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June 16, 2014


Category: Uncategorized — admin @ 8:00 am

In tough economic times, we are seeing more divorce cases not about the distribution of assets but, rather, about who’s going to be responsible for various debts.  Just as assets are joint marital property, so are the debts encountered during the marriage – not necessarily a function of who incurred the debt as much as proof that the expenses represent marital expenses.  A debt largely incurred to meet household expenses will be a joint marital debt, regardless of what party actually incurred the debt.  However, a trial Court has broad discretion in allocating marital debt and will not hesitate to apportion responsibility to that spouse who engaged in what is perceived to be culpable conduct resulting in debt, e.g. expenses of a frivolous and personal nature.

The potential for one of the spouses going into bankruptcy following a divorce needs to be considered in drafting any property settlement agreement as part of the divorce.  Generally speaking, there are two kinds of bankruptcies, Chapter 7 and Chapter 13.  Chapter 7 is a complete bankruptcy, whereas Chapter 13 is reorganization.  It is important to distinguish between maintenance and support versus property divisions.  Domestic support obligations like maintenance (alimony) are excepted from discharge under a Chapter 7 bankruptcy as well as a Chapter 13 bankruptcy.  Chapter 7 bankruptcy provides exceptions to property division obligations as well.  In other words, the obligations are not discharged and remain.  But if a former spouse files under Chapter 13, successful completion of a Chapter 13 plan will discharge individual debts relating to property distribution obligations, for example, payment of a percent of profits from that spouse’s business.  As such, the contingency of bankruptcy, de facto, eliminating certain obligations of a spouse under a property settlement agreement must be considered and be addressed via careful financial planning and strategies at the time of the divorce.