Why is Divorce a Leading Driver of Bankruptcy?
Divorce is a lot of things. One of those things is financially draining. The issue is that many marriages head toward divorce due to financial issues. So it’s difficult, sometimes, to determine if the financial problems caused the divorce or if the divorce caused the financial problems. What we do know is that divorce is a major risk factor for bankruptcy and many couples file for divorce and bankruptcy together.
Why Does Divorce Predict Bankruptcy?
There are several risk factors. Obviously, one of the major risk factors is financial problems in the marriage. Financial problems tend to be a risk factor for both bankruptcy and divorce. Meanwhile, the separation of one household into two brings on more expenses for both parties and causes the family as a whole to bleed money.
Separating the Marital Estate
Your marital estate is what you’ve built between the two of you during your marriage. All property acquired during the marriage is property of the marital estate. Even value on property accrued during the marriage becomes a part of the marital estate. It should not be a surprise then, that debts acquired together also become a part of the marital estate. The marital estate then becomes the liability of both parties. The spouses can file for bankruptcy either singly or together to divest their marital liabilities.
When Should I Declare Bankruptcy: Before or After?
One is not better than the other, necessarily. However, under specific circumstances, one would make more sense than the other. While these choices are typically recommended by bankruptcy lawyers or your divorce attorney, the key to the decision will be which one saves you the most money.
Typically, it is cheaper for you to file together than it is apart. It requires less paperwork, less effort for your bankruptcy attorney, and the liabilities of your marital estate are divested together. In other cases, it may make more sense for one spouse to file separately. Why? This spouse may have personal debts that are not tied to the marital estate. If the spouse files paperwork together with their spouse and does not include their own personal debts, that money will not be able to be discharged for another eight years. Meanwhile, your creditors can sue you for the deficiency and place liens on your property, levy your bank account, or garnish your wages.
So, while filing for bankruptcy together may be cheaper, your spouse may not want debt attached to their name, even discharged debt, if it far exceeds their own contribution. Their credit rating may be tied to the amount of debt discharged. Spouses contemplated divorce and bankruptcy will need to coordinate their legal teams to ensure that all relevant debts are divested.
Talk to a West Palm Beach Divorce Attorney
Ready to divorce? The West Palm Beach divorce attorneys at Bruce S. Rosenwater & Associates provides a full range of services including divorce and bankruptcy law. If either is on the horizon, call our office today to schedule a free consultation and discuss your situation in more detail.