Bankruptcy and divorce are often linked together as one can lead to the other. The burden of debt and stress about finances can be a contributing factor for couples to file for divorce. Divorce can lead to a family needing two households and the increase in expenses can result in bankruptcy. The connection goes further than that, however.
Bankruptcy cases create a situation where all of the Debtor’s property becomes part of the bankruptcy estate.
The Bankruptcy Court has jurisdiction over this property until confirmation or discharge. Similarly, in a divorce case, the marital assets of the parties fall under the jurisdiction of the State Court proceeding. Both courts can restrict use of the assets under its jurisdiction, and both courts can award ownership of those assets to other parties. So, what happens when there’s a divorce and a bankruptcy filed at the same time?
This creates a conflict of jurisdiction. Since bankruptcy is a Federal Court proceeding, the divorce court must seek permission to transfer or award any property to another party. This is accomplished by a motion for relief from the automatic stay. However, divorce court rulings can impact a bankruptcy by issuing child support or spousal support orders. Property division and equalization payments can determine the discharge ability of certain debts in a bankruptcy case. So, even though Federal Law generally overrules State Law, divorce court orders can impact and alter the effect of bankruptcy court outcomes.
The link between bankruptcy and divorce are much deeper than cause-effect relationship. Seeking competent counsel is the only way to navigate those connections when they arise. If you are facing a divorce and possibly Bankruptcy, please contact W M Law for a free consultation with an attorney. We have three offices conveniently located in the Kansas City area, Olathe, Independence and Northland. Our phone number is 913-422-0909.
By Addam Fera, W M Law Attorney