Bankruptcy Court Declines Divorce Valuation
By Snyder & Sarno on May 25, 2016
Following a divorce proceeding, the husband filed a Chapter 13 bankruptcy petition and asked for confirmation of his plan. The Bankruptcy Court said its decision depended on the value of the husband’s minority share in his dental practice (i.e., whether they adopted the valuation in the divorce proceeding or found a separate indicator of value).
In In Re Cole, the husband owned a 25% interest in a dental practice. In a divorce proceeding between the husband and his wife, the wife’s expert opined that the value of the husband’s interest was $212,000. The husband’s expert opined that the husband’s interest was only $15,800. The divorce court adopted the wife’s expert’s valuation of the husband’s interest.
In a Chapter 13 bankruptcy proceeding, creditors receive present value payments that are at least equal to the amount the creditors would receive in a Chapter 7 liquidation. The issue was whether the husband’s confirmation plan met the liquidation test under the Bankruptcy Code’s section 1325(a)(4). In a Chapter 7 liquidation, if the divorce valuation was utilized, the creditors would have received much greater payments than under the husband’s Chapter 13 plan.
The Bankruptcy Court said that the divorce valuation was not determinative. In a Chapter 7 liquidation, a trustee is asked to “reduce to money the property of the bankruptcy estate” by selling or disposing the property in other ways. This is different from determining the intrinsic value in a divorce proceeding. However, the Bankruptcy Court rejected that the husband’s interest was worth “zero”. It determined that the husband’s interest would have significant value in a Chapter 7 liquidation. The husband’s plan failed to satisfy the liquidation test.
The court declined to adopt the divorce valuation because it required a different line of examination than was applicable in a Chapter 7 liquidation. The indicator of value that the court believed to be the most reliable was the amount based on the shareholder agreement formula.
If you have an issue with a divorce proceeding, contact the skilled matrimonial attorneys at Snyder & Sarno, LLC. The attorneys at Snyder & Sarno are experienced in handling cases where the parties share children. Call us today at (973) 274-5200.
Related to This
"I was involved in a VERY complicated and tumultuous child custody, divorce, domestic violence case for two full years. I was fortunate enough to be represented by one of the top matrimonial teams in the state of NJ, and the outcome in my case exceeded my every expectation." - Former Client"Paul personally stood by my side and represented me throughout my injury case. Whether it was business at hand, advice, or a late night phone call to help me understand what was going on; he never took a step back towards helping me. I knew that I could call on him at any time . My case was very successful and I attribute that to Paul's dedication . He even came to me during a snow storm when I could not make it to his office. I certainly would recommend him to anyone." - Former Client