Which comes first, the chicken or the egg? When it comes to divorce and bankruptcy, even though I’ve been a bankruptcy attorney for almost twenty-five years, I’m not sure I know the answer. Divorce, as I’ve mentioned in earlier blogs, is one of the three main factors leading to bankruptcy. It’s certainly true that financial problems can cause stress in a marriage, and sometimes that stress leads to divorce. In other cases I’ve seen, though, it’s the divorce that’s the cause of financial problems for one or both of the couple (see Divorce And Bankruptcy Mix, But Don’t Expect A Delicious Blend). One thing I know for sure (as Oprah is fond of saying) from all those years in practice, is that bankruptcy, because it’s designed to stop stress and help people get organized in their finances, almost always helps a marriage rather than causing divorce.

With the crisis in the housing market, a third factor is coming into play – the home. Couples trying to divorce are often “tied together” by the home they own. In this difficult economy, it’s quite possible neither spouse can afford to rent an apartment or to purchase a new residence until they find a buyer for the home they’ve shared. In talking with different folks in my four bankruptcy law offices around the state of Indiana, I sometimes find that neither spouse wants to walk away from the home, or to sell it for less than the mortgage amount – even if one or both of them is preparing to file bankruptcy! Meanwhile, he’s living upstairs, she downstairs, or the reverse, an awkward situation by any standard.

Sometimes the couple has already gone through a divorce, and the non-custodial parent (who’s living in the same house!) isn’t keeping up with child support payments. In counseling this pair, I need to explain that child support is one type of debt that is non-dischargeable in bankruptcy. What’s more, they need to know how each one’s debts might affect the other’s bankruptcy case.

As I discuss all the options with these clients, we have to consider what type of mortgage they have on their home. If it’s an adjustable rate mortgage, it might be that when the mortgage payment jumps up to a higher rate, there will simply be no way for them to afford payments. As I explained in Keeping Home Sweet Home – It Depends!, in order to avoid foreclosure, they may need to dramatically “mark down” the price of that home, get it sold, and move on.

In talking about all this with colleagues of mine who are judges and divorce attorneys, I find they’re seeing the same trend – couples continuing to live under the same roof during a separation or even following a divorce. In some very few situations, these colleagues report, a husband and wife some to the conclusion that, rather than dealing with all the costs of divorcing, selling their home for so much less than they had hoped, finding new places to live, moving, etc. – they’d be better off giving their marriage a second try!