How Divorce Judgments and Equalization Payments Work
When going through a divorce, you can be left with different types of obligations.
The most common is a domestic support obligation, such as child support or alimony.
But you can also be made responsible for your spouse’s separate debts, usually as part of the property division.
For example, the wife gets to keep the dog and the house, and husband gets to keep the car.
Wife, let’s say, then agrees (or is ordered by the court) to be responsible for all of husband’s credit card debts.
Then for whatever reason, the ex-wife doesn’t make the payment on the credit cards.
The credit card companies then sue the ex-husband who tries to defend by saying that it is his ex-wife’s responsibility!
Does this work? How can this happen?
The truth is that divorce court/family law agreements and judgments only affect the two spouses, not third party creditors like credit card companies.
So in the above example, the failure of ex-wife to pay the credit cards as promised leaves her liable to her ex-husband, NOT to his credit card companies.
Can The Spouse’s Debt Be Discharged in Bankruptcy?
Sometimes the amounts involved can be quite substantial.
In the above example, let’s say there were $100,000 in credit card debts that wife defaulted on.
What can ex-hubby do? He can, of course, file bankruptcy himself to deal with what always was his debt in the first place.
But he can also pursue his ex-wife in family law court for failure to honor the agreement/judgment.
This can result in altering any alimony/support payments being made, or being imposed.
But ex-wife potentially has a way out too.
She cannot get rid of her obligation to her ex-husband in a Chapter 7 case. But in a Chapter 13 case, she may.
Chapter 13 of The Bankruptcy Code allows the discharge of debts incurred in connection with a divorce if they are not part of a domestic support obligation (i.e. alimony, child support, etc.).
Thus, ex-wife can do a payment plan based on her budget and discharge the remainder of the debt owed to her ex-husband in a Chapter 13.
It is possible though for the family law court to then order ex-wife to pay alimony to ex-husband, which would not be dischargeable in any bankruptcy chapter.
Image courtesy of Rusty Clark