Bankruptcy of an ex-spouse after the entry of a divorce decree (the dissolution of a marriage) can have substantial implications of obligations owed by that ex-spouse to you. I’ve written a post regarding domestic support obligations in Chapter 7 as compared to Chapter 13 bankruptcy and I encourage your to click over and read it since I am not going to go into details here. What I do want to reiterate here is that it is important to know how child support, alimony (maintenance) and equitable distributions of assets are treated in bankruptcy.
In order to insure you do not end up getting paid only a percentage of what is owed to you from distribution of marital assets, be sure to get your share of assets right away rather than allowing for payment over time. The most common example is where one party wants to keep the marital residence after the divorce is final. They agree, then, to pay their soon to be ex-spouse a set number of dollars of the equity of the house over time in exchange for retaining the house. Later they go into Chapter 13 bankruptcy and suddenly, you only get 10% or less of what’s owed to you and they get to keep the house.
As hard as it may be, the more financially sound thing to do is to insist of the property being sold or refinanced and realize your share BEFORE ever quitting your interest in the property. Also, just because something is called “child support” or “alimony” does not make it non-dischargeable. The bankruptcy court can make its own determination based on the facts of the case as to whether it is actually an equitable distribution of property under the guise of alimony or child support, so it is risky to try and realize your share of equity by increasing child support or getting alimony.
