Things to be aware of when facing divorce and debt

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 you 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.

This entry was posted in Assignment of debt, Distribution of property, Divorce / Dissolution of Marriage, Family Law and tagged , , , , , . Bookmark the permalink.

2 Responses to Things to be aware of when facing divorce and debt

  1. Devon says:

    I am facing divorce. The house was mine before marriage. Original mortgage (actually home equity loan) is in my name. We took out a second home equity loan to pay off debt from before marriage (both of ours) and to make home improvements.
    I could pay the first mortgage on my own, but I do not make enough money to pay both loans, so I cannot keep the house.
    What are my legal rights? If he moves out, I cannot afford to stay here alone. Do I go into forclosure? I could not afford to stay even if he paid half of the monthly second loan. I was barely making it alone on the first mortgage and I am now in a job making less pay than before when I bought the house. What can be done?

    • G.A. Napier says:

      I highly recommend you set up a consultation with an attorney familiar with both family law and Chapter 13 bankruptcy to look at your options. If the house value is low enough, that second mortgage might be able to be stripped off. Or, if you can prove that the second mortgage loan was for marital expenses, you may be able to force him to pay a share of it. If you are in the Bluegrass area, I would be willing to consult with you on these matters.

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