When you are considering divorce litigation, you may have additional problems if one spouse is considering bankruptcy. Sometimes, if one spouse files for bankruptcy, especially during a divorce, the other spouse does not wish to also declare bankruptcy. This situation presents its own problems: what will happen to the other spouse? Who gets control of community property?
You might wonder how a spouse who does not also declare bankruptcy will take control of his or her own finances, such that they protect their own assets and keep their portion of the divorce settlement separate from their spouses. By filing jointly, spouses can regain control of their financial situation and avoid a lot of the pitfalls that come with separation of bankruptcy claims- but it will have to be clear in the divorce settlement who is responsible for what.
Divorce Litigation and Filing For Bankruptcy
Often people decide to file bankruptcy together, since it can remove a lot of the hassle from the process. However, you might want to consider whether one spouse is able to manage his finances on his own, fully taking care of his financial burden. This might be determined by the amount of resources that someone has.
If the person who needs to file for bankruptcy has most of the debts in his or her name, and the other spouse’s name is not listed on these debts, you should consider the fact that one spouse declaring bankruptcy could be a better situation. This is especially true when involved in divorce litigation- since the spouse with the debts will be responsible for those debts after the divorce and only his portion of assets from the divorce will be used in bankruptcy.
Protecting your Assets
If you are in a situation in which you are divorcing and a spouse is declaring bankruptcy, there are several things to consider before filing jointly.
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First, consider whether or not you are expecting to inherit anything in the near future. Although this might not be a pleasant thought, understand that any inheritances that come to you directly will then have to be factored into the bankruptcy plan.
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Then, think if there are any other potential prospects that could be in your future that would be an asset you want to keep. If so, similarly, you might want to reconsider filing with your partner.
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You also need to understand that if debt is in both of your names, a divorce decree won't change that- you'll still be responsible for paying. If you know your spouse is going to declare bankruptcy after divorce, then creditors could potentially come after you to pay those debts.
When you are considering bankruptcy before divorce, make sure to clearly define what belongs specifically to you and what is considered community property. Then, the legal proceedings of divorce litigation will establish which spouse is responsible for what asset, property, debts, and bills. In some cases, this means that you are able to protect what is rightfully your own and not worry about other expenses. At the same time, you might realize that some of the bills will become yours to pay if you do not declare bankruptcy with your spouse.
Getting Help
Each case of married couples going through bankruptcy proceedings brings different problems. Since there can be benefits and downfalls to declaring jointly or separately, consider talking to your divorce attorney who can assist you in determining whether you should both file a joint bankruptcy before divorce or whether you should split up first and have your spouse declare bankruptcy only after the divorce litigation is final.
