Georgia residents may be interested in a case from their state that set an important precedent when it comes to making divorce agreements. In a march 2017 decision, a federal bankruptcy judge overruled a Georgia Superior Court judge's order that a divorce settlement couldn't be wiped out in bankruptcy.
The case involved a couple who had filed for divorce. In the divorce agreement, one spouse was required to pay the other spouse $53,000 as part of the asset division process. The party who was required to pay the money filed for Chapter 13 bankruptcy shortly after the divorce. The divorce decree also included a clause stating that the property division amount could not be discharged in bankruptcy. This means that even after the bankruptcy payment plan was complete, the party would still be liable for the balance of the $53,000 that had not been paid under the plan.
The bankruptcy court, however, rejected this. Under bankruptcy law, property division debts can be discharged in bankruptcy, whereas child support and alimony payments generally cannot. Since the court considered the $53,000 debt to be part of the asset division process, it remained in the dischargeable category. The court stated that declaring certain debts non-dischargeable in a divorce agreement or even an order from divorce court is beyond that court's jurisdiction. It held that bankruptcy matters can only be decided in bankruptcy court and according to bankruptcy laws, not in divorce court.
The complex relationships between different aspects of the law are hard to prepare for. Many divorce agreements involve property division, and it is important that such agreements be created carefully and with thought to the future, including bankruptcy.