There are a variety of reasons that couples decide to part ways, ranging from lack of communication, trust or intimacy to financial problems or infidelity. Recent statistics indicate that approximately 40 to 50 percent of couples who marry before the age of 50 end up divorcing. The dissolution of a marriage is extremely stressful, and can even feel like a death. It is an event that involves a tremendous amount of change from custody of the children to keeping the house and/or car(s) and even to strained or altered relationships with extended family and friends. When divorce involves big lifestyle changes, ex-spouses who have trouble meeting financial obligations may consider filing for bankruptcy. Here’s some information to help determine whether filing for bankruptcy will wipe out a marriage settlement agreement.
Marital Settlement Agreements
When a marriage is dissolved, most couples enter into a marital settlement agreement that divides assets, assigns and divides up debts and in some cases requires that one spouse make payments to the other in the form of child support or alimony. A divorce agreement includes details about items such as: selling property and sharing the proceeds, transferring a vehicle title to the other spouse, assigning alimony payments, dividing the payment of credit card debts, requiring a new insurance policy for the other spouse and dependent children, assigning retirement funds to be divided at a future date and more. Whether or not portions of the marriage settlement agreement are dischargeable depends on a number of factors.
Domestic Support Payments
Federal law protects domestic support payments for any bankruptcy. Items such as child support, alimony or any maintenance payments owed to a former spouse or child are considered to be domestic support obligations (DSOs). DSOs are not dischargeable if they are included in any marital or divorce agreement, property settlement, court order, separation agreement or order from another governmental entity and are not assigned to any entity except to collect the debt. In addition, any future child or spousal support are also protected from being discharged during a bankruptcy proceeding.
Property Division Agreements
Property division agreements in a divorce are more complicated as they may or may not be dischargeable during a bankruptcy. Since it can be difficult to determine whether or not property agreements are dischargeable, bankruptcy litigation often arises in order to determine if the property division agreements can be wiped away. Divorcing couples may be asked to divide property that they own together, such as a vacation condo or a beach house. The property would be sold and the profits split immediately, or in some cases, one spouse would make payments to the other spouse over a period of time. If the property division agreement makes clear that the payments are for a property and are not Domestic Support Payments, then the debt may be dischargeable in a Chapter 13 bankruptcy.
Chapter 7 vs. Chapter 13 Bankruptcies
There are two types of personal bankruptcies: Chapter 7 and Chapter 13. In Maryland, individuals must have annual income below a certain threshold, as determined by a “means test”, in order to be eligible to file for Chapter 7 bankruptcy. Although Chapter 7 bankruptcy is known for “wiping away” all debts, federal law states that no debts incurred in a divorce agreement may be discharged in a Chapter 7 bankruptcy. Domestic Support Agreement debts cannot be discharged in a Chapter 13 bankruptcy, but financial obligations surrounding a property settlement may be discharged. Potentially dischargeable financial obligations include items such as credit card debt and proceeds from the sale of a shared property.
Attorneys Experienced in Both Bankruptcy Law and Divorce Law
Deciding to file for bankruptcy following an emotionally-fraught divorce can be extremely stressful. An experienced attorney can help you fully evaluate all of your options and make the most advantageous decision. At Sirody & Associates, our attorneys have deep knowledge of Maryland bankruptcy law. Contact us online or call (410) 415-0445 today – we can help you make a fresh start.