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Same Sex Couples and Bankruptcy: Where Do California Courts Stand?

After the Supreme Court’s decisions in Hollingsworth v. Perry (addressing a challenge to California’s Proposition 8) and United States v. Windsor (holding that the Defense of Marriage Act is unconstitutional), many people have wondered how courts will treat bankruptcy filings by same-sex couples.

same-sex marriage

Guidance from Bankruptcy Courts

Prior to these landmark opinions, the United States Bankruptcy Court for the Central District of California issued a highly-publicized series of decisions related to the bankruptcy of Gene Douglas Balas and Carlos A. Morales. In In re Balas & Morales, 20 bankruptcy judges jointly signed an opinion striking down the Defense of Marriage Act (DOMA) as unconstitutional to the extent that the law barred lawfully married same-sex couples from filing joint bankruptcy petitions.

The United States Bankruptcy Court for the Northern District of California issued a public statement on the Balas & Morales decision, stating that it would follow the Central District’s lead and allow same-sex couples to file joint bankruptcy petitions. The Northern District applies the following practices to all joint bankruptcy petitions submitted to the court:

  • The Clerk’s Office accepts for filing upon payment of a single filing fee any petition filed by two individuals who represent to the court that they are lawfully married.
  • The court does not on its own initiative investigate whether any individuals who represent that they are married, whether same-sex or mixed-sex, are in fact recognized as married under state or federal law.

The Northern District also stated, as the Balas & Morales decision was not binding on the court, that:

“If any party in interest files a motion or action contending that individuals who have filed a joint petition are not entitled to do so, this court will schedule such proceedings as are appropriate to determine the legal and factual questions raised in that action or motion.”

This means that bankruptcy judges in the Northern District will not sua sponte challenge joint filings by same-sex couples.

Community Property Considerations

Regardless of whether couples are registered domestic partners or married, they have community property under California law.

California Family Code Section 297.5 provides that domestic partners have the same property rights as spouses:

Registered domestic partners shall have the same rights, protections, and benefits, and shall be subject to the same responsibilities, obligations, and duties under law, whether they derive from statutes, administrative regulations, court rules, government policies, common law, or any other provisions or sources of law, as are granted to and imposed upon spouses.

This means that the property of domestic partners is governed by the California community property regime.

When a person files for bankruptcy, all of his or her community property is brought into the bankruptcy estate (even if he or she files for bankruptcy as an individual). This means that a bankruptcy trustee may be able to sell any non-exempt community property to pay creditors.

In exchange for the inclusion of a couple’s community property in a bankruptcy filed by one spouse or partner individually, the community property discharge protects community property acquired by the couple after the bankruptcy from creditors.

Because of the implications bankruptcy has on community property, same-sex couples should consult with an experienced bankruptcy attorney before filing for bankruptcy. An experienced bankruptcy attorney can help same-sex couples analyze their property and understand how bankruptcy might affect it.

Can Same-Sex Couples File Bankruptcy Jointly?

After the Supreme Court’s decision in Hollingsworth v. Perry, same-sex marriages resumed in the state of California.

If a same-sex couple was married in California prior to 2008 or after June 28, 2013 (when the first same-sex marriages were performed post-Hollingsworth), the couple can jointly file for bankruptcy without issue. A same-sex couple’s joint bankruptcy filing will be treated by courts as would any other couple’s filing.

Those who have entered into registered domestic partnerships should also be able to file for bankruptcy jointly without issue. In general, courts should not treat a joint bankruptcy filing by registered domestic partners differently than one by a married couple.

It is important for any couple considering bankruptcy to consult with an experienced bankruptcy attorney prior to filing. An attorney can help guide couples through the often complicated bankruptcy process, and will work to ensure that their property is protected to the extent allowed by law.

Photo courtesy of Flickr user colincalvert pursuant to a Creative Commons CC-BY-SA 2.0 license.

About the Author
Christian Spaulding is the founder and principal attorney at Spaulding Law Group. Mr. Spaulding has lived in Southern California his entire life and his family has been in Southern California since the late 1800’s. Mr. Spaulding received his undergraduate degree from Chapman University in Orange with a Bachelor of Science in Accounting. While completing his undergraduate studies, Mr. Spaulding was the recipient of the prestigious Wall Street Journal Student Business Award. Mr. Spaulding graduated at the top of his accounting program at Chapman University and attended law school at Chapman University School of Law where he was a Merit Scholarship recipient. Mr. Spaulding has focused his firm’s practice solely on consumer protection and bankruptcy since 2009.

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