Community Property In Divorce Cases
Community Property
Jurisdictions
Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin
Alaska Allows opt in
Intro
A community property state is one in which property obtained by either spouse during the marriage is treated as property equally owned by the marital unit—the “community”—regardless of which spouse “earned” that property. Other states may take an equitable view by taking into account each spouse’s contribution to property acquired during the marriage. This distinction has implications most commonly seen in divorce cases, where property is divided among the divorcing spouses. However, community property law can also seriously impact creditors if proper steps are not taken to obtain a proper …show more content…
personal guaranty.
The effect of the laws in those states using the community property approach can be significant, and require a careful analysis for a company extending credit. Most of these states create statutes protecting the marital “community” by requiring signatures of both the husband and wife on instruments that create obligations through a negotiable instrument, personal guaranty, or real estate transaction. While the creditor may think it is entering into an arm’s-length transaction with another sophisticated business, it may well find itself needing to gather information about the guaranteeing officer’s marital status. If a lending company properly obtains a spouse’s signature in a community property state, many of these states have the additional requirement that the creditor name both spouses as defendants to any lawsuit in order to assert an interest in the community property.
It is important to know that certain federal laws and regulations limit the ways creditors can inquire into the borrower’s marital status and require a spouse’s signature. In some cases, the signature of a spouse may only be required if credit is being extended to an individual living in a community property state. Therefore companies extending credit should carefully examine the law of the guarantor’s state and the state in which its property is located, so that they do not find themselves in the unexpected position of extending credit based upon documents that do not afford them any protection or ability to reach a guarantor’s personal assets.
11601 Wilshire Associates v. Helen Grebow, 98 Daily Journal D.A.R. 5789 (1998),
To avoid potential litigation, a contribution agreement among any group of co-guarantors that includes married individuals should clearly address this issue.
If any married guarantor’s spouse does not sign the guaranty, it is important that the agreement also address the issue of whether the other guarantors will have recourse to the community property, entireties property or other form of marital property of that guarantor and his or her spouse or whether recourse will be limited to the guarantor spouse’s separate property. If the agreement provides for recourse to the marital property, it is advisable that the non-guarantor spouse also join in or consent to the contribution agreement to the extent required under applicable state law in order to give effect to these provisions.
Fannie Mae Guaranty
Guarantor’s obligations under this Guaranty constitute a present and unconditional guaranty of payment and not merely a guaranty of collection. If Guarantor (or any Guarantor, if more than one) is a married person, and the state of residence of Guarantor or Guarantor’s spouse is a community property jurisdiction, Guarantor (or each such married Guarantor, if more than one) agrees that Lender may satisfy Guarantor’s obligations under this Guaranty to the extent of all Guarantor’s separate property and Guarantor’s interest in any community property. …show more content…
Debt
Ca. Civil Practice Family Law Litigation
Chapter 6
Legal Principles
Debts
Except as expressly provided to the contrary, community property is liable for a debt incurred by either spouse during marriage, whether or not the other spouse was a party to the debt. [Fam. Code, § 910] Further, the community is liable regardless of which party has management and control of the community property.
In the case of a contract, a debt is incurred at the time a contract is made. [Fam. Code, § 903, subd. (a)] Thus, where a former spouse is sued for breach of contract following the date of separation, the community is liable for the damages. [In re Marriage of Feldner, 40 Cal. App. 4th 617, 47 Cal. Rptr. 2d 312 (4th Dist. 1995) (noting that a spouse who completes a contract following the date of the parties' separation may be entitled to reimbursement for post-separation efforts)] The determination of the character of a debt, like that of the character of an asset, is a different issue than a spouse's right to reimbursement or credit because of postseparation conduct.
