This situation came up in In re: Jeffrey Todd Van Dermark, a 2008 case from the Bankruptcy Court in the Northern District of Texas.  Quick answer – the Husband had to pay the fees in full.  But read on, there’s more to it.

Quick Facts:

• Husband and Wife divorced in Georgia, in 2006.
• Wife had a contract with her attorneys and was required to pay them upon receipt of the invoice.
• In the Final Judgment and Decree of Divorce, Husband was ordered to pay $25,000.00 in attorney’s fees to Wife’s attorney.
• Wife ended up paying the firm the $25,000.00, and turned to Husband to be repaid.
• Husband filed for bankruptcy the next day, and tried to discharge the $25,000.00 debt.

Question for the Court

The question the Court was asked to answer was this – “Was the $25,000.00 a domestic support obligation under the bankruptcy code since Wife paid it and now demanded it from Husband, so protected as a priority claim?  Or was it not a domestic support obligation because the Husband was supposed to make the payment to Wife’s attorneys?”

The reason it matters is that if it was found to be a domestic support obligation, Husband would have to pay that $25,000.00 first (that claim has priority) and in full.  If not, the $25,000.00 claim would be reduced or fully discharged and Wife would be left out in the cold, having shelled out $25,000.00.

The argument provided by counsel was whether or not this claim was owed to Wife’s attorneys or to Wife under the domestic support obligation statute in the Bankruptcy code, and focused on Section 101(14A)(A) of the Bankruptcy Code, which states for a claim to be a domestic support obligation, it must be:

“a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt, as provided under applicable non bankruptcy law notwithstanding any other provision of this title  that is -

(A) owed to or recoverable by -

(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian or responsible relative; or…”

The Court looked first to the bankruptcy code’s definition of ‘claim,’ and found that it is a ‘right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent  matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured,” and that the definition was intentionally broad.  11 U.S.C. 101(5)(A); See In re Egleston, 448 F.3d 803, 812 (5th Cir. 2006).

The Court also turned to Georgia’s statutory definitions, since the Final Judgment and Decree of Divorce was out of Georgia, and found that it supported this claim as being owed to Wife, not just her attorney, per the language of the Decree of Divorce and under Georgia law.

Since that was the only argument asserted, and the Court found that the claim was, in fact, owed to and recoverable by Wife, the claim was a domestic support obligation.

Further Thoughts

One thing not argued, and which would have been interesting, is whether the Court believed it to fit the second requirement of a domestic support obligation, that the debt is

“(B) in the nature of alimony, maintenance, or support… of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;…”

- 11 U.S.C. 101(14A)(B)

I think the claim would have been denied that special status at that point.  The claim just does not fit the second part of the definition for a domestic support obligation.  Unfortunately, we will not know until a similar fact set occurs, the argument made, and an opinion issued.

Related Article:

Child Support and Bankruptcy

We do this sometimes in planning possession schedules or trying to help a client see options when it comes to visitation, especially if they choose to exercise possession once a weekend under the +100 miles provisions of the Texas Family Code.

Hope this helps.

1. a letter requesting the foreign order be registered and enforced;
2. two copies, including one certified copy, of the order to be registered;
   1. (If the original order has been modified, send the original plus all orders modifying to be on the safe side)
3. a sworn statement by the person requesting registration or a certified statement by the custodian of records showing the amount of any arrears;
4. the name of the obligor;
5. the obligor’s address and social security number, and any other source of income (if known);
6. a description and location of the property of the obligor not exempt from execution; and
7. the name of the obligee.

TEX. FAM. CODE 159.602(a)

The Texas Court should take and register the order at that point as a foreign order. Then, the registering party typically must send the notice outlined in 159.605, even though the court supposedly should send the notice. The reason is that without the notice, it can be easy to stall the process until proper notice is sent and the opportunity to contest passes.

TEX. FAM. CODE 159.602(b)

Notice means:

1. Informing the nonregistering party that the order has been registered, the date of registration, and that it may be enforced as any other order issued by Texas;
2. that a hearing to contest the validity or enforcement of the registered order must be requested within 20 days of the notice;
3. that failure to timely contest the validity or enforcement results in confirmation of the order and enforcement as well as precludes later contesting it; and
4. the amount of the arrears.

