Property Divisions and Bankruptcy

07 May Property Divisions and Bankruptcy

What was an affordable property division while you were working may not be affordable after you’ve lost your job. Bankruptcy may help.

A Chapter 13 discharge includes property division obligations incurred through a divorce, possibly even a pension division. It does not include an alimony obligation. It’s not always as easy as one might think to make the distinction.

A divorcing couple or family court could label an obligation to be one of property even though the underlying intent is to support the other spouse. Taxes might be the reason, or the fact that a property obligation cannot be modified but alimony can be.

If asked, a bankruptcy court will examine the full facts and circumstances to see what the true intent was. Factors include the text of the divorce order or agreement, the parties’ financial circumstances at the time of the order or agreement, and the function served by the order. Different courts state the factors differently, but all courts will look at all the circumstances – although only some will come right out and say so. Ultimately, the issue will be whether the obligation is necessary for the receiving spouse to maintain a basic necessity such as food, lodging, or transportation. We’re not talking welfare levels, however. Pool repairs have been held necessary to provide for an adequate and safe place for the spouse and children to live.

My regional appellate court, the First Circuit Court of Appeals, has called this part of the bankruptcy laws “a badly muddled statute” which “rests on an unstable assumption” that there is a bright line between a property division and alimony. Instead, the need for support will depend on how much property the spouse is given.

Every case is different. The same facts can lead to different decisions by different judges.

This is why you need separate bankruptcy attorneys if you’re separated. One lawyer will be caught in a conflict if there are assets, even a pension that the bankruptcy itself doesn’t care about but which could be divided in divorce court.

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L. Jed Berliner practices exclusively in consumer bankruptcy, foreclosure defense, and related consumer protection litigation such as credit card defenses and suing debt collectors. He established his Springfield, MA practice in 1988. Attorney Berliner is a regular and active contributor to the Bankruptcy Law Network, the Bankruptcy Roundtable, and the National Association of Consumer Bankruptcy Attorneys, three specialized consumer bankruptcy forums on the Internet, and is an informal mentor to regional practitioners. He is recognized by his peers as an expert in consumer bankruptcy issues. He thoroughly enjoys being rated "excellent" in his client surveys.

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