Family Law and Bankruptcy—Dischargeability of Debts Assigned to Spouse in Marriage Settlement Agreement

In re Carrion, __ B.R. __  (B.A.P. 9th Cir. May 31, 2019).  During marriage, the debtor borrowed $21,894 from the U.S. Department of Education to pay tuition for his son’s college education.  His wife later filed a petition for dissolution of marriage and, around the same time, they filed a joint chapter 7 petition.  In their marriage settlement agreement, husband and wife both agreed to be liable for half of the education loan.  Husband later filed a lawsuit against the department of education asserting that the educational loan was void because wife obtained it through identity theft.  The bankruptcy court rejected the identity theft argument and ruled that the husband’s one half of the educational loan was nondischargeable under 11 U.S.C § 523(a)(8).  The Department appealed to the Bankruptcy Appellate Panel for the Ninth Circuit, arguing that the full amount of the educational loan was nondischargeable.  The BAP agreed with the Department and reversed.  The BAP reasoned based on Cal. Fam. Code § 916(a)(1), which provides that after division of community property: “[t]he separate property owned by a married person at the time of the division and the property received by the person in the division is liable for a debt incurred by the person before or during marriage and the person is personally liable for the debt, whether or not the debt was assigned for payment by the person’s spouse in the division.”  The marriage settlement agreement did not eliminate the debtor husband’s liability to the creditor.  The entire debt was owed by the husband.