In re: Paul Ruitenberg, III

Before Paul filed for Chapter 7 bankruptcy, Paul and Candace were in divorce proceedings in New Jersey. No final judgment existed nor was there a division of marital assets. Based on an estimate of her expected share of marital assets, Candace filed a timely proof of claim for $577,935 against Paul’s bankruptcy estate, apparently premised on her stake in a partnership that was legally titled in Paul’s name and, therefore, passed to his bankruptcy estate. It would likely be distributed as shared marital property in a divorce decree. The trustee sought to expunge the claim, arguing that Candace’s interest in equitably dividing marital property in Paul’s bankruptcy estate was not a “claim” under 11 U.S.C. 101(5), because the state court had not entered a final divorce decree before Paul’s filing. The bankruptcy judge found that the claim for equitable distribution arose prepetition and must be allowed. On direct appeal, the Third Circuit affirmed. Although Candace did not have an equitable distribution decree in hand at the time Paul filed for bankruptcy, the focus should not be on when the claim accrues, but whether a claim exists. Given the Bankruptcy Code’s expansive definition of “claim,” a non-debtor spouse has an allowable pre-petition claim against the bankruptcy estate for equitable distribution of marital property when the parties are in divorce proceedings before the bankruptcy petition is filed. View "In re: Paul Ruitenberg, III" on Justia Law