What happens to joint assets and finances if one spouse is filing bankruptcy when separated?

1 answer | Last updated: Feb 28, 2011
Amarka01 asked...

What happens to joint assets and finances if one spouse is filing bankruptcy when separated? My mother-in-law separated from my father-in-law over six years ago after forty-five years together. She lives with my wife and I and she has not talked to him since she moved out. He still lives in the house they jointly own but we found out he cancelled insurance on the house, has over $100K in credit card debt (his name only), and lives off of $12K in Social Security. The house may be worth $200K (best guess). Questions: 1. Should we force him to declare bancruptcy? 2. Would he retain the house (only asset he has)? 3. What impact would this have on my mother-in-law financially? She is financially stable with her own accounts.

Expert Answers

Steve Weisman hosts the nationally syndicated radio show A Touch of Grey, heard on more than 50 stations, including WABC in New York City and KRLA in Los Angeles. He is a practicing lawyer specializing in estate planning and is admitted to practice before the United States Supreme Court. He's a public speaker and commentator who has appeared on many radio and television shows throughout the country, and he's the legal editor of Talkers magazine, the preeminent trade publication of talk radio. His latest book is The Truth About Avoiding Scams.

This is a complicated situation and it is further complicated by the fact that the laws that pertain to this situation differ significantly from state to state.

Your mother-in-law may well wish to consider fling for a divorce in order to protect her interest in any property she jointly owns with her husband.

If there is an outstanding mortgage on the home, canceling the homeowners insurance would be a violation of the terms of the mortgage and could result, in a worst case situation, in the bank holding the mortgage beginning foreclosure procedures on the property.

The amount of protection a homeowner can get if he or she is sued for outstanding debts or declares bankruptcy is known as a "Homestead declaration" and varies significantly from state to state. Additional protection might be available if your state is one of the twenty-five states that permit Tenancies by the Entirety, which is a way that married people may own the title to their home that also protects the value of the home from the claims of creditors.

Since the situation is so complicated and depends on what state your parents live in, I urge you to have your mother-in-law contact a lawyer as soon as possible to make sure that her rights are protected.