When a married couple encounters financial hardship serious enough to warrant filing for bankruptcy, the marriage itself may also crumble. In some cases, the financial stress causes the death of the marriage. In other cases, the possibility of bankruptcy merely multiplies problems that are already present in the relationship.
Unfortunately, both divorce and bankruptcy have large-scale financial implications for both spouses, so it is important to understand which of these major life events to tackle first. Filing for bankruptcy before divorce is sometimes advantageous, while, in other cases, filing for divorce first is preferable.
If you find yourself facing this chicken-or-the-egg scenario, be sure to examine your options and build a strong legal strategy to achieve your goals in both areas before you move forward.
Planning for a difficult season helps you regain control at a time that may feel chaotic, grounding you as you work toward financial and relational freedom.
Why file for divorce before bankruptcy?
Divorce and bankruptcy typically share at least one thing in common: Both processes can leave one or both spouses with many fewer resources and assets than they had going in.
In divorce, attorneys’ fees, court costs and property division can take huge chunks out of both spouses’ estates, especially if the process is lengthy. Bankruptcy may require one or both spouses to give up property in order to receive discharge on debt. It also so comes with some filing fees that add to the costs.
In many instances, traditional wisdom may indicate that it makes more sense to file bankruptcy before filing for divorce, especially if both spouses need debt relief. In Texas, which is a community property state, debt owned by one spouse is owned by both spouses, and they must divide it equally during the divorce process, just as they divide their assets. However, there are some instances where filing for divorce first is more advantageous.
Filing for divorce before bankruptcy may help one or both spouses qualify for better terms during the bankruptcy process, especially if the couple has significant assets and also significant debt. By completing the divorce prior to the bankruptcy, the couple reduces both spouses’ income and net worth significantly, which may allow them to qualify for a bankruptcy.
Considering the costs
Whether you choose to file for bankruptcy or divorce first, it is important to understand how each of them affects the other. While it may seem obvious that one option is better for you than the other, until you carefully examine your own circumstances through the eyes of the law, it is difficult to know for sure.
Do not hesitate to use the legal resources and guidance that you have available to create a personalized divorce and bankruptcy strategy. Careful planning and focus on your own goals helps keep your needs and priorities secure while you work toward a fresh start, personally and financially.