After an article recently published in the May 2009 Family Law News, a news letter put out by the Family Law Section of the Arizona State Bar, an honorable commissioner in Maricopa County, Arizona, sent an email to McGuire Gardner requesting additional clarification. His email request, my response, and his reply were substantially as follows:

Dear Douglas and Pernell:

I very much enjoyed your article on bankruptcy issues in the May 2009 issue of Family Law News, from the State Bar of Arizona.

As sort of a follow-up to your article, I have a question that I wonder if I could pose to you.  I would appreciate your thoughts.

Arizona has the “one-action” rule, in which all issues are to be resolved within one decree of dissolution.  This has recently been the subject of opinions from the Court of Appeals.  When the divorce case comes up for trial or default hearing and a bankruptcy is proceeding, can the Superior Court proceed with any issues?

Some judicial officers in Maricopa County will not allow a case to proceed to dissolution of marriage if a bankruptcy is pending.  Some of their options are to have the case converted to a custody/paternity case and leave spousal maintenance and property unresolved.

It seems to me, however, that the Superior Court can proceed.  As your article points out, spousal maintenance, child support, custody and parenting time are not restricted by the automatic stay.  Since property division is not handled at the time of the entry of the decree, do the property issues proceed thereafter as a partition action?  Do they proceed back to Family Court as “reserved items”?

I look forward to your thoughts.

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Dear Commissioner,

I appreciate your inquiry.  Below are my neutral thoughts on the matter, though I may need to make alternate arguments in certain cases, to fully represent my client.

Your question pertains to the interplay between the Federal Bankruptcy laws and our State Dissolution Statutes.

Arizona Statute, A.R.S. § 25-312 provides:  “The court shall enter a decree of dissolution of marriage if it finds each of the following:  . . . (4) To the extent it has jurisdiction to do so, the court has considered, approved and made provision for child custody, the support of any natural or adopted child common to the parties of the marriage entitled to support, the maintenance of either spouse and the disposition of property.”  A.R.S. § 25-313(5) has similar language pertaining to Decrees of Legal Separation.

Accordingly, a mandatory finding in order to grant a dissolution is that the Court has taken care of all issues relevant to the divorce.  There is, however, the limiting language: “To the extent it has jurisdiction to do so.”

In cases where Arizona does not have jurisdiction over the Respondent, Arizona can simply provide for the divorce.  The division of property would then be completed in a state with jurisdiction over the Respondent.  This often occurs when service is accomplished through publication.  Similarly, Arizona can only exercise jurisdiction over child support issues if certain jurisdictional requirements have been met.  A.R.S. § 25-1221.  It is possible for Arizona to have jurisdiction over the children and custody issues under the UCCJEA (A.R.S. § 25-1000 et seq.) and not have jurisdiction over child support.

Turning now to the Federal Bankruptcy Code, 11 USC § 362 sets forth the broad powers of the Automatic Stay.  The general rule is that the filing of a bankruptcy case “operates as a stay applicable to all entities, of (a)(1) the commencement or continuation . . . of a judicial . . . proceeding against the debtor . . . (3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate; . . .”

However, specifically exempted from the powers of the automatic stay, are certain support provisions, custody,  and the dissolution itself.  11 USC § 362(b) provides that the automatic stay “does not operate as a stay (2)(A) of the commencement or continuation of a civil action or proceeding (i) for the establishment of paternity; (ii) for the establishment or modification of an order for domestic support obligations; (iii) concerning child custody or visitation; (iv) for the dissolution of a marriage, except to the extent that such proceeding seeks to determine the division of property that is property of the estate or (v) regarding domestic violence.”  11 USC § 362(b)(2)(B-C) additionally allows for collection or withholding of income for support obligations.

The logic behind these federal exceptions to the otherwise powerful automatic stay lies in preventing abuse of bankruptcy where the filing of a bankruptcy would be utilized to prevent a spouse or dependent children from obtaining necessary financial support.

Ultimately, under Federal Bankruptcy Law, the state court divorce judge or commissioner has the legal right to proceed in spite of the bankruptcy in all aspects of a standard divorce, except for the distribution of assets and debts of the parties.

Synthesizing the limits of Federal Bankruptcy Law and the automatic stay, with the requirement of the Judge or Commissioner to make provisions for all issues in the divorce case “to the extent it has jurisdiction to do so,” it is my opinion that the court can proceed in granting the divorce, entering custody orders, child support orders, spousal maintenance orders, and all aspects of the divorce, except for the division of property and debts.  Because the state court lacks jurisdiction to do so, the issue of property and debts must be reserved until the bankruptcy is completed or until the Bankruptcy Court has lifted the automatic stay as to the division of the assets and debts.  If a divorce is granted before the expiration or lifting of the automatic stay, the remaining issues of the division of property and debts would be treated separately as a reserved issue, similar to a case in which the parties were divorced in another state but the property and debt issues were not provided for in that jurisdiction, or divorced when service was accomplished by publication.

Sincerely

Douglas C. Gardner J.D./M.B.A.

McGuire Gardner P.L.L.C.

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Dear Mr. Gardner

Thank you for your response.  As the Judge says in the movie, My Cousin Vinny, “Counsel, that is a lucid, intelligent and well-thought out objection.”  In this case, your comments were not an objection but were lucid, intelligent and well-thought out!  And I am not “Overruling” your comments, as I agree with them 110%.

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