Consequently, divorced spouses often consider filing bankruptcy. Smarter spouses and their family law attorneys consider the bankruptcy law implications on divorce settlements in advance — especially prior to negotiating alimony, maintenance, support, and property issues. Even without advanced planning, ex-spouses turn to bankruptcy attorneys to resolve debt issues.
As a general rule, “alimony, maintenance, and support”, are protected from bankruptcy discharge under Section 523(a)(5) the US Bankruptcy Code. That means debtors would be obligated still to pay these debts even when filing. “Alimony, maintenance, & support” obligations are specifically incorporated within the definition of Domestic Support Obligations in the Bankruptcy Code. Domestic Support Obligations are protected from discharge under both a chapter 7 bankruptcy and a chapter 13 bankruptcy.
Amended Section 523(a)(15) controls the dischargeability of “property division” obligations and other non-domestic support obligations. Section 523(a)(15) is the sister provision of Section 523(a)(5) relating to family law matters.
Family law attorneys must consider the distinction between a chapter 7 bankruptcy and a chapter 13 bankruptcy when analyzing the dischargeability of a client’s or opponent’s property division obligations. A divorce settlement agreement will certainly contain some form of property division. Some property obligations are dischargeable and some are not. The requirements for each can be nuanced and complex.
When drafting and negotiating settlement agreements and other divorce related documents, a thorough understanding of bankruptcy law can make a world of difference. If you think this may be an issue in your case, ensure that your counsel is well-versed in bankruptcy law.