The liability of community property is not limited to debts incurred for the benefit of the community, but extends to debts incurred by one spouse alone exclusively for his or her own personal benefit. [Lezine v. Security Pacific Financial, 14 Cal. 4th 56, 58 Cal. Rptr. 2d 76, 925 P.2d 1002 (1996)] |
FOR EDUCATIONAL USE ONLY
2 Law of Real Estate Financing § 15:22
The Law of Real Estate Financing
Database updated November 2012
Michael T. Madison, Jeffry R. Dwyer, and Steven W. Bender
Chapter 15. Guaranty Agreements
III. Recourse on the Guaranty
References
§ 15:22. Community property states
Lenders in the community property states may have to contend with special rules for collection on guaranties. In most of these states, if the guaranty benefits the community, the lender can reach the community property even though one spouse failed to sign the guaranty. In at least one community property state, however, by statute the joinder of both spouses is required for any transaction of guaranty, indemnity, or suretyship. Even if the guaranty benefits the community, this Arizona law requires both spouses to sign in order for the creditor to pursue any community property. If the creditor fails to obtain both signatures, then the guaranty will bind the sole and separate property of the signing spouse but not the community property or the separate property of the nonsigning spouse. However, if the guarantor is a general partner of a partnership debtor, then the creditor can pursue the community property. Here, the liability of the signing spouse is predicated on the spouse's status as a general partner, for which there is no joinder requirement, rather than as a guarantor.
Practice Pointer: In transactions governed by Arizona law, the lender should require the signature of both spouses in order to bind community property. Lenders requiring joinder, however, must be wary of Regulation B under the federal Equal Credit Opportunity Act, which prohibits the creditor from requiring a spousal guaranty. An exception to this rule, in the case of unsecured credit (such as an unsecured guaranty), is where applicable state law denies one spouse the power to bind community property necessary to meet the creditor's standards of creditworthiness.
Generally, one spouse's contract of suretyship or guaranty is a community obligation where the community is benefited.
Generally, one spouse's contract of suretyship or guaranty is a community obligation where there is a benefit running to the community. However, no community obligation is incurred where the community derives no benefit therefrom. Both spouses must join in order for a contract of guaranty to encumber community property.
Presumption of community obligation.
A suretyship debt or obligation of one of the spouses creates a presumption of a community obligation. Such presumption may be rebutted by a showing that the spouse who incurred the debt or obligation did so without the intention or expectation, at the inception of the transaction, that a material economic benefit would accrue to the community.
Because Arizona is a community property state, guarantees by individuals demand special attention on the issue of spousal joinder.
Arizona law dictates that although either spouse may separately bind the community, the joinder of both spouses is required for “any transaction of guaranty, indemnity, or suretyship.” Although there is a slight potential in appropriate circumstances of an estoppel binding the community assets, a prudent lender will not need to rely on this argument. Failing to obtain both spousal signatures was even fatal where the guarantor was a general partnership that guaranteed a third party debt and the signing spouse was a general partner of the guarantor. However, a general partner who without spousal joinder signed a guaranty of the partnership's own debt was characterized not as a guarantor, but as a general partner, and the outcome was different. Here, the statutory joinder rule did not apply as the signature of the general partner of the partnership debtor was not in essence a
guaranty.
Arizona
May render the debt uncollectible, can only go after the separate property.
