Divorce and Bankruptcy

QuestionDivorce and BankruptcyMy husband is a spendthrift and we are deeply in debt. Money, or rather, the lack of it, is a constant source of irritation in our marriage, and we have talked about divorce in the past. Now, due to his business problems, my husband says we may be facing bankruptcy. If I go ahead and file for divorce, will that protect me from his bankruptcy?

AnswerMoney problems can frequently put a marriage on the skids, and bankruptcy can derail a divorce as well.

If you are married and your husband declares bankruptcy, your attorney may advise you to join with your husband in filing for bankruptcy, particularly in a community property state such as California.

A joint bankruptcy will wipe the slate clean for both of you. If you don’t join in the action, when his bankruptcy gets him off the hook for joint debt the creditors will pursue you to collect the full amount.

If you are in the process of divorce when he files for bankruptcy, your divorce proceedings will come to a screeching halt until the bankruptcy proceedings are complete.

If the divorce is complete before your husband files for bankruptcy, you may not be dragged into bankruptcy yourself. However, if your financial situation is such that your debts will force you into bankruptcy, it probably will be cheaper for you and your husband to file jointly for bankruptcy before you complete your divorce proceedings.

Each situation is different. Consult a competent bankruptcy attorney who represents debtors to find out what works best in your situation. Bankruptcy should not be taken lightly, but too many people delay facing the inevitable, and do themselves irreparable financial harm in the meantime.

If bankruptcy is inescapable, its better to confront it now head on.

Comments

  1. My husband of 5 years and I are divorcing based on the fact that he took the liberty of using our common property plus my retirement (which I had accumulated before him) and invested it in very aggressive stock and lost it all! My attorney does not seem to be aggressive enough, but his associate mentioned that my husband could be “penalized” for mishandling common property funds. He mentioned the word “fiduciary ….”. Can you tell me how does it work and do I have a case against him?
    Ania

    • Your husband has the obligation to handle your funds in a responsible manner. Talk to your attorney more about the arguments you could make and your chances of success. It may be tough – since he was investing his funds as well as yours, a judge could rule that his investment, though risky, was not a breach of his fiduciary obligation. I once had a judge tell a my client, “Well, ma’am, if the investment had succeeded, you wouldn’t be here arguing that he should receive all the profit. So I’m not going to charge him with the entire loss.”

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