Same Sex Couples and Bankruptcy's Community Property Rules

Same sex couples encounter financial troubles no differently than heterosexual couples.

We live in “interesting” times as bankruptcy courts feel their way through the collision between California’s state laws on domestic partnerships and married same sex couples and the federal law found (and now ignored) in DOMA.

Lead by judges in the Central District of California, the Northern District of California bankruptcy judges have quietly but publicly stated that they will not sua sponte challenge joint filing by same sex married couples.

But whether a couple are registered domestic partners or married, under California law, they have community property.

California Family Code 279.5 created registered domestic partnerships. It provides that 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.

Surprising things happen to community property in bankruptcy.

All in

State law determines what property a person filing bankruptcy owns. Federal law will determine what happens to that property in bankruptcy.

A bankruptcy filing brings all of the couple’s community property into the bankruptcy estate. Whether one spouse files, or they file jointly, all of the community property is affected. There’s no “my half”, “your half” here.

Since, at present, registered domestic partners aren’t spouses, they can’t file a joint bankruptcy case. If both partners file, all of the community property comes into the bankruptcy estate of the first to file. If only one partner files, all of the community and the filer’s separate property comes into the estate.

All protected

In exchange for inclusion of all of a couple’s community property in a bankruptcy filed by just one spouse or partner, all of the community property acquired by the couple after the bankruptcy is protected from the creditors with notice of the bankruptcy case. That’s what’s known as the community property discharge.

Stay tuned

Same sex couples need to carefully analyze their property holdings if they are considering bankruptcy relief. Spouses or not, the body of law on community property will apply.

I expect developments on the issue of joint filings by registered domestic partners, regardless of what the U.S. Supreme Court does with the issue of same sex marriage.

Joint tenancy property isn’t community property

Image courtesy of sea turtle and Flickr.