Although the economy seems to be improving, contractors are continuing to struggle to find work. For those fortunate enough to find work, it is important that contractors protect their financial interests by having the owners of the contracting party personally guaranty the contract. The contractor's contract is typically with the owner of the project. If the owner of the project is a partnership, corporation, or limited liability company, the contractor should get one or more of the partners, shareholders, or members to personally guaranty the contract. In so doing, the contractor will ensure payment from the partner's assets, shareholder's assets, or member's assets in the event the contracting business entity is unable to pay its bills. While this additional level of payment security is advisable, contractors may consider requiring the spouse of the partner, shareholder, or member to guaranty the contract as well. Idaho is a community property state. In general, this permits creditors of a spouse to pursue the separate assets of the party executing the guaranty. Most community property of the spouse may be attached as well, provided the debt was incurred on behalf of the marital community. In a situation where only one spouse executes the guaranty, collection efforts will be complicated by determining whether the property at issue is: 1) separate property of the contracting spouse; 2) separate property of the non-contracting spouse; or 3) community property. Further complicating matters is determining whether the debt incurred was for the benefit of the community. It is clear that the separate property of the party signing the guaranty may be pursued to satisfy a judgment. Separate property includes all property owned by the spouse prior to marriage, and property acquired by gift or inheritance during the marriage. Property acquired during marriage (except via gift and inheritance) is presumed to be community property. However, the husband and wife may agree contractually that it is separate property. In many cases there is simply very little separate property held by the contracting spouse to satisfy a judgment. In most cases the bulk of the contracting party's property is held as community property. The problem with pursuing community property is the requirement that in order to levy on community property, the debt in question must have been incurred for the benefit of the community. While there is a legal presumption that this is the case, collection efforts will be delayed and typically are more expensive if this fact is contested. In addition, in some cases the wages of the non-contracting spouse may be the best source of community property to satisfy a judgment. However, an Idaho statute prevents the contractor from garnishing the wife's wages in satisfaction of the husband's community debt. When only one spouse executes a guaranty, it is clear that the non-signing spouse's separate property may not be levied upon to satisfy the debt. In some cases there may be little separate or community property of the party to the guaranty available to satisfy the debt. Thus, even when the spouse who did not execute the guaranty has significant separate property, the debt may go unsatisfied. It is not uncommon for wily businesspeople to attempt to transfer community property to a spouse to put the property out of reach of creditors. In many cases these transfers can be challenged, but this adds cost and complexity to collection efforts. In short, to increase the odds of collection contractors should consider obtaining guaranties from both the owner of an interest in the company who is the party to the contract and that owner's spouse. By obligating both spouses, collection efforts are more likely to result in the full and timely satisfaction of the debt. Debt collection efforts are time sensitive in that the debtor's financial condition is likely spiraling downward. Spending time resolving whether property is separate or community, or whether the debt is for the benefit of the community, may be the difference between getting paid or not collecting.
In the event a guarantor resists having their spouse join in the guaranty, a contractor should give serious consideration as to the guarantor's motives. While there may be legitimate reasons for the objection, it may be an indication that the guarantor has transferred assets to their spouse as separate property in order to render the guaranty useless. In the event a contractor elects to proceed with the guaranty of only one spouse, due diligence should be made to determine if sufficient separate property exists to satisfy the debt and/or that the debt is for the benefit of the community and sufficient community property is available to satisfy the debt. Otherwise, the guaranty of one spouse may not have much value.
When a spouse incurs a debt in a community-property state, the debt is characterized as either a separate debt or a community debt. The separate debt is the obligation of only one spouse, while a community debt is the obligation of both. Some statutory law defines the distinction between separate and community debts, while other states rely solely upon case law.
California allows creditors on separate debts to reach community property if the debt is incurred during marriage; as to pre-marriage separate debts, the matter is less than clear. In Idaho, a creditor may reach the community property to satisfy a separate debt. Louisiana provides that separate creditors may reach community property, although the non-debtor spouse may seek reimbursement if a marital dissolution occurs. The resolution of the issue is uncertain in Nevada. Yet another variation exists in New Mexico, where separate creditors may reach only the debtor spouse's one-half interest in community property. In Texas, a separate creditor on a contract debt may reach the community property that is under the sole control of the debtor spouse or under the joint control of both. As to tort claims, the separate creditor may also reach the community property under the sole control of the non-debtor spouse if the tort occurred during the marriage. Finally, in Washington, a statute enables pre-marriage separate creditors, tort or contract, to reach earnings of the debtor spouse. In all other instances, community property is insulated from creditors' reach if the separate debt is in contract, but is reachable by separate creditors if the debt is in tort.
