When Filing for Bankruptcy and Divorce, Which One Comes First?
Considering that money issues often lead couples to end their marriages, it is not surprising that a bankruptcy filing can complicate divorce. Attempting to handle both at the same time often causes unnecessary additional stress and unanticipated consequences. Couples need to look carefully at their current financial circumstances and their overall goals before initiating either legal process.
Both the divorce and bankruptcy processes are highly complex due to their profound effects on spouses’ and other family members’ financial situations far into the future. Before deciding which legal process to initiate first, couples need to perform a comprehensive assessment of their details, including the following:
- Qualifications for bankruptcy — Each form of bankruptcy carries its own set of qualification requirements. For example, Chapter 7 bankruptcy applies a means test to determine if your income falls below a specific level. In this case, a couple whose combined income exceeds that level may want to divorce first if filing Chapter 7 is the goal.
- Bankruptcy exemptions — Certain property is exempted from liquidation in bankruptcy, and the value of exempted property is higher for a married couple than for an individual. To keep more property, a couple might prefer to stay married until the bankruptcy proceedings have concluded.
- Property division issues — The moment a person files bankruptcy, his or her property falls under control of the bankruptcy trustee, making it unavailable for property division decisions in divorce. In some cases, divorcing prior to bankruptcy may protect assets — particularly if they fall to the party who is not filing for bankruptcy. At other times, couples may choose to take care of the bankruptcy liquidation process first, simplifying property division in divorce.
- Child and spousal support — Obligations to pay any type of support after divorce cannot typically be discharged in bankruptcy proceedings. However, it is possible that the post-bankruptcy financial circumstances of either spouse can affect the results of the support settlement agreement. The spouses may have different viewpoints on timing depending on who is paying and who is receiving support.
Before finalizing any decisions about filing divorce or bankruptcy, couples should seek advice from a Southern Maryland law firm with significant experience handling a wide range of personal, family and financial legal issues. A skilled attorney can review the full breadth of options with spouses and help them arrive at a mutually beneficial solution.