The sad reality is that sometimes, bankruptcy and a New Jersey divorce accompany one another. That does not mean they have to—it just means that often, the financial stresses of a divorce lead one spouse or the other to seek bankruptcy. Sometimes, the fact that a couple was having financial troubles during the marriage leads to the divorce.
Regardless of why, many people ask how bankruptcy affects divorce, and whether it is better to do one first, and then the other. As an initial matter, if you are thinking about bankruptcy, you should consult with a bankruptcy attorney to make sure that you are eligible to file. If so, there are things you may want to take into consideration when it comes to timing bankruptcy with your divorce.
Things to Think About
First, remember that bankruptcy is not a way to convince the family law court that you cannot pay alimony or child support. There are other ways of doing that that are less drastic than bankruptcy.
Also, remember that bankruptcy will not change, alter or excuse child support, alimony, or most other financial obligations that are ordered or agreed to in the divorce, because these obligations are generally non dischargeable.
Things that you put into your marital settlement agreement when you divirce, can alter bankruptcy protections. For example, an annuity, life insurance policy, or other asset where there is a beneficiary may be exempt (protected) from bankruptcy. But if the marital settlement agreement makes someone who is not a beneficiary on the policy entitled to receive payments, such as an ex-spouse or child, those payments may not be protected.
Divorce can also alter bankruptcy protections that exist between property that is jointly owned by a husband and a wife (called tenancy by the entirety).
In some cases, only “supportive” alimony is non-dischargeable—if your marital settlement agreement makes your alimony “rehabilitative,” you could lose that protection.
Before or After?
One positive about filing for bankruptcy, is that there may be less to fight about in your divorce, as many of the debts that you would normally have to divide up between the spouses, now are mostly (or all) gone.
However, depending on what you own, you also could lose things in a bankruptcy that you will need after your divorce. You may be anticipating dividing the two family cars among both spouses. If for some reason one of those cars can be taken by the bankruptcy court, that can cause you some unexpected problems in the divorce.
Both spouses do not have to file a joint bankruptcy. However, if you are the one filing, and you have a significant amount of debt discharged, it can affect your support obligation—a court could look at your new, disposable income, compared to your spouse who has none, and it could impact determinations on child support, alimony or property division.
Divorce can be stressful. We can help. Contact our New Jersey Divorce attorneys at The Law Office of Agnes Rybar LLC to help you with any kind of family law problem that you may have.