Bankruptcy and Divorce: Which Comes First?

If you have filed for divorce and your spouse suddenly files for bankruptcy, you may be wondering how this is going to affect you, if at all. In order to understand exactly what is going to happen in the situation, you must first have a handle on some basic family law terms.

A Final Judgment of Divorce, or Divorce Decree, is issued by a family law judge in order to completely dissolve the marriage.  The Divorce Decree becomes finalized when it is signed by both you and your spouse and in some cases, your respective attorneys.

The Property Settlement Agreement, sometimes known as the PSA, is a document that accompanies the Divorce Decree.  The PSA sets out the terms of your divorce and all of your assets and liabilities. This is the document wherein you and your spouse determine which portion of the marital debt will be paid by each party.  You and your spouse will come to an agreement that has you responsible for certain debts and your spouse responsible for another portion of the marital debts.

With all of that being said, your creditors have absolutely no interest in whether or not you and your spouse have decided to get divorced, regardless of the reasons.  The Property Settlement Agreement sets out a payment agreement between you and the other party for all debts acquired during the marriage, however, this is simply an agreement between you and your spouse, and in no way does this lift your legal liability for these debts.

Unfortunately, if you agreed to get (and added your name to) that credit card that your spouse maxed out, creditors do not care who did all of the shopping.  The only thing they are concerned with is that they get paid, and they are not concerned with who pays them – regardless of any PSA that you and your spouse may have agreed to.

Perhaps your spouse is filing for bankruptcy now because he or she has learned that once a divorce is finalized, any marital debt he or she has agreed to pay cannot be discharged in a bankruptcy. By filing before the Divorce Decree, or Final Judgment of Divorce is signed, your spouse may be attempting to eliminate as much debt as possible.

What this means for you is that you could potentially end up with some of the debt that your husband or wife may no longer be liable for thanks to the bankruptcy filing. Creditors may come after you, expecting you to pay for your spouse’s portion of the debt that has been “magically” lifted from his/her responsibilities through bankruptcy.

You may also be forced into bankruptcy yourself if this happens, so it is important to be fully aware of your spouse’s actions and intentions regarding the agreed-upon marital debts, so that you don’t end up squeezed into a corner that you can’t get out of.  There are solutions for you if you find yourself divorced with creditors breathing down your neck for debts that your spouse agreed to be responsible for.  In order to keep yourself above water, you need to retain the services of a high-quality bankruptcy attorney immediately.

Photo credit: Brian Ambrozy

Veitengruber Law and the Divorce Attorney: How We Can Help You

Today’s post marks the first in a series entitled ‘Veitengruber Law and the Professional: How We Can Help You.’  In this series we will focus on one professional group each week who could definitely benefit from teaming up with us, and we’ll explain why it would be beneficial to work with us.  This week, we focus on all of the divorce lawyers out there.

While bankruptcy and divorce are two separate legal processes that are sort of at odds with eachother, the reality is that they both happen at the same time more often than not. Many couples who are heading down the path toward divorce are spending more money than they have because most are trying to support two households if one party has moved out.  Quite a few people end up putting their attorney’s fees on a credit card, and, depending on the complexity level of the divorce and how long it drags out…credit cards can get maxed out.  Conversely, it’s possible that money problems during the marriage were what led to the divorce in the first place.  Disagreements over money are one of the number one reasons why couples just can’t make things work in their relationships.

Whatever the case may be, if you are a divorce attorney who is handling a multitude of cases that sound like this, working together with a bankruptcy attorney can be a wise decision.  When the couple in question has a divorce attorney and a bankruptcy attorney working in tandem for them, they will likely end up paying less in attorneys’ fees. If the divorce becomes finalized and then they decide to file for bankruptcy, it must be done separately, thus demanding hiring two bankruptcy attorneys and paying twice the fees that they (obviously) didn’t have in the first place.

Veitengruber Law specializes in bankruptcy and debt resolution matters, and we’ve seen enough cases involving divorced or divorcing couples that we’ve devised a way to improve the process for many of these couples and their divorce attorneys. By working together, we can provide y(our) clients with the services they need at the appropriate time; killing two birds with one proverbial stone.

Because filing for bankruptcy and divorce at the same time can be complicated, we would like to help you when you need guidance for these particular clients.  Call upon us to evaluate each case on an individual basis, much like you will call on many other professionals throughout the course of the divorce, like appraisers, CPA’s and custody evaluators and mediators. We can also guide your client(s) through the process of amending their estate plan, or last will and testament, as needed.

Instead of attempting to juggle all of the financial complexities that present themselves during any divorce, let us deal with the complicated laws surrounding personal bankruptcy and estate planning while you focus on all of the obstacles that are bound to arise in family court. This makes both of our jobs easier, and it helps the clients. We call that a win/win/win.


Photo provided by The Tax Haven.