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Keywords

appealtrustbankruptcydivorce
bankruptcydivorceobjection

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In re Ruitenberg, 745 F.3d 647, 71 Collier Bankr.Cas.2d 482, Bankr. L. Rep. P 82,600

Facts

Paul Ruitenberg filed for bankruptcy under Chapter 7 while in the midst of divorce proceedings with his estranged wife, Candace. At the time of the bankruptcy filing, no final judgment of divorce had been entered, and no division of marital assets had occurred. Candace filed a proof of claim for $577,935 against Paul's bankruptcy estate, asserting her right to an equitable distribution of marital property. The Chapter 7 trustee, Thomas J. Orr, sought to expunge this claim, arguing that it was not a valid claim under the Bankruptcy Code since a final divorce decree had not been issued.

Based on an estimate of her expected share of marital assets, Candace filed a timely proof of claim for $577,935 (the 'Claim') against Paul's bankruptcy estate.

Issue

Whether Candace Ruitenberg's interest in an equitable share of marital property pending her divorce from Paul Ruitenberg, III is a pre-petition 'claim' against Paul's bankruptcy estate.

The issue has divided Bankruptcy Courts in our Circuit.

Rule

A 'claim' under the Bankruptcy Code is defined as a 'right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.'

It is in relevant part a 'right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured [.]'

Analysis

The court applied the broad definition of 'claim' under § 101(5) of the Bankruptcy Code, determining that Candace's interest in the marital property, although contingent and unliquidated, constituted a valid claim against the bankruptcy estate. The court noted that the interest arose from the marital relationship and was recognized under New Jersey law, which allows for certain rights to marital property to exist even before a divorce decree is finalized. The court rejected the trustee's argument that the claim could only exist post-petition, emphasizing that the timing of the claim's accrual was not the focus, but rather the existence of the claim itself.

Even if no final judgment of divorce existed for Candace and Paul when he entered bankruptcy, her interest was, at the least, unliquidated and contingent on a final decree apportioning marital property, perhaps unmatured, and likely disputed. But, no matter, it literally is a 'claim' under § 101(5).

Conclusion

The Court of Appeals affirmed the Bankruptcy Court's decision, allowing Candace's claim against Paul's bankruptcy estate as a pre-petition claim for equitable distribution of marital property.

Accordingly, we affirm the well-reasoned decision of Bankruptcy Judge Lyons overruling Orr's objection and allowing Candace's Claim.

Who won?

Candace Ruitenberg prevailed in the case because the court recognized her interest in the marital property as a valid pre-petition claim under the Bankruptcy Code, despite the absence of a final divorce decree.

The pending claim for equitable distribution against [Paul's] bankruptcy estate arose prepetition and must be allowed.

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