Family Law Obligations Secured by Consensual Liens
Before Farrey v. Sanderfoot gave protection from avoidance to most family law judgment liens, some family law practitioners may have obtained deeds of trust to secure their clients’ obligations to prevent them from being avoided under 522(f)(1)(A). A recent Ninth Circuit bankruptcy appellate panel decision, however, should alert practitioners to the fact that this practice is not without its own risks. In re DiSalvo, 221 B.R. 769 (Bankr. 9th Cir. 1997). In DiSalvo, the spouse ignored the deed of trust and executed her family law judgment on other property of the debtor spouse. The bankruptcy court held that the creditor spouse had violated the one form of action rule, Cal. Civ. Proc. Code 726(a), and had not only waived her security but also extinguished her entire claim. The bankruptcy appellate panel affirmed the lower court’s decision that the one form of action rule applied to this type of deed of trust and that the creditor spouse had violated the rule and had thereby lost her security. However, the panel reversed the ruling that the creditor spouse had extinguished her claim, concluding that this sanction was too harsh.
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ALIMONY PROTECTION – The former spouse who is owed money in a property settlement should consider the advantage of having the majority of the funds classified as alimony. Since alimony is non-dischargeable, the strategy protects future cash payments as much as possible.
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