
If the debtor enters another marriage-like relationship for a specific period of time, the court may order the termination of the spousal support from the creditor retroactively. The receiving ex-spouse may be left with a financial obligation to refund the over payments and cover the legal fees imposed by the creditor.
After the dissolution of marriage, many spouses face complex financial disputes. The receiving spouse may file for Chapter 7 protection, but in most cases, the over payments may be still considered as non-dischargeable. The attorney’s fees may have to be paid by either party, depending on the court’s ruling. Both spouses may appeal to Bankruptcy Appellate Panel to reach an agreement.
If the debt arises as a result of a judgment in favor of the paying spouse, the receiving spouse may be facing garnishment of wages to repay the debt. After the divorce is final, the paying spouse often seeks reduction of monthly support leaving the dependent spouse without sufficient means of living. As the court proceedings are typically prolonged, all post-marital obligations should be continued until the case is resolved. A family law attorney may be able to help with the process of divorce and spousal support issues as well as guidance in understanding the legal terms and court proceedings.
Source: Bloomberg, “Debt Owed To Ex-Husband For Overpayment Of Spousal Support Is Nondischargeable“, Diane Davis, December 13, 2013