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Divorce, Bankruptcy And Houses In New York

Divorce and bankruptcy often go together.  But when the bankruptcy comes after dissolution of your marriage, will the transfer of the house to your former spouse be a problem?

I was sitting in front of a man who had gone through everything bad in his life, and all in a very short span of time.

First, he’d lost his job of 15 years.  A mid-level New York executive in a field that favored the young, his prospects were bleak.  But he kept plugging away, working towards a new career in an industry that would pay less but let him keep living in New York while giving him the stability he sought for himself and his family.

Then his wife announced that she was packing up and moving out.  For good.  The details aren’t important, it’s just enough to say that when a marriage is over not many positive thoughts spring to mind.

The kids had their share of issues surrounding the break-up, as did the man and his soon-to-be ex-wife.  Where to live (New York is a big state), how to keep up with the monthly bills, and the like kept everyone awake on more than one occasion.

But eventually it was all over.  He signed the house over to her, primarily so the children would have somewhere to live affordably in New York that was warm and familiar.  Her income was enough to keep up with the mortgage payments, so it all worked out on that end.

His finances, however, were a shambles.  Two years of divorce lawyer fees combined with a period of prolonged unemployment left my client feeling displaced and dazed.

And now here he was in my office.  Not because he wanted to, but because it was the only thing that made financial sense.  As with millions of others, divorce and bankruptcy go together like love and marriage.

His first question was one I’ve heard countless times over the years.

My ex-wife got the house as part of our divorce decree.  If I file for bankruptcy in New York, will the property transfer be at risk?  In other words, will she be forced to give up the house she got in the divorce if I file for bankruptcy?

Bankruptcy trustees in New York, when faced with a divorce and houses, will usually look to the terms of the decree.  If the decree provides for the turnover of the house then they will typically not disturb it – provided, however, that there’s nothing else going on that looks <ahem> fishy.

They’re used to looking at divorce and bankruptcy together, so they have a keen eye for what’s legitimate and what’s nothing more than a shell game.

What do I mean?  If you transferred the house to your ex in the divorce and still pay the mortgage (not as part of marital support) that could be considered odd without more facts.  Or if you signed over the house and still live there.

But as a general rule, a binding state court divorce decree isn’t going to get up-ended by a bankruptcy trustee in a New York case.  It’s best to have your divorce and bankruptcy lawyers speak with one another to help you plan for the best odds of success.

Image credit:  kenjonbro (Celebrating 60 Years 1952-2012)

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By |May 18th, 2010|

About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.
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