Roseville MN Bankruptcy and MN Divorce Law find themselves intersecting all the time. It’s almost as if these two areas of law go hand and hand. Debt causes marital strife which leads to divorce. Divorce causes a loss of income to both parties, separate households and therefore separate expenses, and typically debt as a result of the investment in getting the divorce itself; lawyers, custody studies, child support, alimony, and many other expenses associated with getting a divorce. In a lot of cases this all leads to bankruptcy eventually.
When you have a Roseville Bankruptcy Attorneys client who presents themselves with debt, a stop sign should come up for the practitioner immediately. Questions that naturally arise are: Who is able to pay this marital debt? Will it really get paid? And, what happens if it doesn’t get paid? These questions all come up and should be answered before any settlement papers are signed for the divorce. Further questions such as what is the recourse for your client if the other party doesn’t pay the bills they agreed to pay or were court ordered to pay? How costly will it be for the client to enforce these remedies and could you, as their lawyer, made these remedies easier to obtain?
These questions and more, must be answered straight away. Sure the client wants the divorce done fast and cheap but most clients will regret that once they realize the mistake they made by agreeing to something just to get the divorce finished. They won't be happy once they realize how much expenses will be involved by holding the other side to the terms of the agreement and how negatively the other parties failure to make payments on the debt will affect their credit rating.
What To Avoid with Your Roseville MN Bankruptcy & Divorce Clients
1. Ignoring Each PARTIES DEBT POSITIONS AND Their POSSIBLE IMPACT ON EACH OTHER
This one seems obvious right? Create a chart- WIFE - HUSBAND - JOINT and list the parties debts under whichever category describes the debt. If 50k in credit card debt is in husband’s name alone put it under husband’s name. If the mortgage is a joint debt, out it under joint etc. If the parties are joint on another 25k in credit card debt, list it as joint.
Obviously, if the credit card debt is entirely in husband’s name, it may be marital debt but creditors’ do make any distinction marital and non marital debt. Creditors are not a party to wife and husband’s divorce. Creditors’ don’t care what the spouses agree to, they will pursue whomever is liable on the account, period. So, if husband is ordered/agrees to pay the 25k in joint credit card debt, but does not, the credit card company will pursue wife.
Wife then calls you, her divorce lawyer, and says what is this all about? I thought husband was court ordered to pay this debt, wife says again, I have a court order, doesn’t that mean anything? And then you tell wife what she doesn’t want to here; creditors are not a party to your divorce, they are still able to pursue both of you if he doesn’t pay. Wife is steaming mad. She says gee, and here I thought I was already divorced, but it turns out I am not. I always tell people, you are never truly divorced until you no longer have joint debt.
So, the first mistake to avoid is failing to identify all debts and who is liable on the debt and what impact, if any, the failure of what party to pay the debt would have on your client and vice versa. For example, you may have husband agree to refinance the mortgage and the 25k in debt into his name alone, but if he is unable to do so, now what?
How many people coming out of a divorce in Roseville, MN are in a position to refinance a mortgage or 25k in debt? What if they can’t refinance the debt due to no fault of their own now what? Where does that leave your client? Perhaps selling the home would have been a better option?
And to complicate this just a little further, did you know Minnesota law makes both spouses responsible for each others medical bills? How were the medical bills dealt with in the divorce? What if they don’t get paid? How does this come back to your client in a negative way? These are just a few of the Top 5 questions Your Roseville MN Bankruptcy Law Firm Is Asked.
Here is what I would suggest every Minnesota divorce lawyer do. Create a chart, photo copy it, and use one on every single divorce case. It will go a long way in detailing the debts and who is responsible for what. If you are not sure who is responsible for what debt, find out. The client is not going to find it funny that it turns out the MasterCard was actually a joint debt, he was ordered to pay it, and of course, he is not.
2. THE USE OF “HOLD HARMLESS LANGUAGE”
It is highly unusual for me to look at a divorce decree without seeing the standard “hold harmless language. But, should this language really be in all divorce decrees? What does the language really mean? When should it not be used?
