The Effect of Bankruptcy on Divorce

Daniel and Miranda’s biggest arguments revolved around money. As their debts piled up, creditors called daily and their relationship suffered. They reached a certain point where they began to consider filing for bankruptcy and filing for divorce. However, they needed to consider the effect of bankruptcy on divorce before taking any action.

The Connection Between Bankruptcy and Divorce

Financial incompatibility often strains a relationship to the breaking point. That’s probably why money trouble continues to be one of the most common reasons people decide to divorce. For some, filing bankruptcy may help with reconciliation. Others may decide it’s time to call it quits on their marriage.

When bankruptcy and divorce happen simultaneously, it’s important to remember:

  • Filing bankruptcy freezes most assets and debts as they become part of the bankruptcy estate.
  • Bankruptcy court generally deals with the bankruptcy estate before the family court can divide debts and assets.
  • Debtors may claim exemptions to protect certain assets and debts.

Like most legal matters, bankruptcy and divorce are complicated.

Divorce Issues Affected by Bankruptcy

Because there are so many factors involved – some competing – it is impossible to say all divorces will be easier or harder when bankruptcy is involved. However, many people may be concerned about property division and support payments.

Property division includes dividing both marital assets and marital debts. When a married couple files for bankruptcy together, joint debts become part of the bankruptcy estate. If you and your spouse owe a lot of money, bankruptcy before divorce may help because debts that are dischargeable in bankruptcy should be gone or at least placed in a repayment plan.

On the other hand, the division of assets and debts may be disrupted when only one spouse files for bankruptcy. If your spouse decides to take this course of action but you do not, talk to an attorney immediately. Creditors may attempt collection only on the spouse who did not file bankruptcy.

Spouses may threaten bankruptcy as a way to avoid paying child support and spousal support. While some debts may be discharged, spousal support and child support are non-dischargeable. Support payments owed before a bankruptcy filing are actually given priority over other debts. Interestingly, debts eliminated through bankruptcy may leave more money for the payment of spousal and/or child support.

Discuss the Effect of Bankruptcy on Divorce with Your California Divorce Attorney

Your financial future post-divorce may depend on the legal advice you get now.

The attorneys at the Law Offices of Judy L. Burger are experienced at all phases of divorce, legal separation, and annulment. Call us at 415-293-8314 to schedule a private appointment or visit our website. We maintain offices in San Francisco, San Diego, Beverly Hills, Marin County, Santa Barbara, Ventura/Oxnard, San Jose, Gold River (Sacramento), and surrounding communities.