New Jersey Divorce & Bankruptcy

Divorce and bankruptcy often occur concurrently.

When divorce and bankruptcy occur simultaneously, it can complicate and delay the divorce process. When one spouse files for bankruptcy after the divorce is resolved, the result can be unfair to the other. In New Jersey, divorce legislation is set up to accommodate bankruptcy laws to prevent this.

Priority

The federal government decides and oversees bankruptcy matters, while divorces fall under New Jersey state law. Therefore, a bankruptcy case trumps a matrimonial matter when a divorce and a bankruptcy are filed concurrently. Generally, a family court judge will simply put the divorce on hold if one spouse files for bankruptcy during the divorce proceedings. He can continue to make decisions regarding custody, but he can't make any financial decisions regarding marital property or support without special permission from the bankruptcy court, so the divorce litigation usually stalls. Even after a divorce is final, if a custodial parent files a motion to modify child support or alimony and the other parent files for bankruptcy, a family court judge can't decide the motion until after completion of the bankruptcy.

Alimony and Child Support Factors

Section 523(a)(5) of the United States Bankruptcy Code prohibits a spouse from eliminating his alimony or child support obligations by filing for bankruptcy protection after a divorce is final. However, if he files a Chapter 13 petition, which doesn't erase his debts, but allows him to pay them off through an extended repayment plan, he can include any past due family support in the repayment plan. He must still make his current payments, but he can take up to five years to pay off the past due amount.

Property Settlement

The United States Bankruptcy Code will not allow equitable distribution payments to be discharged, either. For example, if your spouse agreed in your settlement agreement to pay you $25,000 for your interest in the marital home, then she files for bankruptcy, she still owes you the $25,000. Problems can arise, however, when you agree to divide joint credit card debt between you. If your spouse then files for bankruptcy, a credit card company can't pursue her for payment of the debt, but it can still go after you. You could potentially end up paying the entire debt yourself, regardless of the terms of your property settlement agreement or the terms of the judge's divorce decree. However, New Jersey allows you to make provisions for a potential bankruptcy in your property settlement agreement. You can include remedies, such as a cash payment to compensate you if she does this. The law considers this an equitable distribution payment and protects it.

Tips

If your spouse's bankruptcy hurts you financially, such as leaving you saddled with all the joint credit card debt you were supposed to divide between you, New Jersey allows you to file a motion at any time after the divorce and bankruptcy are final to address the situation. You can potentially have alimony and child support payments modified because of the change of circumstances. If you get stuck paying all the debts, and you're paying alimony or child support, the court could potentially lower your payments in compensation. If you're the one receiving the support, the court might increase the payments to you because a significant portion of your own income is now diverted to paying off the old debts.

References

• Divorce Source; New Jersey Family Law and Bankruptcy; Theodore Sliwinksi, Esq.
• New Jersey Law Network; Answers to Frequently Asked Questions About Chapter 7 Bankruptcy in New Jersey; John D. Kovac, Esq.
• The Law Offices of Irwin D. Tubman, LLC: Divorce FAQ