Your Community Property may be Liable for your Spouse’s Separate Debt

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Did you know that your community property may be liable for the debts of your spouse, even if that debt was incurred before marriage?

Imagine a situation where Husband brings student loan debt into his marriage with Wife.  During the marriage, Wife is under the impression that Husband had paid off the student loans because he wasn’t paying on the loans any longer.  However, rather than pay off his student loans, Husband had just stopped paying and the student loan debt went into default.  Let’s also assume that Wife is the only one working during the marriage, and the Husband stays home during the day to play video games and golf.  (You can imagine this scenario using any kind of debt, including small business debt, car loan debt, promissory note debt, credit card debt, and so on.) 

Soon after Husband stops paying on his student loans, collection agencies begin calling.  Wife is shocked to learn that Husband simply stopped paying on his student loans.  Now, she is wondering whether she is responsible to repay her Husband’s student loans from the joint, community property that she owns with Husband.  Since she has been the one primarily funding the parties’ joint accounts through her employment, she doesn’t think it would be fair that she, through the community, should be responsible for Husband’s premarital, separate property obligations.

The question is whether Wife, and the community, may be subject to liability for Husband’s separate debts:  And the short answer is yes.  The rule that the community is responsible for one spouse’s separate debt applies regardless of which spouse has management and control of the property or whether one or both spouses are parties to the debt or to a judgment for the debt. (Family Code § 910(a) & (b); Lezine v. Security Pac. Fin’l Services, Inc. (1996) 14 C4th 56, 64, 58 CR2d 76, 80).  Community estate liability under § 910 is not limited to debts incurred for the benefit of the community, and the community’s liability may even extend to debts incurred by one spouse exclusively for his or her personal benefit (although the “innocent” spouse may have a reimbursement claim).  (See Levine).  Even assets like pension plans are available to a judgment creditor to levy, including the IRS, for a spouse’s separate property debts.  (See In re McIntyre (9th Cir. 2000) 222 F3d 655, 658 (applying Calif. law); see also Ordlock v. Commr. (9th Cir. 2008) 533 F3d 1136, 1138–1139—because the community is liable under Family Code 910 for Husband’s income tax debts incurred during marriage, Wife not entitled to refund of community property payments made even though she claimed “innocent spouse” status).  The community has even been held responsible to pay restitution for Husband’s wrongful acts in a criminal case!

So how do you protect yourself from your spouse’s separate debts?  First, it may be wife to hire an attorney before you get married to draft and execute a premarital agreement.  You can create a document that outlines your spouse’s liability for his separate debt and also states that the community is not liable.  If all the appropriate precautions are taken and the agreement is executed properly, and then recorded, you may limit your liability.  Second, you can hire an attorney to create a post-marital agreement.  Third, you can file for divorce or legal separation. 

Feel free to contact our office today by telephone or email to set up your free consultation with one of our outstanding attorneys.  We will be happy to explain your options to you in a language that is simple and will make sense to you.