Will I lose my wedding ring in bankruptcy?

The quick answer is, I’ve never had a client lose their wedding ring. There are some interesting twists and angles to consider.

The first concept to understand is exemptions. The wedding ring is exempt under both the federal and Minnesota exemptions. The federal exemption has a $1,550 value for any jewelry, plus a miscellaneous exemption of up to $13,000, in case the value of the ring that exceeds that. The Minnesota exemption is limited to $2,960, and specifically requires that the ring was exchanged at the time of the wedding ceremony. When questions as to the value arise, I have my clients get an appraisal, in which case it’s important to understand that this would be a liquidation appraisal, as opposed to an insurance-based appraisal. And by the same token, if the ring is insured for substantially more than the exempt amount, that should be discussed with the attorney prior to filing.

The second concept that we get into when a person is engaged at the time of filing bankruptcy, is who really owns the ring? Minnesota courts have held that a ring is a conditional gift, which is fully consummated upon the marriage. In the event that the engagement is called off, ownership is vested in the donor, regardless of the reasons for the breakup. So, to a certain degree, if a party files while engaged, each fiancé has rights, and can also disclaim their rights.

A third issue to keep in mind, is that giving gifts in excess of $600 prior to filing bankruptcy could give rise to a fraudulent conveyance that a trustee could avoid. But that would require the trustee to prove that the recipient gave nothing in return, and I’ve never seen a trustee argue with the fact that saying “yes” is giving something in return. This isn’t to say there isn’t a rule of reason – the diamond industry will have you believe that two month’s salary is the benchmark for an engagement ring. I once declined to file a case for a guy who had just given a $20,000 ring.

A fourth consideration is security interests. Most mall-type jewelry stores which finance purchases retain a security interest in the collateral until paid in full. These agreements are rarely enforced due to the difficulty of enforcement, as they can be invalidated if not specific enough. In a chapter 7, the security interest would typically trump any rights a trustee could claim. I have seen creditors file secured claims in chapter 13 cases, which need to be dealt with accordingly.