Divorce & Bankruptcy

Bankruptcies don’t happen overnight, nor in a week or a month. The courts are full of bankruptcies of every kind and you have to wait your turn. In the meantime, you and your spouse are under a terrific amount of stress, which can really weaken a marriage.

If a divorce looms in your future, careful bankruptcy planning can:

· Reduce tensions between you and your soon-to-be ex-spouse

· Make divorce simpler

· Help produce a marital settlement that both parties can live with that will hold up in a future bankruptcy

On the other hand, blundering through a divorce without carefully considering the possible effects of bankruptcy may bring results that neither party wants, such as:

Unproductive and expensive fights about who’s going to pay certain bills, especially when both are better off eliminating the debts in bankruptcy
Hostilities resulting from one party believing he got the short end of the stick
Unnecessary losses of assets to a bankruptcy trustee

Financial obligations arising from a divorce decree (or a marital settlement agreement adopted by the divorce court) may require payment of:

Money for child support and schooling
Life and health insurance premiums
Alimony or maintenance for your ex-spouse
Your ex-spouse’s divorce attorney fees
A sum of money to compensate your ex for his interest in joint property
Certain debts so your ex doesn’t have to pay them

Note: The court may enter a Qualified Domestic Relations Order that gives your spouse immediate ownership in part of your entire retirement plan. Your ex-spouse has an immediate ownership interest in your pension. In other words, he owns it, you don’t.

The divorce court can award jointly owned property to one spouse or if you have a rental house, a divorce court can rule that you own the home by yourself and your ex gets the rental property. The courts can also award jointly owned property to one spouse but requires you to pay the other spouse half the amount the house is worth.

When bankruptcy and divorce intersect, careful timing can make all the difference between success and disaster. Although, each situation is unique, as a general rule:

When you have no assets to divide, no third-party debts (like joint credit-card accounts) to allocate, and no support tissues, you need to file bankruptcy prior to fining for divorce. That way, you can file a joint bankruptcy, getting two for the price of one and making your divorce much simpler.
In other cases, filing and completing your divorce before actually filing for bankruptcy usually is best.

Although delaying bankruptcy until after the divorce is finished ordinarily is better, starting to make plans for your bankruptcy nevertheless makes sense.