Q. My husband and I have been struggling financially since COVID when we both lost our jobs. We relied on credit cards to get by and have not been able to get out of the hole we dug. We were nearing retirement age at that point but needing to keep working a few more years to be OK in retirement. Neither of us has been able to get re-employed at prior earning levels. He recently came up with the idea that we should file for bankruptcy. I don’t want to lose our house – I inherited it years ago and it has huge sentimental value. But we really only have the house (which is mortgage-free and has appreciated in value to almost a million dollars).
My husband thinks we should file for divorce, and he will “give” me the house in the asset division because I inherited it, we would each keep our pensions and equally divide our small bank accounts. He will take all the credit card debt because it is in his name anyway. That way his only assets are his retirement and a small bank account, so we don’t lose everything in the bankruptcy process.
I really don’t want to divorce him but is this a good idea?
A. First of all, I cannot advise you to commit fraud by obtaining a fraudulent divorce to hide assets from a future bankruptcy trustee, which is essentially what you are asking. You have to give the trustee a little credit – they see these kinds of divorces happen and the trustee will dig into the divorce to see if it passes the proverbial sniff test. If you get all or most of the assets and no debt, they will likely get the divorce reopened for fraud.
If this was a legitimate divorce, you might be OK keeping the house because of where it came from, but you also need to keep half the debt. It does not matter whose name the debt is in – if it was accumulated during the marriage to support both of you, it is marital debt and that is the obvious fraud in your husband’s idea.
There is another option which does not involve a divorce. File a Homestead with the Registry of Deeds. If you file for Homestead protection, you can protect up to $500,000 in equity in your home from bankruptcy. If you and your husband are 62 or older, you can stack your homestead protections and protect up to $1 million in equity in your home. You should consult a real estate attorney to make sure you do this properly.
Email questions to whickey@brickjones.com