Jurisdictions
Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin
Alaska Allows opt in
Intro
A community property state is one in which property obtained by either spouse during the marriage is treated as property equally owned by the marital unit—the “community”—regardless of which spouse “earned” that property. Other states may take an equitable view by taking into account each spouse’s contribution to property acquired during the marriage. This distinction has implications most commonly seen in divorce cases, where property is divided among the divorcing spouses. However, community property law can also seriously impact creditors if proper steps are not taken to obtain a proper …show more content…
personal guaranty.
The effect of the laws in those states using the community property approach can be significant, and require a careful analysis for a company extending credit. Most of these states create statutes protecting the marital “community” by requiring signatures of both the husband and wife on instruments that create obligations through a negotiable instrument, personal guaranty, or real estate transaction. While the creditor may think it is entering into an arm’s-length transaction with another sophisticated business, it may well find itself needing to gather information about the guaranteeing officer’s marital status. If a lending company properly obtains a spouse’s signature in a community property state, many of these states have the additional requirement that the creditor name both spouses as defendants to any lawsuit in order to assert an interest in the community property.
It is important to know that certain federal laws and regulations limit the ways creditors can inquire into the borrower’s marital status and require a spouse’s signature. In some cases, the signature of a spouse may only be required if credit is being extended to an individual living in a community property state. Therefore companies extending credit should carefully examine the law of the guarantor’s state and the state in which its property is located, so that they do not find themselves in the unexpected position of extending credit based upon documents that do not afford them any protection or ability to reach a guarantor’s personal assets.
11601 Wilshire Associates v. Helen Grebow, 98 Daily Journal D.A.R. 5789 (1998),
To avoid potential litigation, a contribution agreement among any group of co-guarantors that includes married individuals should clearly address this issue.
If any married guarantor’s spouse does not sign the guaranty, it is important that the agreement also address the issue of whether the other guarantors will have recourse to the community property, entireties property or other form of marital property of that guarantor and his or her spouse or whether recourse will be limited to the guarantor spouse’s separate property. If the agreement provides for recourse to the marital property, it is advisable that the non-guarantor spouse also join in or consent to the contribution agreement to the extent required under applicable state law in order to give effect to these provisions.
Fannie Mae Guaranty
Guarantor’s obligations under this Guaranty constitute a present and unconditional guaranty of payment and not merely a guaranty of collection. If Guarantor (or any Guarantor, if more than one) is a married person, and the state of residence of Guarantor or Guarantor’s spouse is a community property jurisdiction, Guarantor (or each such married Guarantor, if more than one) agrees that Lender may satisfy Guarantor’s obligations under this Guaranty to the extent of all Guarantor’s separate property and Guarantor’s interest in any community property. …show more content…
Debt
Ca. Civil Practice Family Law Litigation
Chapter 6
Legal Principles
Debts
Except as expressly provided to the contrary, community property is liable for a debt incurred by either spouse during marriage, whether or not the other spouse was a party to the debt. [Fam. Code, § 910] Further, the community is liable regardless of which party has management and control of the community property.
In the case of a contract, a debt is incurred at the time a contract is made. [Fam. Code, § 903, subd. (a)] Thus, where a former spouse is sued for breach of contract following the date of separation, the community is liable for the damages. [In re Marriage of Feldner, 40 Cal. App. 4th 617, 47 Cal. Rptr. 2d 312 (4th Dist. 1995) (noting that a spouse who completes a contract following the date of the parties' separation may be entitled to reimbursement for post-separation efforts)] The determination of the character of a debt, like that of the character of an asset, is a different issue than a spouse's right to reimbursement or credit because of postseparation conduct.
