Family Law
winter 2020
Divorce and bankruptcy: which should I le rst?
A
s we all know, life oen doesn’t go as planned. Nothing
illustrates this more than divorce. Bankruptcy is similar.
You made nancial plans, but for whatever reason your
debts got out of control and you realized you might need
a court to protect you from creditors and grant you a fresh start.
Money problems and marital problems oen go hand-in-hand, so it’s
no surprise that divorcing spouses may also be considering ling for
bankruptcy. Which should you le rst? e best answer we can give
is, “It depends.”
If you le for Chapter 7 bankruptcy, your assets are combined
into a “bankruptcy estate.” Some
assets are protected, or “exempt,”
which means they can’t be sold
o to satisfy creditors. Under fed-
eral law, assets such as pensions,
401(k) plans, IRAs, Social Secu-
rity benets, alimony payments
and child support payments are
exempt. Most states allow you to
protect all or some of the equity
in your home, and most allow
you to protect the equity in your cars. You can also protect up to a
certain amount in household goods. “Non-exempt” assets are liqui-
dated. You get a fresh start, but a bankruptcy can aect your ability
to obtain credit for a while going forward. Chapter 7 is a relatively
quick process, generally taking just a few months, but you can le for
Chapter 7 only if your income is below a certain threshold.
Another option is Chapter 13. If you have a regular income, the
bankruptcy court under Chapter 13 will create a plan to pay back
creditors for up to ve years. Meanwhile, creditors will have to stop
collection and foreclosure. It is a longer process than Chapter 7.
If you’re dealing with crushing debt and a failing marriage simul-
taneously, it makes sense in many cases to le for bankruptcy rst.
Once you’ve led for bankruptcy, no matter what type, an “automatic
stay” is put into place, stopping creditors from contacting you, freez-
ing your assets and property and temporarily halting all legal pro-
ceedings against you. e automatic stay applies to divorce proceed-
continued on page 2
page 2
Be sure to have ‘the talk’ with
your kids before they leave home
page 3
Wife can’t be forced to sell off
property to pay large distribution
to husband
Transfer assets to trusts with
extreme caution (if at all)
page 4
‘Do it yourself’ divorce is full of
risk
©AndreyPopov
If you and your spouse
are on fairly civil
terms, you might
consider ling jointly
for bankruptcy before
ling for divorce.
The Historic John Price Carr House
•
200 North McDowell Street
•
Charlotte, North Carolina 28204
(704) 370-2828
•
www.CharlotteDivorceLawyerBlog.com
The Historic John Price Carr House
200 North McDowell Street
Charlotte, North Carolina 28204
(704) 370-2828
www.CharlotteDivorceLawyerBlog.com
The Historic John Price Carr House
•
200 North McDowell Street
•
Charlotte, North Carolina 28204
(704) 370-2828
•
www.CharlotteDivorceLawyerBlog.com
The Historic John Price Carr House
200 North McDowell Street
Charlotte, North Carolina 28204
(704) 370-2828
www.CharlotteDivorceLawyerBlog.com
ings, too, making it tough for a family court judge
to divide up your property,
and dragging out the divorce
process even longer that it
otherwise might be.
If you and your spouse
are on fairly civil terms, you
might consider ling jointly
for bankruptcy before ling
for divorce; in some states
that would enable you to in-
crease your exemptions. And
it might simplify a subsequent divorce proceeding.
If you le for Chapter 7, the process is usually com-
plete within six months, allowing you to then move
quickly to a divorce.
On the other hand, you might consider ling for
divorce rst if you and your spouse have a com-
bined income too high to qualify for Chapter 7.
Once divorced, you may be able to le for Chapter
7 protection individually instead of having to go
through a Chapter 13 payment plan. Additionally,
by going through a divorce rst, you can resolve
support issues prior to bankruptcy. Owing a signi-
cant amount in child support or alimony can aect
how a bankruptcy will proceed.
Your best bet is to talk to a family lawyer who
understands the interplay between bankruptcy and
divorce.
Divorce and bankruptcy: which should I le rst?
continued from page 1
©AndreyPopov
©zimmytws
Be sure to have ‘the talk’ with your kids before they leave home
When children turn 18 they are adults, regardless
of how mature they actually are. As parents, you’re
no longer entitled to access their medical records or
make legal decisions for them without their permis-
sion.
It’s unlikely they will have the real-world experi-
ence at that age to handle all medical and nancial
decisions on their own. is can feel scary, especially
if they are leaving home to go to college or to work.
It might feel scary to them, too. To ensure you can
still have the level of involvement necessary for you
all to feel comfortable, it’s worth sitting down with
your now-adult child to discuss these types of issues.
For example, you might discuss having your child
execute a HIPAA release and a health care proxy.
A HIPAA release authorizes you to continue ac-
cessing an adult child’s medical information to help
them stay on top of their prescriptions and doctor’s
appointments and manage ongoing care for medical
problems. Health care proxies enable you to make
medical decisions for adults who cannot make them
on their own.
You might also consider approaching your child
about executing a power of attorney, which empow-
ers you to make nancial decisions on his or her
behalf if, for some reason, he or she is unable make
such decisions.
is is not intended for you to control your child.
Kids need the chance to “launch” and learn to man-
age complex parts of their lives and make important
decisions for themselves. But in these early years,
you both may feel more comfortable if you still
have some limited involvement in these areas. It’s a
personal decision, but it’s certainly worth discussing
with your kids and maybe with a family law attorney.
A HIPAA release authorizes you to
continue accessing an adult child’s
medical information.
