Question: I am currently separated from my husband and there is no opportunity for reconciliation. We have not yet begun the separation process. All assets and liabilities continue to be jointly held despite our living separately for over 9 months now.
We are both defendants in a lawsuit (previous employer grievance) and are going to trial in a few weeks.
We are considering that once the judgement is announced, with legal fees and judgement costs, we may have no choice but to declare bankruptcy.
My question goes to timing. What is your opinion with regards to declaring bankruptcy jointly prior to having a signed Separation Agreement versus after a legal Separation Agreement is signed? I would appreciate your comments.
Answer: In considering the timing, it is important to note that any agreement you arrive at with your spouse will not be binding on your creditors, and is binding only upon the two of you. If one or both of you go bankrupt after you sign the agreement, much of the agreement will be null and void as a bankruptcy assignment will negate that contract too. The portion that does survive relates primarily to maintenance and support.
If you transfer assets to each other, or others, for less than fair market value or for no consideration, and you are insolvent or facing a judgement that will make you insolvent, the division of property could be attacked by your creditors and overturned. In the majority of cases it is best to sort out your finances through a bankruptcy so that you know what debts will remain after a bankruptcy and which assets are not subject to claims by your creditors. This will allow you to deal with the real issues and avoid any speculation as to what your creditors may or may not do. We have seen a lot of people fight over assets, or the split of liabilities, only to find out that it was all irrelevant in the context of a bankruptcy. We would be happy to walk you through the do’s and don’ts.
As this answer has been given absent specific details from you, it is important to note that our answer may be different depending on the specifics of your situaion.