In re Werthen

Kathleen Werthen (Kathleen) (plaintiff) and Paul Werthen (Paul) (defendant) were married in 1982. In 1985, Kathleen filed for divorce in a Massachusetts state court. The final divorce decree was issued in 2000. During the marriage, Paul earned approximately $150,000 per year from work at a family business in which he held a substantial equity interest. Kathleen was the primary caretaker of the couple’s four young children. Her education was limited, in part because Paul hindered her from obtaining a college degree. She also had back problems that restricted her ability to work. In its final decree, the court awarded Kathleen, as “Child Support and Alimony,” one-third of Paul’s future bonuses and $450 per week in child support. The court acknowledged that the future bonuses were easily manipulable by the family business. As “Property Division,” the court awarded Kathleen $124,485.84, which represented a portion of Paul’s past bonuses (the past bonus award), and $611,163.20, which represented 40 percent of Paul’s equity interest in his family business (the stock award). Payment of the past bonus and stock awards was to be made in nine yearly installments of $50,000 followed by catch-up payments totaling more than $200,000 in years 10 and 11. Within 90 days of the final decree, Paul filed a Chapter 7 bankruptcy petition. Kathleen requested that the bankruptcy court rule the bonus and stock awards nondischargeable under 11 U.S.C. § 523(a)(5). Paul objected. Emphasizing Kathleen’s otherwise limited financial resources and the protracted period for payment of the bonus and stock awards, the bankruptcy court held that the payments were nondischargeable payments of support or alimony under 11 U.S.C. § 523(a)(5). The Bankruptcy Appellate Panel for the First Circuit (BAP) affirmed. Paul appealed.