Free Consultation
The office is open as per the NYS Covid-19 guidelines. We are now doing both in-person and telephone consultations. Please call the office at 718-855-6840 to schedule a time to speak with one of our experienced bankruptcy attorneys.

Prenuptial Agreements and Bankruptcy

Married debtors in New York bankruptcy are more likely to have signed prenuptial agreements than debtors elsewhere just because so many New Yorkers are wealthy and want to protect their wealth in the event of a divorce or early death. Because marriage and bankruptcy intersect—often unpleasantly, alas—some debtors wonder what effects a prenuptial agreement might have on their bankruptcies. Here are some answers.

To begin with, if married debtors are filing jointly, then the agreement is unlikely to play much of a role, if at all. A couple won’t file jointly if there’s no specific advantage, so undoubtedly some jointly owned assets or debts are involved. Otherwise, one or both of the debtors would file separately.

So what happens if one of the debtors is filing and the other is not? Here debtors might find that a prenuptial agreement might not protect them as much as they hope. The first place a debtor might want to use a prenuptial agreement in bankruptcy is when itemizing his or her current monthly income for a chapter 7 New York bankruptcy. If the agreement defines the spouses’ incomes as non-marital assets that are separate to each spouse, then shouldn’t debtors be able to argue the same point to avoid taking the means test?

The answer is no. Section 101(10A)(B) of the Bankruptcy Code specifies that “current monthly income,” “includes any amount paid by any entity other than the debtor … on a regular basis for the household expenses of the debtor or the debtor’s dependents.” That “entity” can be the debtor’s non-filing spouse. This can be quite a problem for the lower-income debtor in the marriage—not for bankruptcy purposes but marital ones—because a chapter 7 debtor might be forced to abandon bankruptcy or convert the case to chapter 13 simply because of his or her spouse’s higher income. Debtors can, however, subtract their spouses’ incomes to the extent they are not used to pay for household expenses, listing each item. Perhaps that can keep some debtors in chapter 7, but married debtors with high consumption lifestyles might not be able to do so.

A second place where a prenuptial agreement might complicate a bankruptcy is when one (usually former) spouse owes money to the other. Specifically, if the prenuptial agreement requires one spouse to pay the other money in the event of a divorce, then the paying spouse might file bankruptcy to try to discharge the debt owed to the other spouse based on the prenuptial agreement. The question becomes whether the debt is a “domestic support obligation” under the Bankruptcy Code and is therefore nondischargeable, even if the prenuptial agreement states otherwise. The answer is usually that it is because section 101(14)(A)(B) of the Bankruptcy Code defines “domestic support obligation” broadly enough that if the obligation is in the nature of support then it will be a “domestic support obligation” irrespective of whether a prenuptial agreement calls the debt that.

Prenuptial agreements do a lot less for debtors in bankruptcy than married debtors may think, but they can create thorny legal issues that are difficult to resolve. If your financial situation is deteriorating and it includes a prenuptial agreement with your current or former spouse, then consulting with an experienced New York bankruptcy lawyer is essential to strategizing your options.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA
718-855-6840
http://nybankruptcy.net/

Recent Posts

Beware Grace Periods, Debtors

Too often, debtors see grace periods offered by lenders as free benefits. “Grace” makes it sound so innocent. However, debtors who routinely rely on grace periods when making payments will find themselves facing financial difficulties that might lead to bankruptcy. The reason is that although creditors offer grace periods to debtors, they also use them

Read More »

Bankruptcy May Not Rescue You From Vicious Personal Disputes

Bankruptcy is a technical process that assumes everyone working within it is mostly rational. To the extent that it expects parties to deviate from irrational behavior, the Bankruptcy Code and its accompanying rules include incentives to keep parties in line. Creditors are usually large and impersonal, and they rarely care if their debtors file bankruptcy.

Read More »

Non-Lawyers’ Explanations of Bankruptcy May Be Wrong

Do you have financial problems? Do you tend to ask your friends for advice? Is one of your friends an experienced New York bankruptcy lawyer who will explain the process for you? Are your friends otherwise knowledgeable people? The answer to these questions may be, “Yes but you don’t know it.” Although many bankruptcy lawyers

Read More »

6 Steps to Take Before Filing Bankruptcy

Leaving your case to an experienced New York bankruptcy lawyer is not the only step on the to-do list before filing bankruptcy. There are many things debtors should do (and not do) before they file, and the more organized and mindful debtors are, the easier the process will be and the more effective the result.

Read More »

Social Security Number Not Necessary for Bankruptcy

A question that’s commonly asked about New York bankruptcy is whether a debtor needs a Social Security number to file. Debtors ask because they sometimes run across the bankruptcy form title, “Your Statement About Your Social Security Numbers” (B 121), which asks debtors to list their current and prior Social Security numbers. The new bankruptcy

Read More »

How Can a Debtor (or Creditor) Get a New Trustee?

The trustee in a New York bankruptcy case is usually not the debtor’s ally. His or her purpose is mainly to administer the bankruptcy estate or ensure the debtor’s repayment plan goes according to plan. Trustees pursue preference payments, fraudulent conveyances, and other malfeasance committed by debtors. They frequently initiate adversary proceedings against debtors. In

Read More »
Scroll to Top