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Bankruptcy and Alimony: Supported Spouse's Perspective
A supported spouse will be pleased to find out that spousal support / alimony payments are generally not affected or dischargeable through bankruptcy. Section 523(a)(5) of the Bankruptcy Code provides that spousal support is nondischargeable debt. As is usual in the law, two exceptions exist.
The first exception provides that alimony is dischargeable if it was “assigned” or transferred to a third party, such as a lender. The second exception is if the supporting party chose to wrongly call a portion of the divorce settlement as nondischargeble “alimony” in exchange for more of the property. A supported spouse who receives notice of their ex-spouse’s bankruptcy filing must consider if any of these exceptions may hold.
A supported spouse must also think about if the bankruptcy significantly alters the economic positions of the parties. For example, alimony can decrease if the supported spouse had shared property which was discharged in bankruptcy, which in turn forced the supporting spouse to incur the debt.
Bankruptcy can affect the ability of the supporting spouse to pay, which is a major factor used to determine support payments to begin with. The supported spouse needs to find out whether the supporting spouse is living a modest lifestyle within his or her budget. If the supported spouse is, payments may be in danger of being reduced.
The supported spouse must show a “detriment” caused by a reduction in payments, considering all circumstances. If the supported spouse cannot prove any hardship or detriment, spousal support payments may be reduced or discharged coinciding with bankruptcy. One of the tenets of bankruptcy is that the supporting spouse has a right to a “fresh start.”
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