MARRIED PERSONS LIABILITY FOR SPOUSE'S DEBTS IN CALIFORNIA
MARRIED PERSONS LIABILITY FOR SPOUSE'S DEBTS IN CALIFORNIA
The general rules
Both spouses are equally liable for debts and liabilities of either spouse incurred during marriage, regardless of which spouse incurred the debt or liability.
After the parties separate with the intent to end their marriage, only the spouse incurring the post-separation debt or liability will be liable for such debt.
The separate property [defined below] of a spouse is not liable for a debt incurred by the other spouse, either before or during [or after] the marriage.
As an exception to the previous rule, the separate property of a spouse can be used to pay for a debt incurred by the other spouse for the "necessaries of life," (if there is no community property to pay for it) unless the parties are living apart by agreement.
Liability of spouses for Pre-Marital Debts of other spouse
-The community estate [defined below] is liable for the premarital debts of either spouse.
-However, a spouse's earnings during marriage [even though community property], are not liable for the premarital debts of the other spouse, including a financial account containing those earnings, as long as the other spouse does not have access to that account, and no significant amount of non-earnings are comingled in that account.
-The separate property of a spouse is not liable for the premarital debts of the other spouse.
Effect of Prenuptial or Postnuptial agreement as to liability for spouses debts
-A prenuptial or postnuptial agreement providing that a spouse's income and particular property remain separate property during marriage will protect that spouse's earnings and such separate property from the debts of the other spouse, whether incurred during or before the marriage.
Effect of Divorce Judgment on liability for debts:
-Although the divorce judgment can assign particular debts to one spouse or the other, the assignment to one spouse is not binding on the creditor if the debt was incurred jointly, and the creditor can seek payment from either spouse.
-On the other hand, if the spouse who is assigned the particular debt incurred the debt in their own name, the assignment in the judgment to them will be binding on the creditor, and the creditor may not seek payment from the other spouse.
Division of Debts in Divorce
-The court is obligated, absent an agreement to the contrary, to equally divide the community debts. However, the court may assign more of the debts to one spouse, equalizing the division by awarding that party more assets to assure an overall equal division of the assets and debts.
-Where there are insufficient assets to equalize a disproportionate division of the debts, the court may still assign more of the debts to one spouse than the other. For instance, if one spouse has very little income and the other spouse can afford it, the court can make the higher-paying spouse pay a higher proportion of the debts. In that case, typically the spouse who is assigned the debt will also receive all of the community property.
-Student loans are usually assigned to the party whose education they funded, unless the community substantially benefited from the education or training of the spouse. [It is presumed the community did not benefit if the loan was incurred within 10 years of the filing of the dissolution proceeding].
-liabilities incurred because of intentional wrongful conduct are usually assigned to the wrongdoer spouse [embezzlement and theft (unless the community benefited from the theft or embezzlement), gambling debts, intentional torts such as assault].
-Debts incurred that do not benefit the community [one or both of the spouses], such as for illicit affairs, gambling debts, and the like, are assigned to the spouse incurring such debt.
-Liabilities for an injury to person or property caused by one spouse will be considered a community liability if the injury was caused while the spouse was performing an activity for the benefit of the community.
-By agreement, the parties can structure the division of debts in any manner, and in any proportion they desire [but as stated above, that might not be binding on the creditor].
Claims of exemption for spouses debts
-Regardless of how a debt is characterized, everybody is entitled to claim property or earnings as exempt from enforcement remedies such as garnishment or levies, based on a showing that the property or earnings are required for the support of that person and their dependents. By statute all but 25% of take home pay is automatically exempt even without a claim, and one can claim a higher proportion exempt upon a sufficient showing that it is needed for such support.
-In most circumstances, pension and retirement accounts are exempt from levy
Community property: meaning
California is a community property state, which means anything of value received or created by either spouse during the marriage is community property, including earnings & bonuses, retirement benefits and pensions, as well as interests in intellectual property and entrepreneurial ventures that were created during the marriage, or increased in value due to the personal efforts of either spouse during the marriage.
Separate property: meaning
Separate property is the property owned by one of the spouses prior to marriage as well as any property acquired during the marriage by one spouse through inheritance or gift; or acquired by one of the parties after the date of separation. And although technically community property, any money received as a result of a claim/lawsuit for personal injuries received by one spouse, will usually be awarded solely to that spouse upon divorce [but such funds may usually be used to satisfy community debts].
If you have further questions regarding liability of spouses for debts, please contact Martin "Jamie" Elmer, family law attorney in Berkeley, California, at (510) 644-2411 or by email, for a free initial consultation.