Lana Kay Paggen
24-12010
Bankr.D. Colo.Mar 11, 2025Background
- Lana Kay Paggen (Debtor) filed for Chapter 13 bankruptcy protection; her ex-husband, Randy Lynn Sherbon, Jr., filed a $110,226.54 claim against her estate, asserting it was a domestic support obligation (DSO) entitled to priority.
- The claim arose from a divorce proceeding where a Colorado state court's Permanent Orders required Paggen to pay Sherbon as an equalization payment for property division, not for spousal support or maintenance.
- Neither party requested, nor did the divorce court award, maintenance (alimony); the dispute at trial was entirely about division of marital property and debts.
- Both parties were employed at the time of divorce, with Sherbon earning around $85,000 annually and Paggen earning approximately $120,000.
- The bankruptcy court was asked to determine if Sherbon's claim was, in substance and intent, a domestic support obligation (entitled to priority) or simply a property division (general unsecured claim).
Issues
| Issue | Sherbon's Argument | Paggen's Argument | Held |
|---|---|---|---|
| Is the $110,226.54 claim a domestic support obligation (DSO) under 11 U.S.C. § 507(a)(1)? | Payment is in the nature of support and thus a DSO entitled to priority. | Payment is part of property division, not support; thus, not a DSO. | Not a DSO; it is property division, not entitled to Section 507(a)(1) priority. |
Key Cases Cited
- Sylvester v. Sylvester, 865 F.2d 1164 (10th Cir. 1989) (federal law governs classification of obligations as support or property division in bankruptcy)
- Sampson v. Sampson (In re Sampson), 997 F.2d 717 (10th Cir. 1993) (bankruptcy courts must look to substance, not just labels, when deciding if an obligation is support)
- Taylor v. Taylor (In re Taylor), 737 F.3d 670 (10th Cir. 2013) (establishes dual inquiry for DSO: court's/parties' intent and substantive effect of obligation)
- Goin v. Goin (In re Goin), 808 F.2d 1391 (10th Cir. 1987) (when evaluating DSO, consider substance over form)
- Young v. Young (In re Young), 35 F.3d 499 (10th Cir. 1994) (bankruptcy court is to look beyond the labels to actual intent and effect of obligation)