A recent case shows that it is sometimes better to go broke, before your spouse does, when you are getting a divorce. IN RE: Kane, No. 09-4254, in the United States Third Circuit, shows what I mean.
Shannon Kane filed for divorce from Thomas Kane in New Jersey, then moved to New York. After that, she filed for bankruptcy. She listed Thomas as one of her creditors, for “possible obligations arising out of matrimonial proceeding” with a dollar value “unknown”. She listed her divorce proceeding in her papers. In the divorce, she was trying to get alimony, equitable distribution of assets, and attorney’s fees.
Thomas then filed a Chapter 13 bankruptcy, and Shannon filed a proof of claim for $398,950.39. Thomas claimed that Shannon lost her rights to anything from him when she filed bankruptcy. The Bankruptcy Court decided against him. Shannon was allowed to go into state court to seek her share of the assets.
The reason this was so favorable for Shannon was that her bankruptcy wiped out all possible claims by Thomas against her. He could get nothing from her. She, however, could go after his assets and collect from him.
Her timing was perfect. The Court decided that her right to her share of assets (“equitable distribution”) arises when the judgement of divorce was entered. By filing for bankruptcy before the judgement of divorce, her right to a portion of Thomas’s assets was not wiped out by her own bankruptcy.
There you have it. Wife filed bankruptcy first, listed in her papers that she may have a claim against her ex-husband, wiped out his claim against her and kept her right to collect out of his assets. Perfect lawyering.
Why does this not make sense to anyone except an attorney?