TEX. FAM. CODE 159.605

Note:

This is a brief overview. If you are planning on doing this, first, always consult with an attorney. Second, read the sections very carefully as this is just a brief overview.

• 1st Weekend – March 1 – 3
• 3rd Weekend – March 15 – 17
• 5th Weekend – March 29 – 31

And don’t forget Spring Break this month!  Look to your order to see who has Spring Break this year.

Click HERE for a blog post and year-long schedule.

Contingency fee contracts are normally used in situations where there is a chance of a large payout, but it will either take a lot of investment and/or the client cannot front the money to pay the lawyer without a successful outcome.  Good examples are personal injury cases.

Contingency fee contracts can require clients to pay expenses associated with the case, but typically do not require payment for attorney/staff time.  Instead, the client will pay a portion of any recovery to the attorney as the fee.  Expect at least 33% of any recovery to be taken by the attorney, up to 50%.  It just depends on the individual case.  Some even break out the percentage further, with (for example) 30% of any recovery before a demand letter is sent, 35% of any recovery after suit is filed, and 40% of any recovery of a judgment, should the case go to trial.

As always, read the contract closely.  Each contract can vary so pay close attention to the terms.  If you have a question, ask!  Your lawyer would rather have you understand the contract and the process up front so that both of you know what to expect.

Retainer Contracts: Contracts with Lawyers (1 of 3)

Flat Fee Contracts: Contracts with Lawyers (2 of 3)

LINK TO TEXAS CHILD SUPPORT CALCULATOR

Reasons Texas will allow an annulment if at the time of the marriage:

(1) The person was under the influence of alcohol or narcotics;

(2) A person is impotent at the time of the marriage and the other did not know;

(3) One person used fraud, duress or force to induce the other to marry them;

(4) One person was mentally incapacitated at the time of marriage;

(5) One person concealed a divorce from the other; and

(6) if the marriage took place during the mandatory 72 hour waiting period between the issuance of the license and the ceremony.

In each of the above cases, the person without capacity or knowledge of the condition must stop living with the other as soon as the condition becomes known, otherwise annulment is not an option.

Another interesting fact about annulments… the parties do not have to follow the mandatory sixty day waiting period that a divorce places on them, the annulment can be over in a matter of days if agreed, and in 45 days after issuance if a trial is properly requested after the answer date.

Flat fee contracts are typically used for situations where the legal work/time/fees needed is easily determined.  Common cases would be a no-contest divorce or a criminal matter.

The problem with flat fee contracts is that most are nonrefundable, and the contract spells out the terms of the representation.  If your case evolves outside of the contract, you lose that money and the representation.  For example, you pay a flat fee for a no-contest divorce, then it becomes contested.  At that point, your lawyer is free to step out because the contract states his representation is only for a no-contest divorce, which no longer applies.  Should a situation like that arise, most lawyers are happy to renegotiate the contract, but do not expect another flat fee!

As always, read the contract closely.  Each contract can vary so pay close attention to the terms.  If you have a question, ask!  Your lawyer would rather have you understand the contract and the process up front so that both of you know what to expect.

Retainer Contracts: Contracts with Lawyers (1 of 3)

Contingency Fee Contracts: Contracts with Lawyers (3 of 3)

Retainer contracts require an upfront amount, the retainer, to be placed with the law firm.  This goes into a trust account.  That money is held in trust until it is used by the lawyer working on your case and billing his or her time.  Sometimes expenses are also paid out of the trust retainer.  Expenses might include filing fees, service fees, copy fees and/or costs for depositions to name a few examples.

Some retainers have evergreen clauses, which state when your retainer hits a certain level, you must refill the retainer.  This makes sure that there is always an amount with the firm to cover time and expenses.

Most firms send out billing statements once a month.  The statements should tell you what was done during the past month on your case, how much it cost, and how much is left in the trust account.

Retainer contracts are commonly used in cases where the amount of time needed to pursue the case and/or the monetary payoff is uncertain and can vary greatly.  Family law lawyers normally use retainer contracts.

Always make sure you read the contract you will be signing, and if you have questions, ask.  The lawyer you work with wants you to understand that contract so that there is no misunderstanding later.  The lawyer wants to fight for  you, not fight with you.

Fee Contracts: Contract with Lawyers (2 of 3)

Contingency Fee Contracts: Contracts with Lawyers (3 of 3)