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Effect Of Marital Separation Upon Exemption Planning
A new bankruptcy client stated that he had separate from his wife, and that he was living with his girlfriend in her house. His wife lived in what had been his homestead property which he and his wife jointly owned. The former marital home had substantial equity and valuable contents. The client wanted to file Chapter 7. He asked me if his home owned jointly with his wife and its contents would be exempt in a Chapter 7 bankruptcy.
The former marital home was no longer entitled to homestead protection in the husband’s bankruptcy. The husband now permanently resided in his girlfriend’s house. Even though he still owned the house jointly with his wife, and the property was his wife’s residence, the husband lost homestead protection when he moved in with his girlfriend.
However, I think the husband could exempt the house and its contents as tenancy by entireties property. Tenants by entireties protection of marital property does not require residence. Even though separated, I believe the husband could still claim entireties protection even though he does not live in the home and does not use its contents in daily life. Divorce will end either spouse’s entireties exemption, but the exemption is not lost upon separation or the filing of a divorce action. I suggested that the husband file bankruptcy as soon as possible prior to his divorce becoming final.
posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida
August 9, 2007 in Bankruptcy Questions | Permalink
Comments
What happens if the man files bankrupt before he sells the home but during the filing he has to give his wife the money from the sale because they have and agreement of their seperation.
Posted by: Brad | May 27, 2008 1:54:44 PM
Interesting, but, I think you are wrong. From the family law standpoint, leaving the home does not change the homestead character of the property; he's just living in exile. Once he gets to trial and the judge hears his side of things; that wife will tossed to the curb, and he'll move with his girlfriend into the homestead which was always rightfully his.
It could get even more complex if the family court applied the statute that says the custodial parent keeps the home so long as the kids are minors.
Posted by: Tom | Aug 13, 2007 8:57:53 PM
