Marriage joins two people together emotionally, legally, and in many cases, financially. Unfortunately, if you are married to someone struggling financially or you are the one facing financial problems, it might be better to keep some aspects of your finances separate. This can be especially beneficial during bankruptcy.
If you do choose to file for bankruptcy independent of your spouse, it might be a good idea to use the marital adjustment deduction in bankruptcy. The marital adjustment deduction allows you to separate some of your expenses. The benefit is the deduction reduces your spouse’s adjusted gross income, which can make it easier for you to quality for Chapter 7 bankruptcy.
How Does this Work?
First, it’s important to understand what the marital adjustment deduction means and how it works. When you file for bankruptcy, you’ll be subject to a Means Test which is used to determine whether or not you qualify for Chapter 7, and therefore discharge of your debts. The Means Test evaluates your adjusted income and deductions. As a married person, you and your spouse combine incomes and if that total is higher than the means test allows, it means you won’t qualify for Chapter 7.
The marital adjustment deduction allows your non-filing spouse to use deductions as part of the Means Test, reducing his or her adjusted income. For instance, say your non-filing spouse pays monthly child support and a student loan payment, neither of which are household expenses.
Other personal expenses that might qualify for the marital adjustment deduction include:
• Credit card payments for cards, only in your spouse’s name
• Gym memberships, as long as you don’t use it
• Cell phone bills, internet charges, or subscription charges such as Netflix that are only used by your spouse
• Attorney’s fees
• Medical expenses incurred by your spouse
• Vacations you did not attend
• Mortgage payments for homes solely owned by your spouse
• Travel expenses for business purposes
• Child support and alimony payments
• Investment accounts
• Business related expenses
Using the marital adjustment deduction can be complicated and your bankruptcy trustee will want to see proof that expenses are legitimate and organized correctly. You’ll want to review with your bankruptcy attorney all of the paperwork associated with your expenses and carefully review the best way to report your income and expenses.
Mistakes Can Result in Bankruptcy Denial
Misreporting your income and expenses on the Means Test can result in your bankruptcy claim being denied, so it’s very important you work with an attorney who understands how to handle marital adjustment deductions.
For more information or to schedule a time to speak to someone about your situation, contact the Law Offices of Robert M. Geller at 813.254.5696 to schedule a consultation.