Divorce and debt can be closely related, as money problems often strain marriages and contribute to divorce.
When couples find themselves facing the end of the marriage and a mountain of debt, however, whether they file for divorce or bankruptcy first can have some significant impacts on how both cases are resolved and, consequently, on the next phase of their lives.
Below, we will point out some of the possible benefits and downsides to filing for divorce prior to bankruptcy. While every situation is different and the best moves for people will depend on the specifics of their finances/debt and their marriage/relationship with their significant other, don’t hesitate to contact Scottsdale Divorce Attorney Karen Schoenau when you need specific advice regarding the right moves to best protect your interests in divorce.
Advantages to Filing for Divorce Before Bankruptcy
Some of the upsides to proceeding with divorce before filing for bankruptcy can include that:
- You may qualify for Chapter 7 bankruptcy following divorce – One bankruptcy option, Chapter 7 bankruptcy, allows people to discharge certain debts as long as they qualify for it by passing a means test. If you try to file for Chapter 7 when married, the income used in this test will be the combined income of you and your spouse, which could cause you to “fail” the test, making you ineligible for this option. If you file for divorce first, however, only your income will be used in the means test calculations, and this could help you qualify for Chapter 7.
- You may proceed with Chapter 13 bankruptcy without having to deal with your ex – If Chapter 13 bankruptcy is the better option for you, filing for divorce first can still be advantageous. This is because Chapter 13 cases can take a few years (or possibly longer) to resolve and filing for divorce first means that you will not have to deal with your ex in your bankruptcy case for a few years in the future. This can be particularly important for people who are not on good terms with their ex for whatever reason.
- You have significant property that bankruptcy exemptions won’t protect – When spouses have significant marital property that bankruptcy exemptions won’t cover, again filing for divorce first can be a good move. This is because the divorce will divide up this property, possibly meaning that the property an individual ends up with will be covered by these exemptions later.
Potential Disadvantages to Filing for Divorce Prior to Bankruptcy
Possible downsides to filing for divorce before a bankruptcy case can include that:
- You may not be able to retain as much property in your bankruptcy case – Some Arizona bankruptcy exemptions, such as those for motor vehicles or household items, can be doubled for married couples pursuing a joint bankruptcy case. This may allow couples who pursue bankruptcy prior to divorce retain more of their marital assets (rather than having to liquidate them as part of the bankruptcy case).
- The property division process in your divorce may be far more complicated – Another potential drawback to filing for divorce first can be that the process of dividing up the marital property and debt will be far more complicated in divorce. In contrast, those who file for bankruptcy first can typically reduce their debt (and their property holdings) significantly, which can facilitate a subsequent divorce.
- Your divorce may end up costing you more money – Ultimately, if there are more complicated issues to deal with during the property division process in divorce (or in any aspect of the divorce), it will take longer to resolve, and longer divorce cases usually mean pricier divorces.
The bottom line when it comes to divorce and bankruptcy is that it’s best to consult with a lawyer who can review the specifics of your situation and inform you about your best options for moving forward.
Contact a Scottsdale Divorce Attorney at the Law Office of Karen A. Schoenau
For experienced representation in Arizona divorce, contact Scottsdale Divorce Attorney Karen Schoenau of the Law Office of Karen A. Schoenau by calling 480-467-3435 or by emailing us using the contact form on this page.
From her offices based in Scottsdale, Attorney Karen Schoenau represents clients throughout the metropolitan Scottsdale area, including Scottsdale, Mesa, Surprise, Maricopa County, Pinal County, Gila County and throughout the state of Arizona.