The "marital adjustment" or "marital deduction" is income from a non-filing spouse which is not used to pay for the household expenses of you and your dependents. In a recent post I explained that computing your current monthly income ("CMI") is the starting point for determining whether you are eligible for chapter 7 bankruptcy relief. Usually, all of your spouse's income must be added to the computation, even if he or she is not filing. However, in a limited number of situations the marital deduction can be a game-changer, so the opportunity to use it should not be overlooked.
The most obvious situation is where the debtor and the debtor's spouse are either legally separated, or are living separate and apart and maintaining separate households. The bona fides of this situation will be scrutinized, and a temporary "sham" separation for convenience purposes will not cut it.
Beyond that, excluded income of a non-filing spouse will be considered on a case-by-case basis. While there is not much case law in this subject in this jurisdiction (the Second Circuit) to provide guidance, there are a couple of recent bankruptcy court cases.
In a 2015 decision the bankruptcy court for the Eastern District of New York (In re Montalto) held that "except in the situation where spouses maintain separate households, all of a non-filing spouse's income is presumed to be dedicated to household expenses, and it is the debtor's burden to prove which of the expenses are purely personal to the non-filing spouse." In 2018, however, a Connecticut bankruptcy court (In re Consiglio) held that the objecting party has the burden of proving that the marital deduction was improperly taken. This is better news.
There are many categories of expenses that might be personal to the non-filing spouse, but, because of the fact-specific nature of the inquiry, it is not a good idea to simply rely on broad categories. For example, credit card payments for solo vacations might qualify, but for groceries, probably not. Contributions by the non-filing spouse to a retirement fund would probably not be excluded, because the debtor cannot exclude such payments from income, at least in a chapter 7. On the other hand, mortgage payments for real estate owned solely by the non-filing spouse would probably be deductible from income, as would support obligations (child support, alimony) from a previous relationship.
We must be ready to back up any use of the marital deduction with proof. All of this is part of the process for positioning your case for the best bankruptcy relief possible for you. If you would like to discuss further, please contact me. I will be happy to assist.