Bankruptcy and Divorce

Trouble never walks alone. It always comes with a friend to knock on your door. Imagine this worst case scenario which includes bankruptcy and divorce at the same time. Could not get any worse, could it? On the other side, this is the right moment when you are in the desperate need of a proper advice. When it is hard, you have to play smart. You do not need a genius general after the battle to sum up the most important moment. What you need is a word of advice in the critical moment where loosing your head and temper means loosing substantial parts of your property as well.

Bankruptcy & divorce

The first thing you should definitely do is to accept the situation as it is. Thoughts and statements when you are already giving up, because no man can possibly handle this concentration of troubles, is simply getting you nowhere. Even the bankruptcy and the divorce are unpleasant, but absolutely normal situations in our lives. Instead of wining do some thinking. In addition, you should act as ethically as possible toward both your trustees and spouse as well. Although it may seem a little bit strange, some people actually provoke bankruptcy scenario intentionally with the obvious purpose to harm the other side in the divorce process.

“The Third Party” in Divorce

Bankruptcy can come in handy for one of the spouses with the greater direct interest not to transfer his or her property and assets. In this case, we have the introduction of the third “uninvited” party in the divorce procedure which strictly comes with the reservation only for two. The trustees’ consent is required for all important activities in bankruptcy process which are the essence of the divorce’s demands on the other side. All of the assets including the matrimonial home itself cannot be transferred for the purposes of divorce procedure without their explicit consent. Especially when it comes to the home issue, the spouse who is not bankrupt has the right to spend one year in matrimonial home regardless of the bankruptcy itself. However, after that period the trustees are entitled to sold the property with no obligation toward the divorce procedure.

When we are further examining all of the possible scenarios we are getting closer to the plot of some Hollywood romantic comedy movie. In this way it is considered possible and allowed for one spouse to buy other’s spouse bankrupt’s share. Additionally, if you are planning to divorce, you should do it before the bankruptcy occurs. We can only imagine a situation where spouses are involved in the race against time, each of them with the different purposes: one to file a claim for divorce in Missouri as an example, and other for bankruptcy. Nevertheless, it is allowed for the court to question and even reject the bankruptcy claim, if it is more obvious that the bankruptcy is not caused by the financial troubles but marriage troubles. As long as there are assets available for the functioning of the spouse’s financial activities and obligations the court can postpone bankruptcy.

The Divorce Settlement and Bankruptcy

It is definitely worth mentioning that as long as the solvency is not under question the divorce claims can get through bankruptcy unharmed. This is one of the reasons why the change of the law occurred in 2005. According to the previous solution one of the spouses could actually cause the bankruptcy of other side by demanding the sum which is the part of the divorce settlement. This is considered to be a fully legitimate action, although the motivation behind it is highly questionable. However, this amount could not be treated as the bankruptcy debt. This kind of regulation strongly contributed to the “kamikazy character” of this action. After the changes in 2005 not only that this kind of debt is recognized, but now it is followed by an additional sum for the costs related to the family proceedings. In this way, the divorce settlement becomes the legitimate part of the bankruptcy debt.

Bankruptcy vs. Love

If you have to choose between Scylla and Charybdis our vote definitely goes for love. It is a well-known fact that financial troubles could open the door for one more trouble – the divorce. On the other hand, through divorce itself they will not disappear. To deal with the bankruptcy issues can only strengthen your relationship. In the current moment of great economic crisis the bankruptcy can be something completely beyond your control and influence. However, the harmony and mutual respect in your marriage is something which is predominantly influenced by your personal contribution. Remember that your wedding vows include for better or for worse promise. Bankruptcy is not explicitly mentioned, but it is definitely something which is to be found under the category “for worse”.

Read also: Child Custody Agreement Changed.


Andy Gorton is the author and editor of the Bankruptcy Clinic

Andy Gorton – who has written posts on Bankruptcy Clinic Blog.

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