It is not uncommon for California residents who need relief from their debts to also want to divorce at the same time. Financial problems are the cause of many marital problems. It is important that people understand how each case type can affect the other before filing either one.
When people file for Chapter 7 bankruptcy, the property and assets that they own are considered to be the property of the bankruptcy estate until the discharge is completed. The bankruptcy court also takes precedence over family law courts. This means that a spouse’s filing for bankruptcy may prevent the property division stage of a divorce from occurring until after the bankruptcy is completed, unless the bankruptcy judge otherwise agrees.
Another issue is the filing order of the two cases. If a spouse who needs debt relief is married to a person with a significant income, the debtor spouse may be prevented from filing for bankruptcy protection until after the divorce case is filed. The bankruptcy court takes into account the household income instead of just the petitioner’s income for purposes of the means test, although in some cases marital adjustment deductions are available.
When a person is considering filing both a bankruptcy and a divorce case, it is important to determine how each case will affect the other as well as which case to file first. People in that situation may want to consult with a family law attorney about how a bankruptcy petition may affect their divorce. An attorney may be able to work closely with the client’s bankruptcy attorney to help make certain neither case has a detrimental effect on the other one. They may also do what they can to help protect the client’s financial interests during the property division stage of the divorce proceedings.