If you're separated and considering divorce, or are already in the divorce process, then it's essential to understand all of the variables which are at play. Financial concerns are of course of key importance to any divorce. From there, one issue which often arises is bankruptcy. In this guide, learn more about how bankruptcy and divorce may intersect under different circumstances, and what it all means.
Bankruptcy and divorce come together fairly commonly. In fact, in many cases one of these will actually lead to the other:
- Bankruptcy may lead to divorce if, as an example, financial difficulties and disagreements create hostility, distance or unhappiness between a couple.
- Conversely, a divorce may leave one party in worse financial circumstances than he or she was planning on. Here, the divorce more or less led to the bankruptcy.
However, even if this isn't the place that you find yourself in, divorce and bankruptcy still are entangled with one another. One of the most important issues at hand if both divorce and bankruptcy are on the way, and both parties knows it, is whether or not you should file for bankruptcy first, or file for divorce first.
Consider the following topics to help you determine the best course of action in this case:
- Cost of filing for bankruptcy: Filing for bankruptcy jointly, as a couple, will usually have a lower cost than two individual filings. Not only in terms of the actual court fees, but also typically in whatever attorney fees you end up owing.
- Property: In both bankruptcy and divorce, property is being divided or changing hands. Filing bankruptcy first allows you more evenly and clearly to split up what is being remained. It generally simplifies the situation. However, it's also very important to keep in mind your state's property exemptions, and how much property you have. In Maryland, couples filing for bankruptcy jointly essentially get to double their total exemption -- they each get a full set or value or exemptions. Therefore, filing bankruptcy first allows the two of you to keep more of your own stuff, even if you end up splitting it up after.
- Bankruptcy During Divorce: Another very important note is that if bankruptcy is filed by one party during the divorce process, an automatic stay is placed on the divorce proceedings in terms of property division until the bankruptcy is completed, which can be a lengthy process on its own. Therefore, some parties may try to delay final divorce outcomes via filing for bankruptcy during, as opposed to waiting for after.
- Amicability: Some couples have so much resentment during a divorce process that even if it is in their best interests they cannot bring themselves to work with the other to handle a bankruptcy filing. In such instances, the divorce will need to be filed and completed before individual bankruptcies are filed afterwards.
Also, remember that filing bankruptcy does not discharge or otherwise eliminate child or spousal support. The other party cannot get out of his or her financial obligations there. However, filing for a Chapter 13 bankruptcy payment plan may help to free up more funds, allowing those obligations to be consistently paid in full until they're removed.
Divorce and bankruptcy will inevitably continue to be linked for many individuals and couples. With the above information though, hopefully you'll be more well prepared, and understand some of the very important issues involved.
Brandon A. Bernstein is an experienced bankruptcy and divorce lawyer in Maryland. In 2014, he was named to the Super Lawyers Rising Stars list in the state. Mr. Bernstein's practice, the Law Offices of Brandon Bernstein, is based in Bethesda, and can be visited online at BrandonBernsteinLaw.com.