Divorce and Bankruptcy

divorce-and-bankruptcyDivorce is difficult emotionally, but also financially.  Money is often the cause of a couple’s separation and when it is, usually one of the parties (or both) end up with an important debt load which the family’s new financial reality cannot always absorb.  The same combined income needs to be reapportioned between two households, and sometimes one of the ex-spouses just can’t keep up.  While bankruptcy in these circumstances often seem as the most obvious (and financially beneficial) option, you need to be mindful of the following before you consider this drastic outcome:

  1. Bankruptcy is going to forever end any right you might have had to claim a share of your ex’s property. That right will vest to your Trustee in bankruptcy and any payment received from your ex-spouse (if the Trustee bothers going after him/her) will be distributed among your creditors;
  1. An important exception to the above is your ex-spouse’s ability (in the event that all necessary – and costly – steps are followed and within the necessary timeline) to perhaps – and we emphasize “perhaps” – be able to obtain the division of your defined benefits pension plan or retirement savings;
  1. Bankruptcy will not reduce your child or spousal support obligations (since that obligation is based on your income, not your assets/debts);
  1. If you ran into arrears of child or spousal support, bankruptcy will not erase those arrears; they will survive your bankruptcy;

While in some circumstances bankruptcy (or consumer proposals) is the right choice to make to free up the cash flow that you need to support your loved ones post-separation, it is important to understand very well its impacts (both short and long-term) before making a final decision by getting the professional advice of both a Trustee in Bankruptcy and a family lawyer.

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