Impact on Future Community Property Interests
This discussion of community property is from “Overview of Arizona Divorce Principles for Bankruptcy Practitioners” by John McKindles
Learn more about Mr. McKindles's
Family Law practice
Do you have a quick legal question?
Call John McKindles at 480-964-9302 for a
no-charge, five-minute phone call.
Table of Contents
B. Separate Property
C. Liability for Debts of Spouse
Jurisdiction to Control and
Dispose of Community and Separate Property Assets
Jurisdiction to Determine
Separate Property Rights
Jurisdiction Over Allocation and
Disposition of Debt
ERISA Retirement Plans and the
Community Property and the
I. Priority of Past Due Support Over
J. Protection of Dissolution and
Advisability of Joint Bankruptcy
Filing and Conflict of Interest Problems
Impact on Future Community
M. Impact of Discharge on Secured
Future community property
interests will not be liable for debt discharged in bankruptcy. See
Flexmaster Aluminum Awning Co., Inc. v. Hirschberg, infra.
As to other “future”
community property interest or as yet unvested community property interest, 11
USC §541 incorporates certain possible future interests within the bankruptcy
estate under subparagraph 5.
Section 541 states, in
relevant portions, as follows:
of a case under sections 301, 302, or 303 of this title creates an estate.
Such estate is comprised of all the following property, wherever located
and by whomever held.
(2) All interests of
the debtor and the debtor’s spouse in community property as of the
commencement of the case that is ... (A) under the sole, equal, or joint
management and control of the debtor, or (B) liable for an allowance claim
against the debtor, or for both an allowable claim against the debtor and
an allowable claim against the debtor’s spouse, to the extent that such
interest is so liable.
Further relevant to the
community property issue is subparagraph 5, which states:
(5) Any interest in
property that would have been property of the estate if such interest had
been an interest of the debtor on the date of the filing of the petition,
and that the debtor acquires or becomes entitled to acquire within 180 days
after such date ... (A) by bequest, devise, or inheritance, (B) as a result
of a property settlement agreement with the debtor’s spouse, or of an
interlocutory or final Divorce Decree ...
An example of the type of
asset covered by the 180 day rule is a debtor’s interest in a deceased spouse’s
life insurance policy, which interest was acquired within 120 days after the
commencement of her Chapter 7 case. This was not an unliquidated claim and
thereby was an asset of the estate. In Re Pettigrew, Bkrtcy. E.D. MO.
1990, 115 B.R. 214.
At least one court has
interpreted the 180-day rule as intended for the benefit of the debtor, not
creditors, as having its obvious purpose the exclusion from the estate certain
property acquired by the debtor after the bankruptcy was filed. In Re Clark,
Bkrtcy. S.D.FLA. 1982 26 B.R. 263.
See also In Re
Vassilowitch, Bkrtcy. D.MASS. 1987, 72 B.R. 803, in which a divorce decree
was entered prior to the debtor’s filing of a Chapter 7 Bankruptcy Petition. The
Decree provided that the marital home would remain in joint names of the spouses
and, upon sale, the non-debtor spouse would receive two-thirds of the proceeds
and the debtor spouse only one-third. The court ruled that only one-third
interest in the proceeds became property of the estate.
Closer to home, however,
the Bankruptcy Court in California held that where one of the spouses filed
bankruptcy after the dissolution of the marital status but prior to the division
of the couple’s community property, the “debtor spouse” under the code was broad
enough to include the debtor’s former spouse so that all the community property
then existing of the couple became property of the bankruptcy estate. M Re
Hiller, Bkrtcy. C.D. Cal. 1994. 167 B.R. 202. However, see also In Re
LaNess, Bkrtcy. C.D. Cal. 1993. 1-59 B.R. 916. In this case, the parties had
been divorced for two years prior to the debtor spouse filing bankruptcy. The
community property had not yet been divided pursuant to the terms of the decree
that called for an approximately equal split of the community property. In that
case, the court held that the term “spouse” as used in the statute was not broad
enough to include the former spouse from whom the debtor had been divorced for
approximately two years when the petition for bankruptcy was filed.