If you are getting divorced, you may also be contemplating bankruptcy. Maybe not right away, but there may be a feeling in the back of your head that bankruptcy may be in your future. You are not alone; the financial stresses of divorce often lead to bankruptcy.
If you are the spouse who is not filing for bankruptcy, you may have concern over the other spouse filing for bankruptcy. What will happen to your child support? To agreements regarding property division? To your alimony? Will they all go away when your spouse files for bankruptcy?
Support is Not Dischargeable
As a general rule, all support which is ordered in a divorce, whether that support is for the spouse or the children, is not dischargeable in bankruptcy. It does not matter whether the support was agreed on by the spouses in a settlement, or whether it was ordered in the course of a full divorce trial. The obligation will not go away if the paying spouse files for bankruptcy.
What about other types of support? In many agreements, there is support that is not specifically labeled as support. For example, parties may agree that instead of alimony, one spouse will get a larger share of the division of property. Or, instead of some child support, a party will create a college fund for the child or pay for an after school activity or a medical expense.
Those kinds of obligations are not specifically labeled as “alimony” or “child support.” So can the paying spouse get out of paying those obligations through bankruptcy?
The answer is no. Bankruptcy courts will look beyond the language or label of what is in your marital separation or divorce agreement, to see whether an obligation is in the nature of, or whether it was intended to be support. If so, the obligation cannot be discharged.
Language in Settlement Agreements Can Have an Impact
You will often see language in divorce agreements that say “this obligation is not in the nature of support,” or something similar. The good thing about this language is that it could provide you some relief from paying it, if you file for bankruptcy. Of course, if you are the recipient spouse, you may not want that language included because it gives the paying spouse a way to avoid paying if he or she files for bankruptcy.
On the other hand, if property division or some other payment is intended to be a replacement for alimony or child support, to ensure that it cannot be wiped out in bankruptcy, it is always a good idea to say that the payment or property division is “instead of alimony,” or that it is some concession for a reduced child support payment. That way, if your (ex) spouse ever opts to file for bankruptcy, you have a way of protecting what is owed to you.
Contact our New Jersey Divorce attorneys at The Law Office of Agnes Rybar LLC to help you protect your interests now and in the future, if you are getting divorced.