Question: My former husband and I were involved in an Internet business during the last two years of our six-year marriage – the second marriage for each of us. He was not working when we married, but I was. He talked me into taking $25,000 that I had received from my parents’ estates, and investing it into this Internet business. The business gave me a note. At first, the business made money, but my ex began to run up debt on my credit cards to the tune of $15,000. Then he lost interest in the enterprise and began to play around with the woman who handled the Website. The business went away, and he went away with her.

During the time we were negotiating, my husband went back to work part-time. I demanded that he assume all of the debt and pay off the note, but he couldn’t get a loan because his credit was terrible. I did not want to take his note, and was afraid that he might go bankrupt, so my lawyer suggested that I take a lump sum alimony amount payable over five years that would be taxable to me, from which I could repay the debt. This is what I did.

My husband made three payments and stopped. When I tried to get the court to enforce the payments, he filed for Chapter 7 bankruptcy, and, according to my divorce lawyer, the family court was stopped from holding him in contempt. Now I am told by my bankruptcy lawyer that my alimony will be discharged, and I will receive nothing. How can this be? I was told by my divorce lawyer that bankruptcy would not discharge support.

Answer: As you have learned, labels are not everything. Even though the matrimonial lawyers called the payments "lump sum alimony" payable over a period of years, because the underlying obligation is not "in the nature of alimony, maintenance, or support", your award is dischargeable in bankruptcy.

Since the provisions of the bankruptcy code don’t provide for the discharge of obligations for alimony, maintenance, or child support, the bankruptcy judge is charged with the responsibility to decide if the underlying obligation is debt or support.

The factors generally used in making this determination may include (1) what the obligation is called in the divorce documents, (2) where and how the obligation is placed in the documents, (3) whether the obligation terminates on death or another contingency, (4) the financial standing and resources of you and your former spouse, (5) how long you were married, (6) whether there are minor children, and (7) your comparative ages, educations, and employability.

In your situation, it seems clear that while called “alimony,” the payments are actually repayment of debt to you that is in the nature of property settlement, not support. While lump sum alimony is an appropriate award under certain circumstances, poor attempts to disguise property settlement as support will be sniffed out by the bankruptcy court.

Where, as here, 1) you clearly intended for the debt payments to be called alimony in order to prevent bankruptcy discharge, 2) there was obviously no need for you to receive support, and 3) the payment did not terminate on a contingency, we don’t see where the bankruptcy court’s finding was a stretch.

SoloFact: Attempts to disguise property settlement as support to avoid bankruptcy are difficult to pull off when negotiation documents clearly reflect the true nature of the payments.