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What Happens If Your Ex-Spouse Files for Bankruptcy?Completing a divorce will drain your personal finances to a certain extent. You are giving up a portion of your marital assets and losing your spouse’s income as a means of helping pay expenses. Some people’s debt problems following a divorce become bad enough that they need to file for bankruptcy. You can work with your divorce attorney to try to avoid this outcome by ensuring that you receive a favorable division of properties and debts, as well as spousal maintenance if your spouse has a greater income than you. However, your former spouse may have their own financial struggles that lead to them filing for bankruptcy. Even though you are no longer married, it is possible that their bankruptcy could leave you liable for some of their debts.

How Does Bankruptcy Work?

To understand how your former spouse’s bankruptcy could affect you, you first need to know what the bankruptcy process entails. A person files for bankruptcy when they believe they are incapable of repaying their debts and are in danger of losing assets to their creditors. An individual will use either Chapter 7 or Chapter 13 bankruptcy, depending on which one they qualify for. At the end of the process, the filer is allowed to discharge most debts that were not repaid during the case. Discharge means that the filer no longer has any obligation to repay the debt.

How Might You Be Liable After the Bankruptcy?

While the creditor cannot collect from your former spouse after a bankruptcy discharge, they can still collect from you if you are also liable for the debt. Dividing debt in your divorce agreement does not remove your legal liability for the debts that your spouse agreed to pay. To eliminate your liability, you need to modify the debt agreement to remove you from it. The creditor may not want to modify the agreement if it thinks your former spouse does not have enough income to repay the debt on their own. The creditor may understand that one of you is taking sole responsibility for making debt payments, but that will not stop the creditor from turning to you if your former spouse has stopped paying the debt. In the case of bankruptcy, you may be the only person that the creditor can attempt to collect the debt from.

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When a Business Owner Lowers Their Income During DivorceA spouse who owns a business is capable of manipulating their income during a divorce. Reporting a lower income means that they may not have to pay as much towards child support or spousal maintenance. A business owner may intentionally lower their income leading up to the divorce through methods such as:

  • Deferred compensation
  • Putting more of their revenue towards business expenses
  • Delaying customer payments until after the divorce

If you believe your spouse’s reported income is unusually low, you need to investigate their business and income records to see where their money is going. It is important to act on your suspicions during your divorce.

Recent Case

In the Illinois case of In re Marriage of Onishi-Chong, a woman was petitioning to revise her divorce settlement because she claimed her former husband fraudulently concealed his income. The husband is the co-owner of a financial advising company. During the divorce, the petitioner claimed that her husband’s income should be higher than what he reported, based on the following observations:

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How Bonuses, Commissions, and Stock Options Are Treated During DivorceThe income you earned before you filed for divorce is considered marital property, which is part of the division of property. Your income after your divorce is used to calculate child support and spousal maintenance but is otherwise yours to keep. The structure of your pay has little consequence on your divorce if you receive a straightforward salary or hourly wages. With other forms of compensation, the timing of your divorce could determine whether your spouse can claim a portion of that income:

  1. Bonuses: In most cases, a work bonus qualifies as marital property if you received it before you filed for divorce. You must make sure that your spouse does not double count the bonus by claiming it as marital property and including it as part of your income when calculating support. An exception may be a bonus with a clawback provision, which states that you must return the bonus if you are no longer with your employer before a set date. You could argue that you should not include the bonus in the division of property because you could lose it. If it is part of the division of property, you should include a section in your agreement stating that your spouse must repay their share of the bonus if you are forced to return it for reasons beyond your control.
  2. Commissions: Some employees receive a commission for work completed in place of or in addition to their salary. If you know that commission pay is coming, you can try to file for divorce in advance so that it is not marital property. However, your spouse may argue that the commission is marital property because you completed the work related to the commission while you were still married. If you cannot agree with your spouse, a divorce court will need to decide whether the commission is marital property.
  3. Stock Options: Illinois divorce law states that stock options that you receive during your marriage are assumed to be marital property, regardless of whether they are vested or if you know their actual value at the time of the divorce. A divorce agreement can set a provision that you will pay your spouse a share of these stocks when you exercise your option on them. Stock options are not marital property if they were a gift or part of an inheritance, which does not apply to stock options you received through work.

Contact a St. Charles Divorce Attorney

Much of your negotiating during divorce will focus on identifying your marital properties, determining their value, and dividing them between you and your spouse. A Kane County divorce lawyer at Goostree Law Group can ensure that your division of property is accurate and meets your needs. To schedule a free consultation, call 630-584-4800.

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Repairing and Building Your Credit After DivorceHaving good credit helps when you are responsible for supporting yourself after a divorce. It gives you the option of borrowing money to finance your immediate needs, such as purchasing a new home. Bad credit history or no credit history are obstacles to your financial stability but can be overcome with proper planning. Two of your goals during your divorce should be to protect or repair your credit and to work on building your individual credit.

Existing Credit

You need a current credit report to understand your financial situation, which you can purchase from a major credit bureau. Your current credit rating is likely based on:

  • Marital debts;
  • Business debts; and
  • Debts from before your marriage. 

Equitably dividing your marital debts is part of the divorce process. Marital debts are personal debts created during the marriage. With business debts, both spouses may be liable if they co-signed on the debt agreement or the business is not a limited liability company. Debts that predate a marriage are not shared during the divorce unless the spouse agreed to assume liability for the debt.

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Posted on in Divorce Finances

Affording a New House as a Single ParentWhen parents divorce, at least one of them must find a new home for them to live with their children. In some cases, both parents are searching for a home if they sell their marital home. It can be difficult to purchase a house as a single parent. You must find a home that is within your price range but still meets your family’s needs. It may also be more difficult to receive a mortgage as a single parent. To purchase a home, you will need to plan ahead and use the resources available from your divorce agreement.

Assess Your Situation

Before hitting the housing market, you must identify what you need and what you can afford. Your needs may depend on how many children you have and their ages. Young children of the same gender may be fine with sharing a room, but older children need more privacy and space. Your housing expenses are a major component of your budget after divorce. Besides your job income and living expenses, you must consider divorce-related assets and expenses, such as:

It may be unwise to devote all of your available assets toward purchasing a home if you can find an acceptable home at a lower cost.

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