Vol. 3, No. 6, Pg. 25. Bankruptcy after Divorce: I thought we had an agreement.

• Author: By Jane H. Harris and George B. Cauthen

South Carolina Lawyer

1992.

Vol. 3, No. 6, Pg. 25.

Bankruptcy after Divorce: I thought we had an agreement

25Bankruptcy after Divorce: I thought we had an agreementBy Jane H. Harris and George B. CauthenThe Bankruptcy Code offers a federal forum for a debtor to obtain a fresh start financially by providing protection from creditors during and after the bankruptcy process. On the other hand, South Carolina state law provides a forum for the dissolution of marriages while providing equitable treatment of the parties to the marriage. The family court is not concerned with creditors' rights, and institutional creditors normally are not parties to family court proceedings, unlike bankruptcy court proceedings.

More and more frequently the areas of bankruptcy and family law are mingled unintentionally. The situation arises most often following the commencement of a married couple's separation or divorce. Commonly, the spouses will enter into a separation agreement and seek to have the family court order that the terms are binding on each spouse. The terms address issues such as alimony, child support, assumption of marital debts and property settlements. Most often, however, the obligations are not so neatly categorized. Instead,the order confirms which spouse will pay the finance company for the automobile, who will make the mortgage payment, who will assume the credit card debt, and which spouse will maintain health insurance for the other spouse and for the children.

Once the parties feel they have resolved and divided their financial duties, turmoil may arise if one spouse files for bankruptcy after the divorce. The bankruptcy filing will redefine the debtor's financial responsibilities. Bankruptcy may relieve the debtor's marital financial

26obligations, transferring those obligations back to the former spouse and thus creating a potentially unfair disparity.

For example, in a domestic settlement agreement one spouse may promise to pay a marital debt in order to expedite the divorce or in exchange for a more favorable custody agreement. If that spouse later files for bankruptcy and the debt is discharged, the creditor may look to the other spouse for collection if it is a joint obligation or an obligation of the nonfiling spouse.

Similarly, the post-divorce bankruptcy can impact the alimony paid or received by a former spouse. For example, the possibility exists that the debtor will assert his or her bankruptcy in justification for modification of the alimony award...