How Florida’s Family Laws Can Help Your Bankruptcy Case
When people get divorced in Florida, there is no presumption that property is owned equally by the spouses, and the court will not automatically split property 50/50 between the husband and the wife. Rather, Florida is an equitable distribution state. This means that the court will look at property acquired during the marriage, and divide it fairly, based on the facts and circumstances, which may not be 50/50.
Why Family Law Matters in Bankruptcy
Why should you care about this if you are filing or bankruptcy? Because if you are married and filing for bankruptcy, and your spouse is not filing, you do not own all of your property alone. You own it with your (non-filing) spouse. That means that the trustee cannot touch whatever part of property belongs to your spouse.
In some cases, property may be owned solely by your non-filing spouse. That is also property that the bankruptcy court or trustee cannot touch.
This often happens with businesses. Assume the husband owned a business before marriage, and during marriage, the husband, alone, continued to work on and grow the business. The wife certainly has some stake in, and interest in the business, and would likely get some kind of payout if the spouses divorced. But her share may not be exactly 50%; it may be less. If she files for bankruptcy, her value in the business may be so small as to be protected.
This is a huge benefit, because it allows you to allocate your exemptions to cover more of your property. For example, if you owned a $4,000 instrument, you would need to use all of your “wildcard” exemption (which protects or exempts between $1,000-$4,000 of personal property) to protect that instrument.
But if the instrument was equitably partially your spouse’s instrument, and your equity in the instrument was, for example, $2,000, you would only need to use $2,000 to protect that property, and you would have another $2,000 to apply to other property.
One thing bankruptcy filers should be aware of is that if they move from a state that is a community property state, where all property is automatically owned by the husband and wife 50/50, Florida will adopt those rules, which means that the bankruptcy court will assume that you own exactly 50%.
Discouraging the trustee
Lowering the value of the property also can de-incentivize a trustee to take property.
If, for example, the filing spouse in our example above only owns a $2,000 share on the property, and it costs $1,000 to liquidate or sell the property (accounting for appraisals, auction costs, publicizing the sale, etc), that may be too little money to make it worth the trustee’s time and energy to even take.
So how much of your marital property do you actually own? That can be a complex question, which family law attorneys can answer. But the reality is that the bankruptcy trustee may prefer just to resolve the matter with you, rather than go through a complex family law analysis.