Bankruptcy & Family Law Intersects: Gay & Lesbian Debtor-Couples

As you know, two debtors who are married to each other may file a joint bankruptcy petition. As Wisconsin does not currently recognize gay marriage, two such spouses are unable to file a joint petition. So today, we’re going to discuss the practical implications of this, and what you need to know.
Income
Under current Wisconsin law, a gay couple living together is basically the equivalent of being roommates for bankruptcy income purposes. Your partner’s income is not counted on the Means Test, nor do they contribute to the household size. This actually ends up being advantageous, because the applicable median income level does not increase dollar for dollar with a typical person’s salary. Meaning that a married couple who must report income of both spouses is more likely to be above median than a single person (although having child dependents can quickly take care of that). For example, take two individuals each making $30k per year. Any one individual is approximately $12k below median. But if they are married, their combined income is about $3k above median.
However, that isn’t to say that your partner’s (or significant other’s) income is completely excluded from the equation. If any portion of the partner’s income is used to contribute to household expenses, then that potion is reportable on the Means Test, as well as Schedule I, the schedule for budgeting income.
Assets
Wisconsin being a community property state, each married spouse has a whole, undivided interest in each marital asset. What that means is that instead of husband and wife each having a 50% interest in a piece of property, the husband and wife are considered a single legal entity with a 100% interest in that piece of property. Since gay couples cannot be legally married in this state, they cannot have community property. They can have individual property or they can have joint property. Joint property being where two people have a 50% interest in an asset. Individual property is only a problem for a gay couple if they own a quantity of assets similar to those of a married couple, but it’s all titled in one person’s name. This is the same problem that we frequently encounter with non-filing spouses. I’ll grossly over-simplify this example to illustrate my point. Let’s say there’s a flat amount of property exemptions of $25k. Your average person has $20k in assets. Two average people have $40k in assets. If only one person files (whether we’re talking about a single person in a gay couple or one spouse of a married couple) they cannot double their exemptions. So if all the property is titled in one person’s name, then there’s a chance that the exemption limits will be used up. However, if roughly half of the property owned by the couple is owned by each partner, then it is less likely to be a problem. In the case of jointly-owned property, this is where gay couples actually get an advantage over a married couple with a non-filing spouse. Again, with the married couple, the ownership interest is whole and undivided, so if one spouse opts out of filing, the filing spouse only gets half of the exemptions, but full ownership. If assets are titled jointly between two domestic partners, on the other hand, then it doesn’t matter that the one partner filing is only entitled to half the exemptions, because his interest in those assets is only half the value. Of course, be careful not to transfer an individual ownership interest into a joint ownership interest just prior to filing, as this could be considered a fraudulent conveyance.
Debts
Debts are the area where there are usually disadvantages for gay couples. Naturally, if each partner owes individual debts, each person must file a separate bankruptcy to discharge those debt obligations. There are no community debts, just as there are no community assets for LGBT couples, so there can be no benefit from a phantom discharge if only one partner files. Similarly, if two partners apply for a joint credit card, or co-sign on each other’s loans, if only one partner files, then the other partner – the joint debtor – is still fully liable for those joint debts. The only way to protect a non-filing partner from collections is the same way we would protect any other joint debtor / co-signer, which is to file a Chapter 13. Chapter 13 imposes a co-debtor stay during the 3-5 year term of the repayment plan. However, at the end, any joint debts not paid in full would once again become the responsibility of the non-filing partner.Holbus Law Office, LLC is a safe and welcoming environment for LGBT debtors.