Identification

• Nothing stops you from filing for a marital dissolution and bankruptcy at the same time, but the real question is if this is the smartest idea. A normal divorce proceeding can be confusing enough, but bankruptcy adds extra laws that may apply to your debts. For example, a judge might award you a "hold harmless" or "indemnity" decree. In an indemnity agreement, the judge assigns one debt to a spouse. If that same spouse declares bankruptcy and creditors come after you, you then have to ask a court to enforce the indemnity agreement. (ref 1 and 2)
  
  

Caution

• It often makes sense to settle debts before officially declaring bankruptcy, as the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act makes it nearly impossible to evade domestic support obligations, such as payouts for businesses, in bankruptcy after a divorce is final, according to Marlene M. Browne of "Forbes" magazine. Also, the 2005 bankruptcy changes are still relatively new at the time of this publication, so the courts do not necessarily agree on how to implement those rules in every situation.
  
  

Considerations

• Until a judge officially signs your divorce papers, you are still legally married, so you might not be able to file bankruptcy if your spouse refuses to accept a joint petition. You may lose some assets if you file at the same time as a divorce. For example, you must include any marital property in a filing, so if you owned a primary residence and rental home, the bankruptcy trustee might liquidate the rental property. If you had filed separately after divorce, both of you could keep a property because it is no longer considered community property, and you can both claim a homestead exemption.
  
  

Tip

• Simultaneous divorce and bankruptcy is such a difficult issue that you may need to separate the two and retain a lawyer to help you decide when to file bankruptcy. Doing this as far in advance as possible of the divorce could save both parties money. For example, you must live in a state for 40 months before using its exemptions in bankruptcy, which is especially useful in states with large exemptions like Texas and Florida.