If you are considering bankruptcy but your spouse isn’t filing with you, you may worry about what happens to their property. Maybe your spouse owned a car before you married, inherited money from a parent, or has an account that has always been in their name.

The harder questions come up when ownership is shared, money has been mixed together, or property was recently transferred between spouses. Get help from the bankruptcy attorneys at Kain + Henehan to better understand how to protect your spouse’s property.

Which Property May Be Considered Separate From Your Bankruptcy?

If an asset belongs solely to your spouse and you have no ownership interest in it, it generally does not become part of your individual bankruptcy estate.

For example, your spouse may have received an inheritance that was kept in an account in their name. They may own a vehicle purchased with their own funds or have property from before the marriage.

The name on an account or title can help establish ownership, but it may not tell the entire story. A trustee can look at where the money came from and whether you have any actual interest in the asset.

Do not leave property off your bankruptcy paperwork simply because you assume it belongs to your spouse. Tell your attorney about it and let your attorney determine how it should be disclosed.

How Jointly Owned Property Can Affect Your Bankruptcy Case

Joint property needs a closer look because you may own part of it even when your spouse is not filing.

Suppose both of your names are on the title to a vehicle or piece of real estate. Your ownership interest may become part of the bankruptcy estate. The next question is whether an exemption protects that interest.

In some Chapter 7 cases, a trustee may seek to sell jointly owned property. Federal bankruptcy law places conditions on when a trustee can sell both the debtor’s and a co-owner’s interests. If such a sale occurs, the co-owner generally receives their portion of the proceeds after applicable costs.

This is one reason you should review property ownership before you file, not after the trustee starts asking questions.

What Happens to Property That Belongs Only to Your Spouse?

A bankruptcy filed by one spouse does not turn the other spouse into a debtor. If your spouse owns an asset and you have no legal or equitable interest in it, the trustee generally cannot take that property simply to pay your creditors.

This does not mean your spouse’s finances are completely irrelevant. Bankruptcy paperwork may require information about a nonfiling spouse’s income and household finances. The trustee may also ask questions when asset ownership is unclear.

When a Bankruptcy Trustee May Question Ownership of an Asset

Moving an asset into your spouse’s name shortly before bankruptcy does not necessarily protect it.

Imagine that you own a valuable vehicle and transfer the title to your spouse a few months before filing because you are worried the trustee will take it. A trustee can investigate transfers made before bankruptcy and, in some circumstances, seek to undo them.

Federal law gives trustees the power to challenge certain transfers made with the intent to hinder, delay, or defraud creditors. Transfers for less than reasonably equivalent value can also create problems under certain circumstances.

Be open with your attorney about transfers between you and your spouse. This includes money moved between accounts, property retitled in one person’s name, large gifts, and assets sold to family members.

Trying to rearrange ownership shortly before filing can cause far more trouble than simply getting legal advice before making the transfer.

Get Bankruptcy Advice About Your Case From Kain + Henehan

At Kain + Henehan, we help Minnesota clients consider these questions before filing for bankruptcy. Contact Kain + Henehan by calling (612) 438-8006 or filling out the online form to schedule a free consultation. We serve clients throughout Minnesota from our St. Cloud and Mendota Heights offices, and we also offer virtual appointments.

Bring us information about your property and your spouse’s property, even when you believe an asset has nothing to do with your debts. We can review how it is owned, whether you have an interest in it, and how Chapter 7 or Chapter 13 may affect your household.