Indemnification Debt Arose in the Course of Divorce

The following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.

Minnesota Bankruptcy Case:

Wallace v. Marble (In re Marble), 426 B.R. 316 (B.A.P. 8th Cir. (Mo.) 3/31/10) (Kressel, C.J.).

Case Summary:

Indemnification Debt Arose in the Course of Divorce

The Eighth Circuit BAP affirms the bankruptcy court’s conclusion that one spouse’s agreement to indemnify the other against certain debt is non-dischargeable under pre- BAPCPA §523(a)(5)(B). As part of a marital settlement agreement, husband agreed to indemnify and hold harmless his wife against all marital liabilities except their mortgage. Five years later he filed Chapter 7 and did not list his ex-wife as a creditor. After he received his discharge, his ex-wife was sued for breach of an agreement related to his former business, which she had been required to sign. She sought a determination in bankruptcy court that the debtor’s obligation to her under the marital settlement agreement is not dischargeable under §§523(a)(5) and (15). The bankruptcy court granted judgment on the pleadings against the debtor. On appeal, the debtor argued that his obligation arose before the divorce, when the business agreement was signed, and not in connection with the settlement agreement. Reviewing the grant of judgment on the pleadings de novo, the BAP affirms, holding that the debt at issue is not the old business debt, but rather his obligation to hold his ex-wife harmless in the marital settlement agreement, which was incorporated into the marriage dissolution judgment. The BAP also notes that it was proper for the court to consider the terms of the marital settlement agreement, which was attached as an exhibit to the complaint, when granting judgment on the pleadings.

Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.