Tuesday, June 29, 2010

Bankruptcy Issues for Same-Sex Spouses

We have represented many same-sex couples in bankruptcy throughout the years, before and after the landmark decision in Goodridge v. Department of Public Health which provided legal recognition to same-sex marriage in Massachusetts. Despite this decision, there continues to be several special issues in same-sex bankruptcy cases.

Bankruptcy is a federal proceeding and same-sex marriage is not recognized on a federal level. See Defense of Marriage Act. This means that same-sex spouses cannot file joint bankruptcy petitions. The impact of this is primarily technical: One can get the same relief with two petitions as with one. Also, here in Massachusetts, if two bankruptcy cases are filed simultaneously, the creditor meeting for each will be assigned the same date, time and trustee. This allows same-sex spouses to experience the creditor meeting together, though--unlike in the case of heterosexual couples--they will still be examined under oath individually.

One significant drawback to the treatment of same-sex spouses in bankruptcy is that the cost of two bankruptcy cases is always higher than for one case. However, it has been my experience that same-sex spouses tend to have less joint debt than heterosexual couples (although this may change with time). Consequently, if only one spouse has debt problems, it may be advisable for just that spouse to file bankruptcy. This is a right that all married people have, which may be more often advantageous for same-sex spouses.

Means testing for same-sex couples:
There isn't any real difference in how a means test is formulated for roommates, same-sex couples, straight couples, or anyone else. There are differences with how the forms are filled out, but those are just details. The crux of it is that both spouses are counted in household size for the means test and then any contribution to the debtor's household expenses from the other spouse is also included. This is essentially what happens in a traditional joint case. The mechanics are different, but in a way that benefits gay spouses: the non-filing spouse's total income does not need to be included and then diminished by the so-called "marital adjustment." For a same-sex spouse the non-filing spouse's actual net household contribution need only be listed on the means test.

P.S. I wrote a post a few days after this one reporting on how one Massachusetts (federal) judge declared the Defense of Marriage Act unconstitutional. It can be viewed here.