When a deal is too good of deal - Blog by John A. Schuh

January 23, 2014

While many domestic relations cases in Ohio can be contested, there are some whose facts lend themselves to waving a white flag and walking away.  In a recent case that made its way to the 6th Circuit Ct. of Appeals, the wife involved had left her under-employed husband and found a new relationship.  She had multiple credit card obligations that were incurred during the marriage and desirous of just getting out of the failed marriage and getting on with her new life, her under-employed husband walked away with an agreement that was a pretty good deal. It wasn’t really a big case nor was it a great deal for the husband, but he did walk away with some equity in real estate and she walked away with the debts.

The problem for the under-employed husband began when the ex-wife filed a bankruptcy case in order to free herself of the credit card debts.  Her Trustee in bankruptcy filed a suit against the former husband asserting that a constructively fraudulent transfer had occurred.  The idea behind a constructive fraud is that it is not necessary to prove that an asset was transferred away with intent to defraud the ex-wife’s creditors, but rather that a transfer was made without “reasonably equivalent value” in exchange at a time of insolvency, regardless of intent.  In In re Neal the former wife’s Trustee in bankruptcy prevailed in establishing that the ex-husband got too good of a deal such that he was required to pay to the Trustee $47,000 that eventually was distributed to the ex-wife’s creditors.

This decision went through a trial court and two appeals so the decision carries much weight in future cases.  While domestic relations courts are required to make an “equitable” division of property (as opposed to an equal one), the decision should be a warning to domestic relations attorneys.  At Schuh & Goldberg, LLP we offer services to review domestic relations agreements and make suggestions about documenting that an “equitable” arrangement was achieved so that a good deal doesn’t turn into a bad one in a subsequent bankruptcy case. -  John Schuh