In this otherwise routine divorce proceeding, the unique question, hitherto unanswered in New Jersey, is the effect of plaintiff husband's bankruptcy on equitable distribution of the marital home.
In this 11-year marriage the principal asset for distribution is the marital home. The divorce action was filed on May 27, 1979.
Plaintiff husband filed a petition in bankruptcy on August 28, 1979. On or about October 19, 1979 the Bankruptcy Court of the United States District Court issued a discharge in bankruptcy duly adjudging plaintiff, Daniel P. Lee, to be bankrupt and releasing him from all dischargeable debts.
The issue of child support or alimony was not before the bankruptcy court, for these support obligations are not dischargeable under 11 U.S.C.A. 523(a)(5) and were not listed in plaintiff's petition. However, plaintiff's undivided interest in the marital home was listed as an asset eligible for distribution to creditors for satisfaction of their claims. Pursuant to 11 U.S.C.A. 542(a), title to the husband's share of the marital home was vested in the trustee until such time as the debtor's interest in the property was sold at judicial sale.
Defendant wife was the only bidder at the sale and she purchased the husband's interest for $1800, only $50 more than the husband's bid, on January 29, 1981. The trustee tendered his deed to defendant wife on February 25, 1981.
The sole issue is whether the former marital residence is now subject to equitable distribution, notwithstanding the husband's bankruptcy and the fact that his interest in the marital residence, previously vested in the trustee, is now vested in the wife, she having acquired same during marriage prior to divorce.
Plaintiff husband argues that the unique nature of the tenancy by the entirety forecloses competitive bidding and enables the other spouse (who did not join in the bankruptcy petition) to defeat his right to equitable distribution of a marital asset at a substantial discount, and (as here) for only $50 more than bid by him. He says that the property was acquired during the marriage and was owned by him on the date of the complaint. Surely both parties here had legal and beneficial ownership and use of the asset. The court notes that the asset was not owned by the husband on the date of trial when the court made equitable distribution. Property not in esse cannot thus be distributed. Carlsen v. Carlsen , 72 N.J. 363 (1977).
The Bankruptcy Code contains a number of exceptions to a discharge from a particular type of debt. Included in this category are alimony or maintenance and support of a wife and child. 11 U.S.C.A. 523(a)(5); Stein v. Fellerman , 144 N.J. Super. 444 (App.Div.1976). The nondischargeability of a husband's obligation to pay alimony and support is apparently premised on a legislative determination designed to protect the wife and children from destitution and to prevent the husband from becoming freed of such obligation by the mere adjudication of bankruptcy.
However, it is similarly well established that other financial obligations of a party to a divorce proceeding are dischargeable, provided that such obligation is unrelated to the support and maintenance of the wife and children. Stein, supra; In re Alcorn , 162 F. Supp. 206 (N.D.Cal.1958). It is well established that the provisions of a property settlement agreement unrelated to alimony and support are dischargeable in bankruptcy. Stein, supra; In re Cox , 543 F.2d 1277 (10 Cir. 1977).
It has been the law of this State since King v. Greene , 30 N.J. 395 (1959), that in a tenancy by the entirety the interest of one spouse was subject to execution by his or her creditors and that the purchase of such spouse's interest in the real estate at an execution sale acquired such spouse's right of survivorship. The court, in overruling previous New Jersey law on this issue, held that the judgment creditors of either spouse may levy and execute upon their separate rights of survivorship, and the court noted there is no compelling policy why a judgment creditor should be prohibited or deprived ...