divorce and bankruptcy

Lost? Never guess at which way to go because there could be hungry lions waiting around the corner.

Even experienced attorneys make mistakes when it comes to the interplay of bankruptcy and divorce

Whenever a divorce and bankruptcy come into play it is very complicated to determine which should be filed or completed before starting the other legal process.  Even attorneys make mistakes.  In the In re Kiley case the debtor’s failure to understand the law will lead to the loss of over $100,000 that may have been protected if the timing was done differently.

In re Kiley, 15-27838 (Bankr. D. Utah Dec. 4, 2018) (The Utah Supreme Court revoked certification in this case because the issues were not adequately briefed and because of the potential impact of the automatic stay on the property settlement at issue in this case.)

Bankruptcy court’s decision: As a result, the Court finds that other than the Support Payments of $113,777.78, the balance of the Divorce Award was a property settlement (the “Property Settlement”). Further, because the Debtor acquired, or became entitled to acquire, the Property Settlement within 180 days of her bankruptcy filing, it became property of the bankruptcy estate under § 541(a)(5)(B). 

Section 522(b)(3)(A) allows exemptions under state law “applicable on the date of the filing of the petition.”62 The parties agree that on the petition date, the Debtor was not an “Alternate Payee under a QDRO.”63 It was only after the bankruptcy filing that the Divorce Court entered the QDRO defining the Debtor as Alternate Payee.64 Therefore, because the Debtor was not an alternate payee on the petition date, the Court finds that she did not qualify for an exemption under U.C.A. § 78B-5-505(1)(a)(xv). 

The court orders the turnover of certain funds to the bankruptcy trustee.


The moral to this story is never file bankruptcy without understanding the hundreds of rules that pertain to your unique situation.  Talk to two or three experienced bankruptcy attorneys and divorce attorneys before deciding what is best for you.  Personally, I don’t know of one attorney who does both really well.

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Diane L. Drain

Diane L. Drain, bankruptcy attorney, retired law professor, mentor and community spokesperson.

About Diane Drain:

Diane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.

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