Can You Exempt Alimony And Child Support Payments From Bankruptcy?
In the past we wrote about how you can’t discharge family law obligations, such as alimony or child support, in divorce. But what if you’re on the opposite end—that is, what if you are the one receiving alimony or child support? How does receiving these benefits affect you?
Regular Wages are Exempt
Bankruptcy courts certainly can’t take your regular wages, and in fact, for most people, courts can’t even take wages that are saved up and sitting in the bank, so long as the money did in fact come from your wages, income or salary and there are no more than 6 months of wages sitting in the bank.
Alimony or Child Support
But if you receive alimony or child support, those aren’t exactly wages. They aren’t a salary or commission or earnings. So do those sources receive the same protections as income?
The answer is yes—Florida allows bankruptcy exemptions for alimony or child support (technically, Florida law just allows certain federal bankruptcy exemptions to be used, one of which is an exemption for support payments). That means that money that you receive, and even money that you have saved that comes from these sources cannot be taken by the bankruptcy court.
Bankruptcy courts don’t want to interfere with the welfare of children, and they also understand it would be inherently unfair to take support payments.
Practical Considerations to Keep Alimony and Support Exempt
As a practical matter, if you are saving alimony or support payments, it may be a good idea to keep those savings in a separate account, so as not to commingle them with any assets or money that may be able to be taken by a bankruptcy court. That way it is easy to show the source of the funds, and to demonstrate their status as exempt.
Alimony can come in a number of forms, and it may not be periodic—that is, sometimes alimony is paid in one lump sum, or certain property is given to an ex spouse as alimony instead of a monetary payment. So long as the property or payment can be traced to a divorce settlement or court divorce order, then it will be considered exempt. The question is whether the money or property is in the nature of, or intended to be, support.
Sometimes it isn’t clear in a divorce agreement whether something is intended to be alimony or not. For example, parties may say that a wife will get property instead of alimony, but the settlement agreement between the parties just says the wife will get property. There is no mention of it being a substitute for alimony.
Specifying when property is intended to be support for the spouse or the children in any divorce settlement can help prove to a bankruptcy court that the money or property should be exempt.