Does Your Divorce Make Bankruptcy Necessary?

October 20, 2012

A divorce settlement often distributes something more important than your marital assets: your marriage’s debts. In Texas, a community property state, financial obligations accumulated for the benefit of both partners will generally obligate both members of the dissolving marriage for repayment. Likewise, debts associated with only one spouse will typically cause responsibility to flow exclusively to that spouse.

 

Importantly, however, a divorce agreement only binds the parties to the marriage. Banks, credit card companies, home equity financers, and other lenders may pursue repayment from both the primary obligor and, in the event that the primary obligor doesn’t pay, any secondary surety. In layman’s terms, if your ex-spouse doesn’t pay “her” debts, her pre-divorce lender might come after you for her debts.

 

Fortunately, the law provides some limitations against inter-spousal debt-shirking. For instance, in a recent case, Anderson v. Wendt (In re Wendt), a former husband was not allowed to discharge his debt in bankruptcy – and, thus, not permitted to lay his obligations at his ex-wife’s feet – because he withheld his intentions to declare bankruptcy during his divorce settlement negotiations.

 

Still, these legal protections don’t necessarily shield you from the financial risks tied to your former spouse. In some cases, the only real way to protect yourself is to also declare personal bankruptcy. Want to find out more about how your divorce may require you to explore various legal strategies for managing your financial exposure? Talk to the professionals at Fears Nachawati today. We’re ready to help you.

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