How Does Bankruptcy Impact My Divorce?
When it comes to getting a fresh start, divorce and bankruptcy often go hand in hand. More than one-fifth of couples in the U.S. who divorce cite financial issues as the biggest reason for the demise of their marriage. When you are constantly arguing about money matters, it makes it difficult to live in harmony, and studies show that financial problems are a strong predictor of divorce.
Whether tension over money and unpaid bills was the overriding cause of your decision to divorce, finances are a common concern. In cases where there is a significant amount of marital debt, it might make sense to file a joint petition for bankruptcy to resolve these issues before filing for divorce. If one or the other spouse files for bankruptcy separately, this could create significant problems.
Bankruptcy Before or After Divorce?
When you have decided to divorce your spouse, you may be reluctant to add another legal matter to your already full plate. However, there are some excellent reasons for getting it all over with at once instead of waiting. If you and your spouse have joint debt, meaning debt that you hold together, or you are concerned about your spouse’s ability to meet their end of the financial obligations after the divorce, it could pay to be proactive with this process.
Kentucky is an “equitable distribution” state, which means that the courts will equally distribute each spouse’s fair share of assets and debts in a divorce. If you have taken on debt together, you will each be responsible for a portion of that debt. Even if you have a “hold harmless” clause that says your spouse’s creditors can’t come to you post-divorce, some creditors have found ways around these clauses to still pursue an ex-spouse for repayment.
If you file for bankruptcy before the divorce, this simplifies matters. Not only will you have a clearer picture of the marital assets and debts going into the divorce, but you will also have more peace of mind knowing that both parties can meet their financial obligations once the divorce is final. Since the financial matters related to the divorce itself are simplified, your legal costs should be lower as well.
Single vs. Joint Filing of Bankruptcy
Although you and your spouse no longer wish to be married, you might want to consider doing this last thing together before you officially file for divorce. Provided most of your debts are jointly held, it makes sense to file a joint bankruptcy. Otherwise, one spouse filing for bankruptcy will only discharge their portion of the debt, and the other will be left with the remaining bills.
Even if you have property that you want to protect in bankruptcy, you can probably accomplish this with the exemptions that are permitted by law. For example, Kentucky allows you to keep up to $5,000 worth of equity in a home used as a permanent residence as well as $2,500 equity in a vehicle, $3,000 worth of household furnishings, and $3,000 worth of equipment, tools, and livestock. If filing as a married couple, you can “double up” these exemptions. Other exemptions include child support, spousal support, public assistance, retirement funds, and insurance.
Other Considerations with Bankruptcy and Divorce in Kentucky
Divorce and bankruptcy are both complex issues that can create significant conflict in a union that is already strained. If you or your soon-to-be ex-spouse decide that you don’t want to file a joint petition for bankruptcy, you may receive some protections with an indemnification agreement. This can require a spouse to reimburse another for marital debts as well as prohibit discharging certain divorce obligations in bankruptcy.
If you are ready for a fresh start, you may have some red tape to cut through before you can begin your new life. Filing for bankruptcy is one way to simplify your financial future, provided it is done right. At Lanna Martin Kilgore, PLLC, we help people just like you with bankruptcy combined with agreed divorce matters. Contact our Bowling Green office now at 270.846.3700 or reach us online to schedule a confidential consultation.