## Facts

- Paul A. Werthen and Kathleen Werthen divorced in Massachusetts; they had four children, and Kathleen was the primary caretaker during the marriage.
- Paul was the primary wage earner, employed in his family’s business and holding a significant equity interest; the family lived at a middle-to-high income level.
- The divorce court found Kathleen’s earning capacity was limited by a back injury and curtailed education, and that Paul hindered her efforts to become financially independent.
- The divorce court also found Paul engaged in misconduct during the marriage and used tactics during the divorce to reduce Kathleen’s recovery.
- The amended divorce judgment awarded weekly child support and periodic payments labeled “Child Support and Alimony,” including a share of future bonuses.
- The judgment also imposed obligations labeled “Property Division,” including (1) a cash award tied to a portion of Paul’s past bonuses and (2) a cash award equal to 40% of Paul’s equity interest in the family business.
- The “property division” awards were payable over a lengthy schedule, largely through annual installments over roughly 11 years.
- Within about 90 days after the final divorce judgment, Paul filed Chapter 7; Kathleen sought a determination that the past bonus and stock awards were nondischargeable as support under 11 U.S.C. § 523(a)(5).
- The bankruptcy court held both obligations were support in substance and nondischargeable; the Bankruptcy Appellate Panel affirmed.

## Issues

1. Whether divorce obligations labeled “property division” (the past bonus award and stock award) were “actually in the nature of alimony, maintenance, or support” and therefore nondischargeable under 11 U.S.C. § 523(a)(5).

## Decision

- The First Circuit affirmed the Bankruptcy Appellate Panel and the bankruptcy court.
- The court held the past bonus award and the stock award, though labeled “property division,” functioned as support and were nondischargeable under § 523(a)(5).
- The court treated the characterization as a factual determination and upheld it under clear-error review, describing the case as close but supported by the record.

## Legal Principles

- Dischargeability under 11 U.S.C. § 523(a)(5) turns on federal law and the obligation’s function, not the state court’s label.
- A debt is nondischargeable if, at the time of the divorce, it was intended to provide support (alimony, maintenance, or support) for a spouse or child.
- Courts assess substance by examining the recipient spouse’s needs and earning capacity, the payor’s ability to pay, and the structure and timing of payments.
- Long-term, installment-based payments may indicate support when they provide a continuing income stream for a dependent custodial spouse.
- The existence of separate, expressly labeled alimony or child support does not preclude treating additional divorce obligations as support when the overall award functions to sustain the spouse and children.
- Appellate review of a bankruptcy court’s “in the nature of support” determination is for clear error, and deference is given when supported by the record.

## Conclusion

The First Circuit held that the divorce decree’s past bonus and stock-payment obligations, though styled as property division, operated as support in light of Kathleen’s limited earning capacity, custodial responsibilities, and the installment structure, making the debts nondischargeable under 11 U.S.C. § 523(a)(5).


In re Werthen, 329 F.3d 269 (1st Cir. 2003)