It is Said: When bills come in the door, love flies out the window.
Financial problems and marital problems often go together making both much more complicated. Both areas of law require specialized expertise yet few bankruptcy attorneys know anything about divorce law and even fewer divorce attorneys know even the basics about debtor/creditor relations and bankruptcy law.
Patrick M. Hunter has presented several seminars for attorneys on the interaction between divorce and bankruptcy. In 2005 the new bankruptcy laws changed the dynamics of the bankruptcy/divorce interaction.
Couples facing both divorce and financial problems are, to say the least, in crisis. This can lead to hostility, frustration, bitterness, denial, depression, or even worse. Knowledge, and sorting out the legal issues, can go a long way towards helping both partners re-start their lives and move on. With proper guidance, couples who can still work together are likely to emerge from these twin crises better than couples who are openly hostile or bitter.
One of the most common questions is which should come first: ending the marriage or dealing with the creditor problems. The answer is that each situation is different. Careful consideration of the facts and analysis of the legal issues is required by someone with experience. Careful management of issues can avoid hot spots, frustration, anger, and large legal bills. Meetings or mediation with the two spouses and their divorce attorneys may allow the parties to reach amicable settlements of many issues. For more complicated cases, having a meeting or mediation with the two spouses, their respective divorce attorneys, their accountants their separate bankruptcy attorneys, and an experienced mediator can save hundreds of thousands of litigation dollars. Even more importantly, this type of meeting has the potential to facilitate a cooperative co-parenting relationship between the former spouses.
If the spouses simply cannot work together, then it becomes a matter of managing expectations, minimizing exposure, and moderating legal expenses. Once again, qualified and experienced representation, often divorce and bankruptcy attorneys working together, is critical.
Similar complications can also arise if one member of a couple falls on hard times, even years after a couple has separated or after the divorce is long over. Failure to change the title on property, vehicles, or insurance policies can cause problems as can many other less obvious problems.
Same-gender couples face unique problems of their own. While some states recognize domestic partnerships and accord substantial rights to the partners, federal bankruptcy law does not. Many potential legal issues remain unresolved which means very large legal fees for those plowing new ground. Often this places same gender couples at a legal disadvantage.
Critical issues often depend on State law. In community property states such as California, a bankruptcy filing by one spouse creates a bankruptcy estate which includes all of the debtor's property and all community property. In marital property states such as Wyoming, a bankruptcy filing by one spouse creates a bankruptcy estate which includes only the property owned by the filing spouse. Property owned as husband and wife (entireties property) is exempt, except as to joint debt. These differences require both experience and expertise.
Bankruptcy issues generally fall into the following categories:
Is bankruptcy appropriate at all, for either spouse? Should they both file? Which should file and which should not? Should they file the same type of bankruptcy? Should they file a joint bankruptcy case? Should the separate cases be filed at the same time? What is the impact of a filing on the divorce process? What leverage is created if one spouse files and the other does not? How can this impact settlement discussions?
What impact does a bankruptcy filing have on the collection of support obligations? How do support obligations interact with obligations to other creditors?
What impact does a bankruptcy filing have on legal proceedings to divide marital or community property? What are the rights of creditors? How do the two sets of rights interact? How is an equalization obligation treated in bankruptcy?
What rights do creditors have after divorce? How are creditor rights affected by a bankruptcy filing? What impact might this have on the former spouse?