Mark Ashton, a partner in our Exton, Pennsylvania office, and the editor of the firm’s Pennsylvania Family Law blog, wrote an excellent post on that blog entitled "A Reminder That the World of Bankruptcy Has Changed. To see the full post, click here.
The post reminds us how the 2005 changes to the bankruptcy code affects divorce settlements. Specifically, divorce settlements are no longer dischargeable in bankruptcy. Under the prior Act, payments in the nature of support were non-dischargeable but equitable distribution could be dischargeable. The court would apply a balancing test as to the debtor and former spouse. That balancing test is now gone.
Very often we still see clauses in property settlement agreements proclaiming that the obligations are not dischargeable in bankruptcy or "are in the nature of support." Those clauses do not seem necessary anymore.
Given the current economy, this issue could be one we see a lot. That said, bankruptcy does not seem like it will provide relief to former spouses.