Most people know if a party opposite you in litigation files for bankruptcy it would normally mean the litigation needs to cease at least until the bankruptcy case is over and possibly forever. A divorce proceeding creates some special exceptions to this normally rigid rule.
If your soon to be ex-spouse files for bankruptcy it will not prevent the family law court handling your divorce from determining issues relating to spousal or child support or child custody. A bankruptcy filing will prevent the family law court from making any further decisions regarding the division of property that is part of the bankruptcy estate. Property of the bankruptcy estate is any property in which the debtor has an interest, no matter if the property is jointly owned or owned solely by the debtor. The most likely example of jointly owned property that would be equitably distributed in a divorce proceeding that would become property of the bankruptcy estate is the marital home.
A demonstrative example would probably be most helpful here. Let’s say husband and wife are involved in a divorce proceeding in which there are issues to be determined of child custody and division of the jointly owned marital home. Three months in to the divorce proceedings husband files for Chapter 7 bankruptcy. The family law court is not prevented from determining issues relating to child custody but all proceedings related to the division of the marital home must cease, at least for the moment, because husband’s interest in the marital home has now become part of the bankruptcy estate.
With the above being said, not all hope is lost to move forward when one spouse in a divorce files for bankruptcy. With certain permissions from the bankruptcy court, it is still possible for the family law court to make determinations relating to the division of marital property that is also property of the bankruptcy estate. It is possible to seek permission from the bankruptcy court to divide marital property in the family law case, such as the jointly owned marital home, through a motion for relief from the automatic stay. If the goal is to sell the home and equitably distribute the proceeds in the divorce, you would need permission of the bankruptcy court through a motion and order for sale. The point is, ask (the bankruptcy court) and you just may receive.
Rice and Rose Law Firm has been assisting clients with divorce and family law matters in Volusia and Flagler County for over 25 years. If you have questions about how a bankruptcy filing could affect your divorce case or any question regarding a family law matter call or email our experienced attorneys and staff.