Is Equitable Distribution Dischargeable in Bankruptcy?


The end of a marriage isn’t what anyone plans for when they’re saying their vows. However, the reality is that divorce happens sometimes, and it when it does, it brings a lot of financial negotiations along with it. Child support, alimony, who keeps the family home, who’ll be responsible for paying off marital credit cards – these are all financial decisions that will have to be negotiated between the two parties. If the parties can’t agree on the terms, then your family court judge will make the decisions for you.

Divorce can be financially destructive and leaves many newly single people wondering if filing for bankruptcy would be in their best interest. If you acquired all of the marital credit card debt, the mortgage and car payments, bankruptcy would definitely help you reorganize (if not eliminate) many of those debts. Naturally, you’d more than likely need to find a new place to live, especially if you choose to go the Chapter 7 route, which liquidates as many of your assets as possible in order to pay back your creditors.

On the other hand, there are some financial ramifications of divorce that fall into the category of ‘Domestic Support Obligations.’ These items include child support, alimony and something called ‘equitable distribution.’

What is Equitable Distribution?

Equitable distribution is the systematic division of property and debts that most state courts use to fairly divide the property and debt that was acquired during the marriage. Keep in mind that the division will not be 50/50; it will be based on a number of factors, including: age(s) of the parties, income of each party, standard of living attained during the marriage, earning capacity of each party, and more. If equitable distribution applies to your unique divorce case, one spouse will be ordered to pay the other spouse a set amount of money using all of the factors that apply. To learn more about exactly how equitable distribution is calculated, visit DivorceNet.

As we mentioned, child support, alimony and equitable distribution payments all fall under the umbrella of Domestic Support Obligations (DSOs). Because child support and alimony payments have been court ordered and your former spouse and/or children depend on them for survival, they are almost never dischargeable in a bankruptcy.

The same goes for equitable distribution payments – usually. They are considered a DSO debt that cannot be relieved or ‘erased’ via Chapter 7. It is possible, though, to file for Chapter 13 bankruptcy and include your equitable distribution obligation in your debt schedule. Sometimes, your ex-spouse may realize that striking a deal may work out best for both of you.

Reorganizing your debt via a Chapter 13 bankruptcy would still mean you’d owe money to your ex for the equitable distribution; however, it would be a reduced amount, and that may very well be the best situation for everyone involved.


Image credit: Simon Cunningham