In California, there are two exemption schemes: CCP 703 and CCP 704. (In rare circumstances the Federal Bankruptcy Exemptions are available as well – but I’m ignoring that for now) Each allows a person filing for bankruptcy to exclude property from the estate. This is just another way of saying that it is property that would be kept by the debtor in a bankruptcy.
For individuals filing for bankruptcy and using the 703 exemptions (the more common exemption scheme) after separating from their spouse but before a divorce has been filed or finalized, it is essential that a spousal waiver of exemption be obtained from the spouse. This waives the other persons right to use the 703 exemptions, as the bankruptcy does not want couples double dipping.
This can be a problem if the person filing can’t find the other spouse or the other spouse is unwilling to sign. This being the case, the best scenario would be to wait until the divorce is finalized. However, in some situations, if all assets were exempt or most likely uninteresting (i.e. worthless) to a Trustee, it would be okay to go forward without it.
I learned this the hard way when I didn’t get a Spousal Waiver from one of my clients who hadn’t seen his wife in more than five years, but who had never gotten a divorce. Luckily, there were no assets that the Trustee wanted so converting the exemptions wasn’t necessary.
Bottom line: if you’re separated from your spouse, but your divorce isn’t final, tell your bankruptcy lawyer.
Bankruptcy and Divorce 