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Is it more strategic to file for divorce first or bankruptcy?

On Behalf of | Mar 7, 2024 | BANKRUPTCY LAW - Bankruptcy, DIVORCE - Divorce |

Money problems and financial infidelity are some of the most common reasons married couples argue. When debts pile up and the stress becomes overwhelming, the cracks in a marriage can widen, leading some to consider both divorce and bankruptcy simultaneously.

Before you decide which approach is most beneficial, talk to your spouse about your individual and joint financial circumstances. Compile a comprehensive overview of your financial standing by meticulously gathering all relevant financial documents and records for thorough examination.

Filing for divorce first

Wisconsin operates under community property laws, which significantly impact both divorce and bankruptcy proceedings. The family courts will regard all assets and debts acquired during marriage as jointly owned. In a divorce, the state typically mandates an equal division of marital property.

If you opt to file for divorce before bankruptcy, you are looking at dividing all marital assets and debts. Anything you owned before the marriage or received individually as a gift or inheritance is typically yours to keep, but all community property will be on the table for division. Wisconsin’s equal division could become more challenging and expensive if bankruptcy proceedings follow later.

Filing for bankruptcy first

If you and your spouse are on the same page, a joint bankruptcy before divorce may lighten the load for both parties. Filing for bankruptcy first may discharge joint debts and place your assets and liabilities under the management of a bankruptcy estate, potentially making it easier to divide property during the divorce. It allows you and your spouse to use a joint petition, reducing filing fees, legal dues and future divorce costs.

However, if your joint incomes disqualify you from being eligible for Chapter 7 bankruptcy, it may serve to your advantage to file for divorce first. Furthermore, Chapter 13 bankruptcy payment schedules can take 3 to 5 years. Few divorced couples want to remain financially linked for such a long period of time after a divorce.

Whether it is better to file for divorce or bankruptcy first will depend on varying factors, as both processes are very complicated. Although, if done correctly, both paths can lead to a new beginning and a clearer financial future.