Dischargability of a Marital Obligation in Bankruptcy - Bankruptcy Filing in a Divorce Proceeding

Horvath v. Horvath, 2010-Ohio-316
Third District Court of Appeals
Union County
Rendered February 1, 2010


Plaintiff-Appellant/Cross-Appellee Suzanne Horvath (“Suzanne”)appeals the June 5, 2009 Judgment Entry of the Union County Court of Common Pleas, Domestic Relations Division, granting a divorce between Suzanne and Defendant-Appellee/Cross-Appellant Jeffrey Louis Horvath (“Jeffrey”) specifying the division of marital property and apportioning the marital debt between the parties. We will focus on Suzanne’s claim that the TC erred by equally dividing the parties’ marital debt when Ms. Horvath received a discharge in Bankruptcy for the outstanding marital debt owed to Jeffrey.

On January 15, 2008, Suzanne filed a complaint for divorce. On July 8, 2008, the Court stayed the divorce proceedings due to Suzanne’s filing of a Chapter 7 Bankruptcy petition. In Suzanne’s voluntary petition for bankruptcy, Suzanne listed Jeffrey as an unsecured creditor with a disputed non-priority claim. In describing Jeffrey’s claim, Suzanne stated, “potential disputed claim of estranged spouse” and listed the amount of the claim as “unknown”.

At trial, Suzanne presented the testimony of her Bankruptcy attorney and her Bankruptcy petition was entered into evidence. When the trial court equally split the marital debt (including the joint debt Suzanne had listed in the petition), Suzanne appealed. Suzanne argues that he action of listing Jeffrey as a potential creditor in her Bankruptcy petition - regardless of any claim actually materializing during the pendency of the Bankruptcy or thereafter - deprived the state trial court of jurisdiction to apportion any of the marital debt to her in the subsequent divorce action.

The Court of Appeals held that based on the principles of concurrent jurisdiction shared by the trial court and the Bankruptcy court in these matters, the TC had the authority to divide the marital debts in dispute.

From the Opinion:

Adopting Suzanne’s argument would effectively allow any party in a pending state divorce case to file a bankruptcy petition listing one debt and naming the spouse as a potential creditor and thereby permanently deprive the state court of any further authority to apportion marital debt between the parties— not only for those debts actually listed in the bankruptcy—but as to any debts that could have been listed.

We are not persuaded that Suzanne’s argument is consistent with basic principles of concurrent jurisdiction between the state and federal judicial systems in domestic relations matters. See Barnett v Barnett (1984), 9 Ohio St.3d 47, 49, 458 N.E.2d 834. Nor is Suzanne’s argument consistent with the “domestic relations exception” to federal jurisdiction which recognizes that state courts have exclusive jurisdiction in matters involving the issuance of a divorce, alimony, or
child support. See In Re: McMinis (Bkrtcy.N.D.Ohio 2008), No. 07-32411; see also Ankenbrant v. Richards (1992), 504 U.S. 689, 704.

In domestic relations matters, it has been established that state courts have concurrent jurisdiction with the bankruptcy courts in determining the allocation of specific obligations that arise from divorce actions. Barnett, supra. In particular, other appellate districts have stated that the nature of concurrent jurisdiction permits a state court to determine the dischargeability of a marital obligation despite the fact that the issue of dischargeability of that debt was not raised in the bankruptcy. See Loveday v. Loveday, (stating “that when [the] dischargeability of a marital debt is not raised in bankruptcy court, then it is an issue which may be ruled on by a court with concurrent jurisdiction after the discharge in bankruptcy.”); see also Markley v. Markley, 9th Dist. No. 07CA0085, 2008-Ohio-3208 (reiterating that the concurrent jurisdiction allows a state court to rule on the issue of a marital debt after a discharge in bankruptcy).