When financial problems coincide with marital issues, the solutions to each seem to go hand in hand. A bankruptcy and a divorce can help give each partner a fresh start, but when is the best time to file for the liquidation? The below guide offers strategies for this challenging financial situation, however seeking competent counsel is the best option..

How Do Bankruptcies and Divorces Affect One Another?

Can You File for Bankruptcy While Going Through a Divorce?

A divorce is a legal action intended to dissolve a partnership, which is based partly on a commingling of finances. This situation is why a large part of the divorce involves separating finances and dividing assets between the parties. It also involves addressing debts and assigned which debts go to each of the partners.

While this is already a complicated matter, adding defaulting to the mix may only create more confusion. Since bankruptcies are federal matters, they take priority over the divorces that are overseen by state courts, though there are some exceptions. This difference means that filing for bankruptcy before the finalization of the divorce can make it challenging to determine which assets to divide between the partners. Additionally, not all debts are dischargeable through bankruptcy, so one spouse may end up with a higher amount of the debt by the conclusion of the marriage.

The Solution May Be to Work Together

Even if there is a significant amount of animosity between the partners in a divorce, it is generally beneficial for a couple to discuss their financial futures ahead of filing for divorce. The reason for this is that applying for credit cards and loans often involves married couples co-signing together. When one partner files for bankruptcy, the debt may automatically become the responsibility of the other partner. Filing jointly may help to avoid this problem. Each party should consult with their own domestic relations attorney and possibly their own bankruptcy attorney. There can be significant conflicts between parties who are separated and contemplating divorce. However, discharging much of the debt ahead of a divorce can make the divorce more manageable. It is essential that each party’s interests are represented. 

Additionally, this makes it easier to divide debts, assets, and finances at the time of the divorce. There are fewer debts to consider, resulting in a fairer division. Additionally, the bankruptcy trustee will determine which assets must be liquidated to pay off creditors, allowing the divorce court to simplify a division of community property.

Nancy V. Jacob has been helping individuals and couples file for bankruptcy for over 30 years in the Cincinnati, OH, area. Nancy helps clients by providing the information and guidance needed to make better financial decisions. Learn more about the initial consultation by visiting her website or by calling (513) 921-1400.