How to Manage a Divorce & Bankruptcy at the Same Time

Divorce and bankruptcy are two of the most stressful events that can happen during the course of your life. What’s even more difficult is when they happen at the same time. 

This happens more often than you might think, considering that often financial difficulties and mismanagement are contributing factors when a couple decides to get a divorce. 

Managing both these processes can be difficult, but with the right legal advice, you can come out the other end holding on to as many of your assets as possible. Below we’ll address three questions that are likely to arise if you face bankruptcy and divorce. 

When is the Best Time to File for Bankruptcy?

There is no hard and fast rule concerning when you should file for bankruptcy in relation to filing for divorce. In general, if you and your spouse are cooperating, it may be better to do so before the divorce. Part of this has to do with exemption planning, which we’ll get into in more detail below. 

If you and your spouse are not cooperating, it’s generally better to wait until after the divorce case to file for bankruptcy. This is because it can become even messier to determine how to split the debts in court. 

Which of the Expenses From Divorce Proceedings are Dischargeable in Bankruptcy?

If, after a divorce proceeding, it is determined that one spouse owes the other any kind of support payment, be that child or spousal support, bankruptcy cannot discharge this obligation. The payor will have to honor the divorce settlement even after going through bankruptcy proceedings. 

However, this is not necessarily the case when dealing with property settlements. Often divorce rulings include “equalization payments”, say, for example, that one spouse gets the house, and the other spouse is required to pay them $100,000 by the end of the next year. If the second spouse files for bankruptcy, they may no longer be obligated to pay the $100,000 property settlement. 

How are Jointly Owned Assets Looked at During Bankruptcy?

California is a community property state, meaning all property is shared between both spouses. When filing for bankruptcy, all the community property is available to pay the debts of either spouse. 

One of the ways to get around this is by careful exemption planning. Bankruptcy court doesn’t intend to leave anyone destitute and allows you to make certain exemptions, such as your house, which you aren’t up for grabs in bankruptcy proceedings. 

This is one of the reasons it may make sense to file for bankruptcy before divorce if both spouses are cooperating: it allows more flexibility in the exemption planning and can help you hang on to as many of your assets as possible. 

Working With Hart Ginney LLP

We hope these tips have helped you think about how to manage your bankruptcy and divorce simultaneously, but to have a maximally successful divorce and bankruptcy process, you’ll need legal advice from an experienced team of experts. 

Our team at Hart Ginney is prepared to help you take those next steps as effectively as possible. Contact us today to learn more about how we can help you.