Community property and creditors in California

24 Mar Community property and creditors in California

California is one of seven US states whose marital property system is community property. (The others are Alaska, Arizona, Idaho, Louisiana, Nevada, New Mexico, Puerto Rico, Texas, Washington, and Wisconsin).

Just what that means in the debtor/creditor context is poorly understood, by married Californians and by their creditors.

What property belongs to the community?

First, it means that property acquired during marriage is presumed to be community property. Stay mum about how you hold title with your spouse and the property is presumed to be community property.

The spouses can agree that their marital assets will be held in some other form, either jointly, or even as the separate property of one spouse. But in the absence of an agreement, property is community.

Community property liable for debts of both spouses

Community property is liable for the debts of either spouse incurred during marriage. Note that it is the property that is liable for the debts of the other spouse, not the other spouse personally.

A creditor with a claim against the community can satisfy itself from community property, to the extent there is community property. The community property can include the wages of the spouse who wasn’t the one to create the debt.

A creditor cannot reach the separate property of the non contracting spouse. Nor can that creditor follow the non contracting spouse after the marriage.

Liability after marriage ends

Upon a division of community property in the course of a divorce, the property ceases to be community property.

Thus the debts of the marriage don’t follow the former community property. A debt follows the person who incurred it . A family court can assign a debt originally incurred by one spouse to the other spouse. That creates personal liability for the debt.

Generally nothing a divorce court does can reduce the rights that a creditor got against an individual when the debt arose. That is, a divorce judgment can’t take one spouse off of a mortgage loan, for instance.

If the marriage ends by reason of the death of one spouse, the community property that exists at death is liable for the debts of the spouse who has passed. Anything the survivor acquires in the future is not liable for debts incurred only by the deceased spouse.

It’s complicated, but hey, this is California. Just don’t get your information about community property from debt collectors.

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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.
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