When Kentucky couples decide to divorce, they should be aware of how a bankruptcy may affect their property division. A case that was decided by a federal bankruptcy court in Georgia demonstrates that family court orders that state property divisions are not subject to bankruptcy may not override a bankruptcy court's ruling.
In the case, a family court judge ordered the husband to pay $53,000 to his wife as a part of the property division. Two weeks after the divorce, the man filed for Chapter 13 bankruptcy, and the wife sued. She asked the bankruptcy court to declare that the property settlement would not be dischargeable through the man's bankruptcy case.
The bankruptcy court ruled for the husband, finding that family law courts may not order that property settlements cannot be discharged in bankruptcy. The court found that it was disallowed as a matter of public policy. The man was also ordered to pay his wife $1,300 per month in child support, and that amount would not be discharged in his bankruptcy case.
The case demonstrates the importance of using the correct terminology in property division matters, especially when the party who is ordered to pay may file for bankruptcy. An experienced family law attorney representing the wife in this matter may have asked that the $53,000 be deemed to be spousal support instead of a property settlement. Spousal and child support are not dischargeable in bankruptcy. People who have complex asset and property division matters may want to seek help from family law attorneys so that they may be able to avoid some of the potential pitfalls that might otherwise happen.