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Does bankruptcy wipe out settlement agreement?

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DeJure

Member
If my ex-wife files for bankruptcy after our divorce is finalized, will her financial obligations to me in the settlement agreement be extinguished?

Background:

I filed for divorce and it is in progress. My wife has numerous creditors after her. All of the debts are her sole/separate liabilities.

We have not yet started on our settlement agreement. If I receive a monetary settlement and afterward she files for bankruptcy, can her obligations to pay me be wiped out?

What is the best way right now to protect myself from her situation?

Our divorce is in California.

Thank you
 


Ohiogal

Queen Bee
If my ex-wife files for bankruptcy after our divorce is finalized, will her financial obligations to me in the settlement agreement be extinguished?

Background:

I filed for divorce and it is in progress. My wife has numerous creditors after her. All of the debts are her sole/separate liabilities.

We have not yet started on our settlement agreement. If I receive a monetary settlement and afterward she files for bankruptcy, can her obligations to pay me be wiped out?

What is the best way right now to protect myself from her situation?

Our divorce is in California.

Thank you
What type of monetary settlement do you believe you will get? You would need to deal with the fact that she might declare bankruptcy in the divorce decree.
 

LdiJ

Senior Member
If my ex-wife files for bankruptcy after our divorce is finalized, will her financial obligations to me in the settlement agreement be extinguished?

Background:

I filed for divorce and it is in progress. My wife has numerous creditors after her. All of the debts are her sole/separate liabilities.

We have not yet started on our settlement agreement. If I receive a monetary settlement and afterward she files for bankruptcy, can her obligations to pay me be wiped out?

What is the best way right now to protect myself from her situation?

Our divorce is in California.

Thank you
Bankruptcy can have an effect on property settlements. However, if she is that much in debt, where do you expect any monetary settlement to come from?
 

DeJure

Member
On our joint tax return, we have a large, charitable contribution carryover which could be allocated to me, giving me an income tax deduction which would be just as valuable to me as cash.

I'm guessing that the carryover is useless to creditors but I think it would be of benefit to me.
 

LdiJ

Senior Member
On our joint tax return, we have a large, charitable contribution carryover which could be allocated to me, giving me an income tax deduction which would be just as valuable to me as cash.

I'm guessing that the carryover is useless to creditors but I think it would be of benefit to me.
It definitely would be irrelevant to a bankruptcy. You would split the carryforward in half. You cannot do it any other way than that. On this one the tax code and IRS rules have to be followed.
 

DeJure

Member
Hi Ldij,

Thanks for the reply.

The Internal Revenue Code describes the procedure for allocating carryovers when the taxpayers' filing status changes from joint to separate or vice-versa.

However, two CPAs have told me that the carryover is a marital asset which can be divided however the parties see fit per a marital settlement agreement. (This may be due to California being a community property state, I'm not sure).

My current question is how to protect myself from my ex's potential bankruptcy. If you have any ideas, please let me know :)
 

LdiJ

Senior Member
Hi Ldij,

Thanks for the reply.

The Internal Revenue Code describes the procedure for allocating carryovers when the taxpayers' filing status changes from joint to separate or vice-versa.

However, two CPAs have told me that the carryover is a marital asset which can be divided however the parties see fit per a marital settlement agreement. (This may be due to California being a community property state, I'm not sure).

My current question is how to protect myself from my ex's potential bankruptcy. If you have any ideas, please let me know :)
I am completely unfamiliar with a bankruptcy in a community property state. I would suggest that you consult a bankruptcy attorney yourself to understand that properly. Not retain one...consult with one. Pay for an hour of the attorney's time. No one here, unless they are a bankruptcy attorney practicing in your state could tell you any different.

While I would be hesitant to disagree with a local CPA, because again I don't practice in a community property state, I know of nothing that allows tax attributes, such as a clearly joint carry forward, to be allocated any way other than 50/50 in a community property state. Now, if the carry forward could be proven to be from your own separate or premarital assets (assets the you had prior to the marriage, or assets you received either by gift or inheritance) then that could be different.

Please understand that the federal tax code controls on that issue. State law does not control and a state judge's order doesn't control. A local tax attorney, rather than a CPA, might be a better person to consult on that issue.
 

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