When Bankruptcy Meets Divorce

For divorcing couples who are overburdened with debt incurred during the marriage, the possibility of a bankruptcy filing by one spouse hangs over the other like a dark cloud.

Each divorcing spouse may have a different income, credit standing, attitude toward repayment of debts and bankruptcy, degree of appeal to a creditor seeking to collect on a debt, etc.

These differences can generate substantial tension and conflict during divorce. And fighting over them can prolong and drive up the cost of the divorce.

And in some cases, despite the best of intentions, how things will turn out is all but a foregone conclusion.

It may be prudent for each spouse to consult with a bankruptcy attorney before filing for divorce. Like it or not, it may well simplify the divorce to dispose of the debt through bankruptcy first.

Among other changes made in the new bankruptcy code, it is significantly harder for a spouse to evade their legal obligations to their spouse under a settlement agreement in family court through a bankruptcy filing.

But, as under the old bankruptcy code, creditors can still target either spouse who signed for the debt.

In cases where bankruptcy is a real possibility, the marital settlement agreement should make special provisions to protect a spouse from a bankruptcy filing by the other.

Read more in this California-issued press release: The Intersection of Divorce and Bankruptcy.