How does divorce impact bankruptcy?
What if you are considering both divorce and bankruptcy? This article can help.
Financial struggles are often a contributing factor in divorce. Those who find themselves attempting to navigate both divorce and a potential bankruptcy proceeding likely have a number of questions. One of the more common is which should a couple move forward with first – the divorce or the bankruptcy?
Unfortunately, there is not one simple answer to this question. The answer will depend on the details of your situation. However, some general guidelines can help.
Divorce first, then bankruptcy in these situations
Three examples of situations that generally benefit from a divorce first approach include:
- Income considerations. A successful bankruptcy petition must meet a number of criteria. One involves a review of income. If the earnings of one spouse disqualifies the other from bankruptcy, completion of the divorce first may be wise.
- Child custody. A parent that needs to gain custody of children from the other parent would likely benefit from pursuing divorce before dealing with the paperwork that can accompany a bankruptcy petition.
- Child support. Legal recourse is often available against a parent that fails to pay child support as directed within a divorce settlement agreement. As a result, parents that need these payments may be wise to file for divorce first.
Some may consider going through a divorce with the intention of discharging debts agreed upon within the divorce settlement through bankruptcy at a later date. Those going this route must keep in mind that there are some debts that will not qualify. The term discharge refers to the removal of the obligation to repay the debt. Support obligations are generally not dischargeable through bankruptcy. The court could consider obligations to pay the other spouse’s attorney fees or mortgage payments obligations that were “in the nature of support” and not allow for these debts to qualify for discharge through bankruptcy.
Bankruptcy first, then divorce
If possible, filing for bankruptcy first is generally the best option. Bankruptcy involves a court proceeding that requires a great deal of paperwork. If divorce is completed first, each individual may need to bear these expenses on their own. If bankruptcy is completed while still married, the costs can be split.
Completion of a bankruptcy first can also ease some of the property division issues that may arise during divorce. The couple will split not just assets during divorce, but also debts. By already dealing with debts, the couple can ease the negotiations that occur during this portion of the divorce and can smooth the transition into a fresh financial start once the divorce is finalized.