For many people, the idea of filing for either divorce or bankruptcy is terrifying—Doing both at the same time may seem like way too much for one couple to bear. However, for couples who incurred a lot of debt during their marriage, filing for bankruptcy before filing for divorce can help each partner start a new life without leftover crippling debt.
Debts During a Marriage
Washington is a community property state, which means that both the assets and the debts that both partners incur during a marriage are part of the marital estate, and both will be split between the spouses.
So, if the couple had had three credit cards and an auto loan during the marriage, these debts will be split between each spouse. Depending on how much these debts are worth, one person might pay all three credit cards while the other pays the auto loan, or each could be responsible for two of the debts.
When a court is deciding how to assign the debts, the judge will look at what is fair and equitable based on each spouse’s assets and ability to pay. A judge can also order marital property, like a car or real estate, to be sold to pay off the couple’s debts.
It does not matter which partner bought the item or applied for the card—a judge can assign responsibility for a debt to either spouse, regardless of in whose name the debt is.
Sometimes, if a debt is solely the responsibility of the other person and was incurred before the marriage, these debts will not be part of the marital estate. For example, if a wife has $20,000 in student loans which she took out well before she got married, it is unlikely that her ex-husband would have any responsibility to pay these debts. Instead, those debts would not be part of the marital estate.
Bankruptcy Before Divorce
Even though a debt may have been assigned to one spouse or the other by the family court judge, the creditors who own that debt are not required to pursue a recovery from only that spouse. Instead, these creditors can go after either partner, regardless of what the divorce decree says.
For that reason, many spouses who share a lot of debt will first file bankruptcy jointly before they file for divorce. While the couple is still married, these spouses can file a joint bankruptcy case which will officially divide up the couple’s joint assets and responsibilities. If the couple qualifies, joint debts like credit cards or a defaulted mortgage can be wiped out by the bankruptcy court, leaving each spouse with only his or her own debt once the divorce starts.
In addition, if a spouse is in financial trouble and is considering filing for bankruptcy anyway, it is much better for the other partner if the ex-spouse files the bankruptcy before the divorce. When an ex-spouse files for bankruptcy protection after a divorce, that person can use the bankruptcy process to wipe out his or her responsibility for marital debts that he or she was ordered to pay in family court, leaving the non-bankrupt partner holding the bag.
Bankruptcy can be an incredibly complicated procedure depending on your assets and liabilities. If you are contemplating either bankruptcy or divorce, it is necessary that you talk to an experienced attorney in each field so that you understand your legal choices.
Fairly and accurately dividing property and debts in a divorce case often requires the help of a skilled Washington family law attorney. The lawyers at Pacific Northwest Family Law have many techniques at their disposal to help divorcing couples split marital property in an equitable way, and achieve great successes using mediation, collaboration, and other dispute resolution methods.
For a consultation with one of our experienced Washington divorce attorneys, or to learn more about dividing marital property in a divorce, contact us today by calling 360-926-9112.