Many clients these days are concerned with how a bankruptcy proceeding will impact a divorce case. Sometimes it can be both parties who are or will, in the future, contemplate this action as a way of reducing debt. In many cases, it can actually help both parties who find themselves in a position with little assets and huge financial obligations, resolve the issues between them. Careful thought should be given to the timing of this compared to the divorce proceeding.
However, sometimes, one spouse may use this bankruptcy as a method to gain an upper hand over the other spouse. Of course, this situation needs to be properly addressed in all divorce settlement negotiations. While some obligations will never be affected by this, others can if not properly protected. It is clear that all child support obligations can never be discharged in bankruptcy, and courts have upheld that decesion over and over.
Other debts that one party takes on, either by consent or by ruling should be protected from discharge in this way. Recently, a client reached an agreement that the credit cards in joint name would be paid by the other spouse. After the divorce was finalized, that spouse filed for bankrupcty, listing those credit card obligations as dischargeable debts. However, the divorce judgment was clear in that settlement provision that this obligation could not be discharged by any bankruptcy proceeding. He was held at a post judgement motion to be responsible for the debt based on his contractual agreement, and not be any allowable discharge through another court.
October 15, 2012
What happens to a spouses property that they owned before the marriage but is used during the marriage? Many times, the courts look at how the property is used by the parties and whether it is co-mingled for marriage purposes. A prenuptual agreement may address this issue as well and keep things separate if the parties get divorced.
A court recently looked at this issue and ruled in a very unique way. This involved a 15 year marriage and a home that the husband had owned before the marriage. He had lived there his entire life, his parents had built the home, and he had used the entire parcel of land before this second marriage at the age of 60. During the marriage, his wife spent a considerable amount of money remodeling the home, adding granite counters and new kitchen appliances. However, there was never an joint contribution to the entire parcel of land, nor the other buildings on the land.
During the divorce, the court held that the wife was clearly entitled to a division of all contributions during the marriage and that this included all improvements to the home. However, there was no showing that the house itself, nor the rest of the property, could be considered as a marrital asset. Therefore, this would not be subject to any division. The Court looked at character, usage and involvment in determining whether co-mingling had taken place.