A new court opinion issued by the 8th Circuit Court of Appeals declares that alimony is part of the bankruptcy estate and can be liquidated by the Chapter 7 Trustee unless a specific state exemption protecting the alimony award exists. In re Mehlhaff, 2013 Bankr. LEXIS 944 (Bankr. D.S.D., Mar. 12, 2013).
Prior to filing bankruptcy in 2012, Laura Mehlhaff received an award of $200 per month alimony until her minor child reached age eighteen in 2014. The opinion does not state whether the alimony would terminate upon the death of Laura or her ex-husband or upon the remarriage of Laura, but most alimony awards terminate upon the occurrence of either event. However, it appears that South Dakota law provides that alimony is a property right and the Supreme Court of South Dakota in another case allowed a creditor to place a lien against an award of alimony.
if alimony is the kind of property right to which a lien can attach, it is the kind of property right that becomes property of the estate when a bankruptcy is filed. In re Mehlhaff.
The bad news is that Nebraska does not have a specific exemption law protecting alimony, and it appears that the 8th Circuit may have overruled a prior Nebraska bankruptcy opinion declaring that monthly alimony payments were not part of the bankruptcy estate. In re Loftus, Nebraska case number 97-82311. In that case Judge Mahoney ruled that:
A plain reading of the language of the divorce decree in question indicates that each month [the debtor] is entitled to the payments only if she is alive, her ex-husband is alive, and she is not remarried. . . .The Court finds that the alimony payments from [the debtor’s] ex-husband accrue each month.
In other words, since the alimony accrues each month, there is not a present right to receive the future payments and the alimony is not a property right.
The Nebraska Supreme Court has spoken on the issue of whether alimony is a property right. “This court on numerous occasions has held that alimony and allocation of property rights are distinguishable and have different purposes in marriage dissolution proceedings, but they are still closely related in the matter of determining the amount to be allowed.” McBride v. McBride, 211 Neb. 459 (Neb. 1982).
The question for Nebraska bankruptcy attorneys and Trustees is whether the 8th Circuit’s opinion in Mehlhaff overrules Judge Mahoney’s opinion in Loftus. What was once settled law in Nebraska is now no longer clear until a new opinion is issued or until the Nebraska legislature provides an alimony specific exemption law.
Until this issue is clarified, I would advise debtors holding significant alimony awards in Nebraska to avoid Chapter 7 and opt for the safer waters of Chapter 13.