Divorce can wreak havoc on your finances and may even lead you to file for bankruptcy. When the worlds of family law and bankruptcy law collide, it can be somewhat confusing. In essence, both areas of law allow people to start fresh, but at the intersection of these two areas is an anchor that holds parties to previous obligations.
For over 100 years, alimony has been an absolute obligation owed by one ex-spouse to the other after the dissolution of the marriage. It arose because traditional gender roles (and, in many cases, the law) prevented women from earning a living independent of their spouses and did not consider women co-owners of marital property. Alimony became the law’s way to allow for divorces without creating a class of destitute women.
In this day and age, either a husband or wife can be awarded alimony payments depending upon which spouse is the primary breadwinner. It is not uncommon for a man to be awarded alimony by a divorce court.
Even with changes in social norms and the law, ex-spouses are still treated sympathetically, even in the world of bankruptcy. Alimony is one of the few debts that is not dischargeable in bankruptcy, and it is one of the few sources of income that is exempted from bankruptcy proceedings under federal law. If a person receiving alimony payments files for bankruptcy, that money will be counted as income when the court does a means test to determine if the debtor can file for Chapter 7 bankruptcy, but it will be exempted from the bankruptcy estate, and thus unreachable by creditors.
If you are going through a divorce, or are already divorced and are receiving alimony payments, and you are considering filing for bankruptcy, an experienced attorney can assist you in making this decision and explaining the effect it will have on your finances.