What Happens If Your Spouse Files for Bankruptcy During Divorce?

Divorce can be emotionally and financially challenging under ordinary circumstances.

It can become especially overwhelming if your spouse decides to file for bankruptcy while your divorce is still pending, as this can further complicate the process of dividing assets and establishing support payments. Filing for bankruptcy during divorce requires the help of an experienced attorney to ensure that your assets are protected.

Impact of Bankruptcy on Divorce Proceedings

A spouse’s bankruptcy filing during a divorce case can significantly affect those divorce proceedings. One of the most important issues in divorce is the division of marital property.

However, when a spouse files bankruptcy, property division can become a much more complex issue. For example, some assets may become involved in the spouse’s bankruptcy case, which can restrict the ability of the divorce proceedings to divide those assets.

Depending on the type of bankruptcy the spouse chooses, their bankruptcy case may lead to the liquidation (sale) of certain assets. A bankruptcy case imposes an automatic stay on the debtor’s debts and assets, which may halt the property division aspects of the divorce case until the bankruptcy case ends or the bankruptcy court lifts the automatic stay on the bankruptcy case.

Divorce also divides marital debt, which can become more complicated as a spouse’s bankruptcy can discharge much of their unsecured debt.

How Does Filing for Bankruptcy Affect Marital Responsibilities and Support Obligations?

A bankruptcy filing can also affect determining and implementing child and spousal support obligations during and after divorce proceedings.

Although bankruptcy cannot discharge child and spousal support arrears (unpaid support obligations), the bankruptcy stay can complicate a recipient spouse’s/ex’s efforts to pursue collection of unpaid child support or spousal support.

Thus, a person who depends on support payments from a spouse or former spouse who files for bankruptcy may have to seek relief from the automatic stay or wait until the end of the bankruptcy case to pursue the collection of their unpaid support payments.

How to Protect Your Interests If Your Spouse Files for Bankruptcy During Divorce

Spouses can take various steps to protect themselves when their ex files for bankruptcy during their divorce proceedings, including:

• Keep close, open communication with your legal advisors – Working with your divorce attorney can help you understand your rights and options during your divorce proceedings if your ex files for divorce. You and your divorce attorney may also consult bankruptcy attorneys to better understand how your ex’s bankruptcy affects your rights, interests, and potential divorce settlement.
• Work with financial experts – You can also consult financial experts, including accountants and financial planners, to understand your separate assets and liabilities and develop a financial plan that allows you to weather the delays and challenges that your ex’s bankruptcy may create.
• Have separate accounts before divorce – Having separate financial accounts before filing for divorce can protect your financial interests by giving you access to a separate source of income or assets unaffected by your spouse’s bankruptcy.

Contact Our Michigan Divorce Lawyers Today

If your spouse has filed for bankruptcy at the same time you’re going through a divorce, you need experienced legal advocacy to protect your rights and interests.

Contact Alward Fisher today for an initial consultation with a bankruptcy and divorce lawyer to learn more about how your spouse’s bankruptcy may affect your divorce proceedings.