When it rains it pours: Divorce and bankruptcy in California
It is no secret that money problems among couples are a major reason that many marriages ultimately end in divorce. But, while divorces are often difficult enough to deal with by themselves, the deep-rooted financial problems that brought about the divorce may also trigger bankruptcy. Sadly, this means that divorce and bankruptcy often occur hand-in-hand – bringing further credence to the old adage, “when it rains it pours.”
However, if is important for couples contemplating both divorce and bankruptcy to know that their decisions during each respective process may have important implications for the other. For instance, the timing of a bankruptcy may greatly affect how a couple will proceed with their divorce and how debts will be divided.
Interplay between California divorce and bankruptcy
California is a community property state where both parties are responsible joint debt obligations.
So, even if a divorce decree allocates a couple’s debt between the spouses, the agreement does not actually release either of the parties from liability for the debt – after all, creditors are not bound by divorce agreements. Thus, if one spouse fails to pay his or her assigned debt following a divorce, the creditor may still attempt to come after the other spouse. For example, if a couple acquires joint credit card debt while married, but the debt is assigned to only one of the spouses following a divorce, the other spouse may still be liable in the eyes of the creditor should the first spouse fail to make payments.
Conversely, if a couple elects to file for bankruptcy before divorce, many of their debts will be discharged, and thus eliminated. This ultimately gives divorcing couples more certainty regarding future debt obligations as there is simply less debt to divide – and therefore less debt to be jointly liable for following divorce.
Additionally, since many debts are eliminated during bankruptcy, couples are less likely to fight regarding the allocation of debt during divorce proceedings. Thus, filing for bankruptcy before divorce can also make the entire divorce process more amicable and efficient.
However, it is important to note that every situation is different and that it may not always be in the best interests of the couple to file for bankruptcy before divorce. Accordingly, if you are currently considering divorce and bankruptcy, it is often best to seek the counsel of an attorney experienced in both bankruptcy and family law. An attorney skilled in bankruptcy and divorce will be able to review your circumstances and provide helpful guidance as to your best course of action given your situation.