The liability of community property is not limited to debts incurred for the benefit of the community, but extends to debts incurred by one spouse alone exclusively for his or her own personal benefit. [Lezine v. Security Pacific Financial, 14 Cal. 4th 56, 58 Cal. Rptr. 2d 76, 925 P.2d 1002 (1996)] |
FOR EDUCATIONAL USE ONLY
2 Law of Real Estate Financing § 15:22
The Law of Real Estate Financing
Database updated November 2012
Michael T. Madison, Jeffry R. Dwyer, and Steven W. Bender
Chapter 15. Guaranty Agreements
III. Recourse on the Guaranty
References
§ 15:22. Community property states
Lenders in the community property states may have to contend with special rules for collection on guaranties. In most of these states, if the guaranty benefits the community, the lender can reach the community property even though one spouse failed to sign the guaranty. In at least one community property state, however, by statute the joinder of both spouses is required for any transaction of guaranty, indemnity, or suretyship. Even if the guaranty benefits the community, this Arizona law requires both spouses to sign in order for the creditor to pursue any community property. If the creditor fails to obtain both signatures, then the guaranty will bind the sole and separate property of the signing spouse but not the community property or the separate property of the nonsigning spouse. However, if the guarantor is a general partner of a partnership debtor, then the creditor can pursue the community property. Here, the liability of the signing spouse is predicated on the spouse's status as a general partner, for which there is no joinder requirement, rather than as a guarantor.
Practice Pointer: In transactions governed by Arizona law, the lender should require the signature of both spouses in order to bind community property. Lenders requiring joinder, however, must be wary of Regulation B under the federal Equal Credit Opportunity Act, which prohibits the creditor from requiring a spousal guaranty. An exception to this rule, in the case of unsecured credit (such as an unsecured guaranty), is where applicable state law denies one spouse the power to bind community property necessary to meet the creditor's standards of creditworthiness.
Generally, one spouse's contract of suretyship or guaranty is a community obligation where the community is benefited.
Generally, one spouse's contract of suretyship or guaranty is a community obligation where there is a benefit running to the community. However, no community obligation is incurred where the community derives no benefit therefrom. Both spouses must join in order for a contract of guaranty to encumber community property.
Presumption of community obligation.
A suretyship debt or obligation of one of the spouses creates a presumption of a community obligation. Such presumption may be rebutted by a showing that the spouse who incurred the debt or obligation did so without the intention or expectation, at the inception of the transaction, that a material economic benefit would accrue to the community.
Because Arizona is a community property state, guarantees by individuals demand special attention on the issue of spousal joinder.
Arizona law dictates that although either spouse may separately bind the community, the joinder of both spouses is required for “any transaction of guaranty, indemnity, or suretyship.” Although there is a slight potential in appropriate circumstances of an estoppel binding the community assets, a prudent lender will not need to rely on this argument. Failing to obtain both spousal signatures was even fatal where the guarantor was a general partnership that guaranteed a third party debt and the signing spouse was a general partner of the guarantor. However, a general partner who without spousal joinder signed a guaranty of the partnership's own debt was characterized not as a guarantor, but as a general partner, and the outcome was different. Here, the statutory joinder rule did not apply as the signature of the general partner of the partnership debtor was not in essence a
guaranty.
Arizona
May render the debt uncollectible, can only go after the separate property.
