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Bankruptcy could apply to divorce property settlements

People in California often cite financial stress as a cause for divorce, but fighting over money might really begin once the divorce process gets underway. A case decided by a bankruptcy court illustrates how technical legal details might influence the amount of money that an ex-spouse receives from a settlement.

The case involved a divorce settlement that provided for child support payments to the woman of $1,300 per month and a payment of $53,000 from the division of property. The ex-husband filed for Chapter 13 bankruptcy two weeks after the settlement became official. Under Chapter 13, a person could set up a three-to-five year payment plan that repays all or part of existing debts. Although the divorce settlement had expressly stated that property division payments could not be discharged through a bankruptcy, the ex-husband sought to do so and hopefully eliminate part of the $53,000 obligation.

Although bankruptcy law exempts support payments from discharge, a bankruptcy plan can apply to the property division portion of a settlement. Prior agreements between parties that state that something cannot be discharged in a bankruptcy do not necessarily apply. As happened in this case, the court ruled that the debt for the property settlement could be included in the bankruptcy.

When a person goes through a divorce, property division often creates points of contention. An attorney might provide insight about how the law could treat assets. Advice might be given about how to defend nonmarital assets or negotiate the division of marital debts. Legal support could also help the client sort out complex affairs like a business valuation or the splitting of retirement accounts.

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