Again, I understand clients want the divorce done quick and cheap. But failure to review some of these boiler plate provisions could wind up meaning a malpractice claim later on. There are many instances where you may want to forgo this boiler plate language all together.
Let’s say, for example, Lisa comes to you for a divorce. She is knee deep in debt to start with. So, you get your chart out and plug the list of debts into the chart. Turns out Lisa has two judgments against her from two different repossessions years ago- before she was even married that are just in her name alone. These two judgments total 25k. As you can imagine, her credit sucks. She has 50K in joint credit card debt with her husband.
Troy, Lisa’s soon to be ex says, well the judgments were hers before we got married so she should take those debts. The 50k in joint credit card debt is both of ours so we should split that debt. Lisa and you as her attorney says, sure- sounds reasonable and draft up an agreement which contains all the standard language including “hold harmless language.”
“Hold harmless language” is usually language stating the parties agree to be bound to the debt they agreed to pay, and hold the other party harmless, or indemnify the other party if the other party is harmed by that party’s failure to pay.
So, if Lisa agrees to pay 25k of the joint debt but does not, and assuming Troy pays her share because he doesn’t want his credit ruined (because the debt is joint and they are jointly and severally liable on the debt), Troy can sue Lisa for 25K under the “hold harmless” language in the divorce decree.
But, what if Lisa needs to file a chapter 7 bankruptcy? What if you had known she should file a bankruptcy before the divorce was done? Would that alter what you had put in the divorce decree?
Let’s say it is obvious Lisa needs to file a Roseville MN Bankruptcy. If she needs to file and knows it, do not put “hold harmless” language in the divorce decree. Instead, state Lisa will file bankruptcy and her liability on her debts, as well as joint debts, will be eliminated by a bankruptcy discharge. I know, she is worried he might want more marital assets if she files a bankruptcy and gets rid of her debts and he now has to carry the 50k in marital debt. Big deal. In most of these cases, there is not 50k in marital assets to begin with. In the ones where there is 50k in marital assets is it not better for your client to get a fresh start and negotiate on the marital assets than it is to fight ex-husband later as he pays the debt and pursues your client on a hold harmless clause? No one likes surprises.
It is far better to negotiate now and file the bankruptcy and get on with your life. Be very careful when placing hold harmless language in any divorce agreement or decree where you know your client needs to consider bankruptcy. Section 523(a)(15) of the bankruptcy code prohibits the discharge of debts agreed to be paid by you in a divorce decree. Your client still gets their discharge in bankruptcy- ie the creditor cannot sue your client, but her ex-spouse can.
3. THE “ANGLING” PARTY
So, the next major mistake to avoid is the “angling” party. Sometimes, if it sounds too good to be true, it is. So, husband says sure I will take all of the joint marital debt, my debt, her debt, hell, all of the debt. Wow! What a nice guy uh? Yeah right- he is planning to file bankruptcy and doesn’t care if he takes all the debt in the divorce. You, and your client, are being played like a fiddle.
Of course, he wants to take all the debt, so he is also awarded all the assets too. Then, when the divorce is done, he files for bankruptcy, loses the debt, and has the assets free and clear of your client. Now that is some crafty negotiations right there! Except, your client is going to call you wanting your malpractice carriers name and address.
In a situation like this, if one party is all too eager to take on all the debt, or is very passive about it, the warning flag should come up. If I were representing wife, I would have “hold harmless language” and much more. For example, neither party plans to file bankruptcy at the time of the divorce. Should husband file bankruptcy, the parties agree the court will reserve jurisdiction over the property settlement to revisit the issue of an equitable distribution. Or, why not state, if husband files bankruptcy on any debt stated herein, ever, the parties property settlement shall be this way......?
In sum, chart the parties debts, be careful of the use of “hold harmless” language and watch for the “angling” party. If you every have any bankruptcy questions, feel free to call the Kain & Scott Bankruptcy Law Firm in Roseville, MN anytime, or set up a time to meet with us at:
2355 Fulham St N #400 Roseville, MN 55113
We are always happy to help!