Although the economy seems to be improving, contractors are continuing to struggle to find work. For those fortunate enough to find work, it is important that contractors protect their financial interests by having the owners of the contracting party personally guaranty the contract. The contractor's contract is typically with the owner of the project. If the owner of the project is a partnership, corporation, or limited liability company, the contractor should get one or more of the partners, shareholders, or members to personally guaranty the contract. In so doing, the contractor will ensure payment from the partner's assets, shareholder's assets, or member's assets in the event the contracting business entity is unable to pay its bills. While this additional level of payment security is advisable, contractors may consider requiring the spouse of the partner, shareholder, or member to guaranty the contract as well. Idaho is a community property state. In general, this permits creditors of a spouse to pursue the separate assets of the party executing the guaranty. Most community property of the spouse may be attached as well, provided the debt was incurred on behalf of the marital community. In a situation where only one spouse executes the guaranty, collection efforts will be complicated by determining whether the property at issue is: 1) separate property of the contracting spouse; 2) separate property of the non-contracting spouse; or 3) community property. Further complicating matters is determining whether the debt incurred was for the benefit of the community. It is clear that the separate property of the party signing the guaranty may be pursued to satisfy a judgment. Separate property includes all property owned by the spouse prior to marriage, and property acquired by gift or inheritance during the marriage. Property acquired during marriage (except via gift and inheritance) is presumed to be community property. However, the husband and wife may agree contractually that it is separate property. In many cases there is simply very little separate property held by the contracting spouse to satisfy a judgment. In most cases the bulk of the contracting party's property is held as community property. The problem with pursuing community property is the requirement that in order to levy on community property, the debt in question must have been incurred for the benefit of the community. While there is a legal presumption that this is the case, collection efforts will be delayed and typically are more expensive if this fact is contested. In addition, in some cases the wages of the non-contracting spouse may be the best source of community property to satisfy a judgment. However, an Idaho statute prevents the contractor from garnishing the wife's wages in satisfaction of the husband's community debt. When only one spouse executes a guaranty, it is clear that the non-signing spouse's separate property may not be levied upon to satisfy the debt. In some cases there may be little separate or community property of the party to the guaranty available to satisfy the debt. Thus, even when the spouse who did not execute the guaranty has significant separate property, the debt may go unsatisfied. It is not uncommon for wily businesspeople to attempt to transfer community property to a spouse to put the property out of reach of creditors. In many cases these transfers can be challenged, but this adds cost and complexity to collection efforts. In short, to increase the odds of collection contractors should consider obtaining guaranties from both the owner of an interest in the company who is the party to the contract and that owner's spouse. By obligating both spouses, collection efforts are more likely to result in the full and timely satisfaction of the debt. Debt collection efforts are time sensitive in that the debtor's financial condition is likely spiraling downward. Spending time resolving whether property is separate or community, or whether the debt is for the benefit of the community, may be the difference between getting paid or not collecting.
In the event a guarantor resists having their spouse join in the guaranty, a contractor should give serious consideration as to the guarantor's motives. While there may be legitimate reasons for the objection, it may be an indication that the guarantor has transferred assets to their spouse as separate property in order to render the guaranty useless. In the event a contractor elects to proceed with the guaranty of only one spouse, due diligence should be made to determine if sufficient separate property exists to satisfy the debt and/or that the debt is for the benefit of the community and sufficient community property is available to satisfy the debt. Otherwise, the guaranty of one spouse may not have much value.
When a spouse incurs a debt in a community-property state, the debt is characterized as either a separate debt or a community debt. The separate debt is the obligation of only one spouse, while a community debt is the obligation of both. Some statutory law defines the distinction between separate and community debts, while other states rely solely upon case law.
California allows creditors on separate debts to reach community property if the debt is incurred during marriage; as to pre-marriage separate debts, the matter is less than clear. In Idaho, a creditor may reach the community property to satisfy a separate debt. Louisiana provides that separate creditors may reach community property, although the non-debtor spouse may seek reimbursement if a marital dissolution occurs. The resolution of the issue is uncertain in Nevada. Yet another variation exists in New Mexico, where separate creditors may reach only the debtor spouse's one-half interest in community property. In Texas, a separate creditor on a contract debt may reach the community property that is under the sole control of the debtor spouse or under the joint control of both. As to tort claims, the separate creditor may also reach the community property under the sole control of the non-debtor spouse if the tort occurred during the marriage. Finally, in Washington, a statute enables pre-marriage separate creditors, tort or contract, to reach earnings of the debtor spouse. In all other instances, community property is insulated from creditors' reach if the separate debt is in contract, but is reachable by separate creditors if the debt is in tort.