We welcome your referrals.
We value all of our clients.
While we are a busy rm, we
welcome your referrals. We
promise to provide rst-class
service to anyone that you
refer to our rm. If you have
already referred clients to our
rm, thank you!
This newsletter is designed to keep you up-to-date with changes in the law. For help with these or any other legal issues, please call our rm today. The information in this
newsletter is intended solely for your information. It does not constitute legal advice, and it should not be relied on without a discussion of your specic situation with an attorney.
If there’s one thing family courts hate, it’s a spouse
who plays dirty by trying to hide assets in the hopes
of avoiding having to split them as part of the marital
estate.
Doing so can bring sti consequences, such as
having to cede a bigger share of marital property,
or getting hit with a judgment of contempt, or even
criminal fraud charges (for securing property under
false pretenses) or perjury charges (you signed your
divorce papers under penalty of perjury).
A common way people try to shield assets from
division is by placing them in trust (a nancial
instrument in which a “trustee” manages assets and
distributes the income generated to the “benecia-
ry”). If you’re doing this to cheat your soon-to-be ex,
you risk the consequences noted above.
Of course, there are legitimate estate-planning
reasons for putting property in trust.
Talk to a lawyer to do things right in the technical,
legal and moral sense, or you risk creating red ags
that judges will pick up on.
For example, if you transfer what should be con-
sidered marital property to a third party (such as a
relative or friend) by creating a trust on their behalf,
make sure you receive adequate “consideration” in
return. In other words, the person had better be
paying you something of value for the property. If
they’re not, this will create justiable suspicion, and
a court might void the transfer.
ere are other circumstances that may signal
to a judge an intent to defraud, and each state has
its own nuances of law. And there may be bet-
ter estate-planning vehicles available under the
circumstances.
If you’re in the process of divorcing, but you also
have legitimate reasons to put property in trust, talk
to an attorney as soon as possible to weigh the dier-
ent options.
A family court judge could not require a wife to
liquidate her own separate property in order to pay
a large distributive award to her husband, the North
Carolina Supreme Court recently decided.
e couple, Andrea and William Crowell, married
in 1998 and divorced in 2015. Before they mar-
ried, William started several small businesses that
he claimed as his own separate property. Andrea
claimed she had in interest in them as marital prop-
erty. e court found that they lived well beyond
their means, and that to fund the lifestyle William
sold his separate property and borrowed from his
businesses, putting the couple in debt.
Andrea, on ling for divorce, sought equitable dis-
tribution of their marital property (in other words,
fair division of their assets and debts) and alimony.
e judge denied alimony and determined that the
marital property had to be split equally, requiring
that Andrea pay William an $800,000 “distributive”
award. Since Andrea didn’t have the means to pay
the award in full, the court ordered that she sell some
of her own real estate to cover it.
But the supreme court reversed on appeal.
e court found that while the state law provision
on distributive awards didn’t specically say a spouse
couldn’t be forced to sell his or her own separate
property to pay such an award, it didn’t specically
say he or she could. e court said the rest of the
state’s equitable distribution law allowed for the
distribution of marital property only, so the lower
court’s order didn’t follow the law.
Divorce and property division law is dierent in
every state. Check with a lawyer where you live to
nd out more.
Wife can’t be forced to sell off property to pay large distribution to husband
©VIPDesignUSA
Transfer assets to trusts with extreme caution (if at all)
| winter 2020
“Do-it-yourself” divorce apps and programs for
preparing and processing forms have become more
popular.
While DIY divorce may turn out
ne in some cases, it’s full of risk.
If your divorce is simple (because
it doesn’t involve kids, neither side
is seeking alimony or support and
you basically agree on how to split
property) DIY divorce apps and tools
may be OK. It’s still probably not a
great idea, since the products cannot
predict problems.
For example, if you and your spouse agree on who
gets the marital home, the app is not necessarily go-
ing to counsel you on how to renance the mortgage
so that it’s in the right person’s name. Nor will it
determine who handles unpaid property taxes, or
ensure the title is transferred properly.
If not handled properly at the time of divorce,
matters such as these can cause serious issues down
the line. If the title transfer wasn’t properly ac-
counted for and years later your ex does not make
the monthly mortgage payments, you could be on
the hook if your name is still on the title (and on the
loan).
DIY divorce services can’t counsel you on han-
dling retirement assets and debt, or on tax implica-
tions. DIY apps and programs will not see potential
red ags on the forms you submit.
If your divorce is contested, meaning you expect
to be battling over custody and property, you ab-
solutely should not leave the process to technology
tools. Only your own attorney can help you formu-
late a realistic approach and represent your interests,
either in negotiations or in court. A DIY divorce may
look cheaper on the surface, but in the end you get
what you pay for.
‘Do it yourself’ divorce is full of risk
©ruigsantos
The Historic John Price Carr House
•
200 North McDowell Street
•
Charlotte, North Carolina 28204
(704) 370-2828
•
www.CharlotteDivorceLawyerBlog.com
The Historic John Price Carr House
200 North McDowell Street
Charlotte, North Carolina 28204
(704) 370-2828
www.CharlotteDivorceLawyerBlog.com
The Historic John Price Carr House
•
200 North McDowell Street
•
Charlotte, North Carolina 28204
(704) 370-2828
•
www.CharlotteDivorceLawyerBlog.com
The Historic John Price Carr House
200 North McDowell Street
Charlotte, North Carolina 28204
(704) 370-2828
www.CharlotteDivorceLawyerBlog.com
