5th Circuit: Take Your Ex's Marital Property, It Wont be Discharged

Posted on Feb 15, 2014

The Shankles divorced in 1999. The husband was ordered to split certain accounts equally with his ex-wife. Instead, he took more than his share, and spent it. For doing so, the state court found him in contempt of court twice, and then gave his wife a judgment against him for $150,000, $97,000 of which was for marital property that he had been ordered to give to his ex, but never did. In 2005, he filed chapter 7 bankruptcy.

His ex-wife objected to the discharge of the marital property debt in chapter 7, saying it was a "willful and malicious injury" under Section 523(a)(6) of the Bankruptcy Code. The Bankruptcy Court agreed. The debtor appealed, but the U.S. District Court affirmed the award for the ex-wife. The husband appealed to the 5th Circuit Court of Appeal.

In an unpublished decision, the 5th Circuit affirmed, holding:

"An injury is willful and malicious when there is either a sub-jective motive to cause harm or an objective substantial certainty of harm. (citing) Miller v. J.D. Abrams Inc. (In re Miller), 156 F.3d 598, 606 (5th Cir. 1998)...

"Accordingly, we agree with the district court that the bankruptcy court correctly exercised its discretion in finding that Michael's repeated refusal to transfer marital assets, despite multiple contempt orders, constituted an objective substantial certainty of harm to Dianne and, as a result, a willful and malicious injury under § 523(a)(6). Because the bankruptcy court did not clearly err, we AFFIRM the judgment of the district court." In the Matter of Shankle, Court of Appeals, 5th Circuit 2014.

Notably, this kind of a debt may be dischargeable in chapter 13 of the Bankruptcy Code, had Mr. Shankle filed it instead. Debts that are for "willful and malicious injuries" may be discharged in chapter 13 unless they are related to personal injury or wrongful death, which this one was not.

Perhaps the debtor did not qualify for chapter 13 relief, or perhaps he just did not want to see any money whatsoever go to his ex-spouse, and in chapter 13 she would have received some money, albeit usually a small dividend.

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